Pursuing the American Dream: Economic Mobility Across Generations THE PEW CHARITABLE TRUSTS ECONOMIC MOBILITY PROJECT JULY 2012 The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Pew applies a rigorous, analytical approach to improve public policy, inform the public and stimulate civic life. By forging broad, nonpartisan agreement on the facts and drivers of mobility, the Economic Mobility Project fosters policy debate and action on how best to improve economic opportunity and ensure that the American Dream is kept alive for future generations. TEAM MEMBERS Susan K. Urahn, Managing Director, Pew Center on the States Erin Currier, Project Manager, Economic Mobility Project Diana Elliott, Research Manager, Economic Mobility Project Lauren Wechsler, Senior Associate, Economic Mobility Project Denise Wilson, Senior Associate, Economic Mobility Project Daniel Colbert, Administrative Assistant, Economic Mobility Project THE PEW CENTER ON THE STATES The analysis and recommendations included in this report are solely those of The Pew Charitable Trusts and do not necessarily reflect the views of outside reviewers. ACKNOWLEDGEMENTS Analysis for the report was conducted by Leonard Lopoo, associate professor of Public Administration and International Affairs of Syracuse University, and Thomas DeLeire, director of the La Follette School of Public Affairs of the University of Wisconsin-Madison. The Economic Mobility Project thanks all team members, Laura Fahey, Kimberly Furdell, Harry Holzer, Samantha Lasky, Susan Mayer, and Liz Voyles for providing valuable feedback on the report. Design expertise was provided by Willie/Fetchko Graphic Design, Carla Uriona, and Evan Potler. The report benefited from the insights and expertise of two external reviewers, Angela Fertig, an assistant professor in the Department of Public Administration and Policy at the University of Georgia; and Deirdre Bloome, a doctoral candidate in Sociology and Social Policy at Harvard University. Although they have reviewed the report, neither they nor their organizations necessarily endorse its findings or conclusions. This report is intended for educational and informational purposes. For additional information on The Pew Charitable Trusts and the Economic Mobility Project, please visit www.economicmobility.org or email us at [email protected]. ©July 2012 The Pew Charitable Trusts. All Rights Reserved. 901 E Street NW, 10th Floor 2005 Market Street, Suite 1700 Washington, DC 20004 Philadelphia, PA 19103 Table of Contents Introduction and Key Findings .................................... 1 Chart Book ................................................... 4 Family Income .............................................. 4 Family Wealth ............................................. 13 Mobility by Race ........................................... 18 Mobility by Education ....................................... 23 Conclusion ................................................ 27 Appendix .................................................... 28 Endnotes .................................................... 33 iii THE PEW CHARITABLE TRUSTS Introduction and Key Findings The ideal that all Americans have Pursuing the American Dream looks equality of opportunity regardless of their closely at the mobility experiences of economic status at birth is the crux of the Americans on different rungs of the American Dream and a defining element economic ladder, divided into five equal of our national psyche. This study parts or quintiles. The study measures investigates the health and status of that mobility in two ways. Absolute mobility dream by analyzing economic mobility— measures whether a person has more or Americans’ movement up and down less income, earnings, or wealth than the economic ladder—during the past his or her parents did at the same age.3 generation. Pursuing the American Dream: Relative mobility measures a person’s Economic Mobility Across Generations is an rank on the income, earnings, or wealth update to the Economic Mobility Project’s ladder compared to his or her parents’ (EMP) foundational work, Getting Ahead rank at the same age. or Losing Ground: Economic Mobility in America, originally released in 2008.1 Descriptive information on how the distribution of income and wealth This chart book moves the project’s work has changed between the parents’ and forward in two ways. First, the income children’s generations also is included. mobility estimates have been adjusted While information about aggregate for family size to account for shifts in changes across generations does not family demographics across generations.2 capture the unique experience of any Second, the analyses now include one parent-child pair, it does provide mobility estimates of personal earnings important context about how the and family wealth in addition to family economic environment in which people income. Using Panel Study of Income strive to climb the ladder has changed Dynamics (PSID) data through 2009, over the past generation. the study provides the most current estimates of mobility