The “American dream” is founded on the idea that the United States is a land of opportunity where anyone who works hard can find a better life, regardless of their circumstances.
A key part of this dream is that children will go on to earn more than their parents. This was a near guarantee during the post-World War II boom, but the possibility of achieving this dream has been moving out of reach at an alarming rate.
A Science paper chronicles the striking decline of upward income mobility in the United States over a half-century. It shows that from 1940 to 1984, the percentage of children earning more than their parents fell from 92 per cent to 50 per cent. Furthermore, restoring former levels of upward mobility would require GDP growth to be shared more broadly.
The sharpness of this decline in mobility surprised co-author David Grusky a senior fellow in CIFAR’s Successful Societies program, and a sociologist at Stanford University who has studied inequality for more than 30 years.
“When our initial estimates came in, I started asking my friends to take a shot at guessing what we might find, and no one – absolutely no one – predicted a decline as spectacular as in fact it was,” says Grusky.
The study focuses on two main factors that drive this type of upward mobility: GDP growth and the distribution of income. As part of the study, the researchers examined how upward mobility might be restored, and they found that the biggest improvement would come from a return to more broadly shared income. It was only when the 2010 GDP was shared as widely as it was in 1940 that absolute income mobility rose to 80 per cent.
“When our initial estimates came in, I started asking my friends to take a shot at guessing what we might find, and no one – absolutely no one – predicted a decline as spectacular as in fact it was,”
Although maintaining high rates of upward mobility is an important commitment in the United States, Grusky notes that “we haven’t been able in the past to monitor whether or not we’re realizing that commitment.”
Absolute mobility has gone unmeasured largely because doing so requires panel data linking the income of parents to that of their children. Although panel data of this sort are collected in a few surveys in the United States, the surveys are too small to track trends successfully. The study in Science became possible by analyzing de-identified tax records pertaining to more than 10 million child-parent pairs and then combining those data with census and survey data.
In a series of influential papers, Stanford economist Raj Chetty, a co-author of this study, has used tax data to provide new information on economic mobility in the United States. To this end, Chetty created the Equality Opportunity Project to use “big data to identify new pathways to upward mobility.” Grusky is one of his collaborators on a team examining ways to improve the country’s capacity to measure the health of the American dream over time.
These trends need to be monitored, Grusky says, to help understand whether new policies to increase mobility are needed.
“When you run a high-inequality society, we’ve found that it comes with a real cost, a cost in the form of far fewer people realizing the American Dream,” Grusky says. “At the end of the day, it may well be that most people are willing to bear that cost, but surely they deserve to have the information needed to make that decision.”
“The fading American dream: Trends in absolute income mobility since 1940” was published in Science April 24.