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Economic Mobility: Is the American Dream Alive and Well?

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Economic Mobility: Is the American Dream Alive and Well? EC O N OMI C MOBILITY : Is the American Dream Alive and Well? ABOUT TH E ECONOMIC MOBILITY PROJ E CT ith the convergence of a presidential election cycle, income inequalities last seen nearly a century ago, Wand emerging new data on the state of mobility in America, the present moment provides a unique opportunity to refocus attention and debate on the question of economic mobility and the American Dream. The Economic Mobility Project is a unique attention must be paid to understanding the status nonpartisan collaborative effort of The Pew and health of the American Dream. Charitable Trusts and respected thinkers from four In the months to come, the project will develop new leading policy institutes — The American Enterprise findings, tackle difficult questions such as the role of Institute, The Brookings Institution, The Heritage education, race, gender, and immigration in mobility, Foundation and The Urban Institute. While as and analyze the effects of wealth accumulation and individuals they may not necessarily agree on the the extent to which short-run fluctuations in income solutions or policy prescriptions for action, each may be affecting mobility. Our purpose is to provoke believes that economic mobility plays a central role a more rigorous discussion about the role and strength in defining the American experience and that more of economic mobility in American society. ACKNOWL E DG E M E NTS This report is a product of the Economic Mobility Project. staff members Scott Scrivner, Ianna Kachoris, Mona The primary authors of the report were Isabel Sawhill, Miller, Jeremy Ratner and Jessica Arnett. Ph.D., Senior Fellow at The Brookings Institution, and All Economic Mobility Project materials are reviewed by John E. Morton, Director of the Economic Mobility members of the Principals’ Group, and guided with input Project at The Pew Charitable Trusts. of the project’s Advisory Board (see back cover). The views Extensive research support was provided by a team of expressed in this report represent those of the authors and Brookings Institution scholars led by Julia Isaacs. Other not necessarily of all individuals acknowledged above. contributors at Brookings included Ron Haskins, Jeff The report was designed by Michael Molanphy of Tebbs and Emily Roessel. Additional research and Varadero Communications, Inc. editing was provided by The Pew Charitable Trusts ECONOMIC MOBILITY : Is the American Dream Alive and Well? or more than two centuries, economic opportunity and the prospect of upward Fmobility have formed the bedrock upon which the American story has been anchored — inspiring people in distant lands to seek our shores and sustaining the unwavering optimism of Americans at home. From the hopes of the earliest settlers to the aspirations of today’s diverse population, the American Dream unites us in a common quest for individual and national success. But new data suggest that this once solid ground may well be shifting. This raises provocative questions about the continuing ability of all Americans to move up the economic ladder and calls into question whether the American economic meritocracy is still alive and well. Recent studies suggest that there primarily through the promise of is less economic mobility in the Economic financial reward — would function “Among aristocratic United States than has long been far less effectively. 1 nations... families presumed. The last thirty years mobility describes Why should Americans care about has seen a considerable drop-off in the ability of remain for centuries economic mobility? How should median household income growth in the same condition. people to move citizens and policy makers alike compared to earlier generations. up or down understand economic mobility? This ... Among democratic And, by some measurements, we report addresses these questions in are actually a less mobile society the economic nations, new families the same way Americans think about than many other nations, includ- are constantly ladder within a their lives and imagine the future ing Canada, France, Germany and lifetime or from for their children: it looks at how a springing up, others most Scandinavian countries. This family’s standard of living improves are constantly falling challenges the notion of America as one generation to from one generation to the next. the land of opportunity. the next. away, and all that Further, it asks whether a rising tide remain change their Despite these potentially troubling of economic growth lifts all ships, findings, the current national eco- whether individual effort and talent condition.” nomic debate remains focused too narrowly on the allow a particular family’s boat to move ahead of others in – Alexis de Tocqueville, issue of inequality, leaving aside the more important the fleet, or whether there is some combination of both. Individualism in core question of whether the foundation of opportu- Democratic Countries This report also