and the first Considering both absolute and relative estimates that overlap with the recession. mobility together and in the context 1 PURSUING THE AMERICAN DREAM: ECONOMIC MOBILITY ACROSS GENERATIONS INTRODUCTION AND KEY FINDINGS of changing distributions is essential 70 percent remain below the middle. to understanding the full picture of Forty percent raised in the top opportunity in America. quintile remain at the top as adults, and 63 percent remain above the Family Income middle. The vast majority of Americans have ■ Only 4 percent of those raised in the higher family incomes than their bottom quintile make it all the way parents did.4 to the top as adults, confirming that the “rags-to-riches” story is more ■ Eighty-four percent of Americans often found in Hollywood than in have higher family incomes than reality. Similarly, just 8 percent of their parents had at the same age, those raised in the top quintile fall and across all levels of the income all the way to the bottom. distribution, this generation is doing better than the one that came before it. Family Wealth Half of Americans surpass their ■ Ninety-three percent of Americans parents in terms of family wealth.5 whose parents were in the bottom fifth of the income ladder and 88 ■ Fifty percent of Americans have percent of those whose parents were greater wealth than their parents did in the middle quintile exceed their at the same age. parents’ family income as adults. ■ Seventy-two percent of Americans whose parents were in the bottom Americans raised at the bottom and fifth of the wealth ladder and 55 top of the family income ladder are percent of those whose parents were likely to remain there as adults, a in the middle quintile exceed their phenomenon known as “stickiness at parents’ family wealth as adults. the ends.” ■ While a majority of Americans There is stickiness at the ends of the exceed their parents’ family incomes, wealth ladder. the extent of that increase is not ■ Sixty-six percent of those raised always enough to move them to a in the bottom of the wealth ladder different rung of the family income remain on the bottom two rungs ladder. themselves, and 66 percent of those ■ Forty-three percent of Americans raised in the top of the wealth ladder raised in the bottom quintile remain remain on the top two rungs. stuck in the bottom as adults, and 2 THE PEW CHARITABLE TRUSTS INTRODUCTION AND KEY FINDINGS Mobility by Race Mobility by Education Blacks have a harder time exceeding A four-year college degree promotes the family income and wealth of their upward mobility from the bottom and parents than do whites. prevents downward mobility from the ■ Sixty-six percent of blacks raised middle and top. in the second quintile surpass their ■ Almost one-half (47 percent) of parents’ family income compared those raised in the bottom quintile with 89 percent of whites. of the family income ladder who do ■ Only 23 percent of blacks raised in not earn a college degree are stuck the middle surpass their parents’ there as adults, compared with family wealth compared with over 10 percent who do earn a college half (56 percent) of whites. degree. Similarly, 45 percent without a college degree are stuck in the Blacks are more likely to be stuck in bottom of the family wealth ladder the bottom and fall from the middle compared with 20 percent with than are whites. a degree. ■ Over half of blacks (53 percent) ■ Having a college degree makes a raised in the bottom of the family person more than three times more income ladder remain stuck in the likely to rise from the bottom of the bottom as adults, compared with family income ladder all the way to only a third (33 percent) of whites. the top, and makes a person more Half of blacks (56 percent) raised than four times more likely to rise in the middle of the family income from the bottom of the family wealth ladder fall to the bottom two rungs ladder to the top. as adults compared with just under a ■ Thirty-nine percent raised in the third of whites (32 percent). middle of the family income ladder ■ Half of blacks (50 percent) raised who do not get a college degree fall in the bottom of the family wealth from the middle, compared with ladder remain stuck in the bottom as less than a quarter (22 percent) of adults, compared with only a third those with a degree. Similarly, 39 (33 percent) of whites. More than percent raised in the middle of the two-thirds of blacks (68 percent) family wealth ladder who do not raised in the middle fall to the earn a degree fall down the wealth bottom two rungs of the ladder as ladder, compared with 19 percent adults compared with just under a with a degree. third of whites (30 percent). 3 PURSUING THE AMERICAN DREAM: ECONOMIC MOBILITY ACROSS GENERATIONS Chart Book Family Income Family income is one of the most common ways economic mobility is measured. Family income includes all taxable income (such as earnings, interest, and dividends) and cash transfers (such as Social Security and welfare) of all family members.6 These estimates are adjusted for inflation and for family size.