discusses the implications of new nity, economic mobility, remains intact. As Federal analysis showing that the strength of America’s rising Reserve chairman Ben Bernanke recently noted: economic tide has not benefited significant segments of Although we Americans strive to provide equality of our citizenry. Gone are the days when a stable, single economic opportunity, we do not guarantee equality income was enough to launch the next generation of economic outcomes, nor should we. Indeed, without toward growing prosperity. In modern America, upward the possibility of unequal outcomes tied to differences in mobility is increasingly a family enterprise. And during effort and skill, the economic incentive for productive a time of rapidly shifting household structure, this has behavior would be eliminated, and our market-based significant repercussions for the economic mobility economy — which encourages productive activity prospects of millions of Americans. Economic Mobility Project 1 WHAT IS ECONOMIC MOBILITY ? There are many ways to define economic mobility. For which each generation is meant to do better than the simplicity’s sake, and because it best captures what one that came before. people care most about, this report measures economic Finally, economic mobility can be measured in absolute mobility by trends in personal or family incomes. or relative terms. The distinction between the two is very Economic mobility also has a time dimension. One important and any analysis that focuses on one measure can talk about mobility over a lifetime, between to the exclusion of the other misses a significant piece of generations, or over a short period such as a year or the larger mobility story. Absolute mobility refers to a two. Unlike analyses that investigate shorter-term dynamic in which a rising tide is lifting all boats, but it fluctuations or volatility in incomes, this report does not capture the likelihood that boats are changing focuses mainly on intergenerational mobility — places in the harbor. Relative mobility, by contrast, the extent to which children move up or down the suggests that boats are changing places, but says nothing income spectrum relative to their parents’ generation. about the strength of the tide. In other words, the health This intergenerational analysis is perhaps most in and promise of the American Dream depends on some keeping with the spirit of the American Dream, in combination of both relative and absolute mobility. A NATIONAL BE LI E F IN MOBILITY Historically, Americans have believed that hard work “A bedrock American principle is the idea that all individuals should and talent bring a just reward, and that our society have the opportunity to succeed on the basis of their own effort, is, and should be, constructed to provide equality of opportunity, not to guarantee equality of outcomes. skill, and ingenuity.” The belief in America as a land of opportunity may also – Federal Reserve Chairman Ben Bernanke 2 explain why rising inequality in the United States has yielded so little in terms of responsiveness from policy makers: if the American Dream is alive and well, then Figure 1. Percentage of Citizens Agreeing with Belief that... there is little need for government intervention to smooth Range across the rough edges of capitalism. Diligence and skill, the 69% 25 countries argument goes, will yield a fair distribution of rewards. “People get rewarded 5%–69% for intelligence and skill” 39% The underlying belief in the fluidity of class and eco- nomic status has differentiated Americans from citizens 61% “People get rewarded 5%–64% in the majority of other developed nations. As the data for their efforts” 36% in Figure 1 suggest, compared to their global counter- parts, Americans have tended to be far more optimistic “Coming from a wealthy 19% family is ‘essential’ or 10%–61% about their ability to control their own economic desti- ‘very important’ to 28% nies through hard work, less likely to believe that coming getting ahead” from a wealthy family is important to getting ahead, less 62% “Income differences in 62%–98% likely to think that differences in income within their [country] are too large” 85% country are too large, and less likely to favor the govern- ment’s taking responsibility to reduce those differences. “It is the responsibility of 33% Most observers attribute the optimism captured in government to reduce 33%–89% differences in income” 69% this data to the conviction that what Americans lack in equality of outcomes, they make up for in econom- United States Other Countries (median response) ic mobility. But what happens if the public begins to question its prospects for upward mobility? Source: Brookings Institution tabulations of data from International Social Survey Program, 1999. 2 Economic Mobility Project Economic Mobility Project U.S. INCOM E IN E QUALITY IS GROWING The Stakes are High and the National Mood is Somber Income inequality has been widening for nearly three decades in the United States. Amidst a flurry of new data Figure 2. Growth in After-Tax Income For the Top 1% and media reports, President George W.
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