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Mobility Impaired

by Scott Winship
The American Dream must move from the bottom up

What’s the most important issue in American politics? In a narrow sense, the sputtering economy and ballooning deficits are likely to dominate the 2012 election season. But while every election has its own particular concerns, fundamentally it is to the American Dream that our politicians must tend — that libertarian and egalitarian bundle of values and hopes that transcend our partisan, economic, and social divisions.

When the Pew Economic Mobility Project (EMP) surveyed people about what the American Dream meant, it got widely ranging answers. Indiana’s governor, Mitch Daniels, recently hit on a common sentiment when he observed that “upward mobility from the bottom is the crux of the American promise.” But even those who would focus more broadly on the rising tide that lifts all boats should be concerned about the state of economic mobility in America. The economic inefficiency that results when much of the population is stuck at the bottom (and the top) means the tide may lift everyone less than it could.

One way to assess the extent of mobility is to ask whether people tend to be better off than their parents were at the same age — whether they experience upward absolute mobility. Research for EMP conducted by my colleagues at the Brookings Institution Julia Isaacs, Isabel Sawhill, and Ron Haskins shows that two-thirds of 40-year-old Americans are in households with larger incomes than their parents had at the same age, even taking into account the fact that the cost of living has risen. That’s pretty impressive, but it actually understates the improvement between generations. Household size declined over these decades, so incomes now are divided up among fewer family members, leaving them better off than bigger households of the past. Another EMP study shows that when incomes are adjusted for household size, four out of five adults today are better off than their parents were at the same age.

The finding of pervasive upward absolute mobility flies in the face of liberal accounts of a stagnant middle class. These accounts generally conflate disappointing growth in men’s earnings with growth in household income, which has been impressive. Growth in women’s earnings has also been impressive, but economic pessimists have twisted these bright spots to fit a gloomy narrative. They claim that household incomes have kept pace only because wives have been forced into work to make up for the shrinking bacon their husbands bring home. That ignores the long-term trend of women’s obtaining more education in industrialized nations around the world, presumably with an intention to put it to use in the work force someday. It also ignores the evidence that married men rationally chose to reduce their work hours as their wives increased theirs (even as single men continued working the same hours), and the fact that employment grew more among the wives of better-educated men than among the wives of less-educated men.

Nevertheless, incomes have not grown as fast in recent decades as they did in the middle of the 20th century. While the vast majority of Americans end up better off than their parents, the difference is probably not as great as the improvement of their parents over their grandparents was.

There’s another way to look at intergenerational mobility — asking whether those whose parents were at the bottom or at the top relative to Americans as a whole end up in the same place in adulthood. This is the question of relative mobility. You may have a higher income than your parents did, but if that is generally true of your generation, then your rank may be no different than your parents’ rank was. It may even be lower. And having less than others can figure more prominently in our assessment of our well-being than does merely having more than our parents did — as may be the case with scarce commodities, such as homes in the best school districts or slots at the best universities.

The EMP/Brookings analyses break the parent and child generations into fifths on the basis of each generation’s income distribution. If being raised in the bottom fifth were not a disadvantage and socioeconomic outcomes were random, we would expect to see 20 percent of Americans who started in the bottom fifth remain there as adults, while 20 percent would end up in each of the other fifths.

Instead, about 40 percent are unable to escape the bottom fifth. This trend holds true for other measures of mobility: About 40 percent of men will end up in low-skill work if their fathers had similar jobs, and about 40 percent will end up in the bottom fifth of family wealth (as opposed to income) if that’s where their parents were.

Is 40 percent a good or a bad number? On first reflection, it may seem impressive that 60 percent of those starting out in the bottom make it out. But most of them do not make it far out. Only a third make it to the top three fifths. Whether this is a level of upward mobility with which we should be satisfied is a question usefully approached by way of the following thought experiment: If you’re reading this essay, chances are pretty good that your household income puts you in one of the top two fifths, or that you can expect to be there at age 40. (We’re talking about roughly $90,000 for an entire household.) How would you feel about your child’s having only a 17 percent chance of achieving the equivalent status as an adult? That’s how many kids with parents in the bottom fifth around 1970 made it to the top two-fifths by the early 2000s. In fact, if the last generation is any guide, your child growing up in the top two-fifths today will have a 60 percent chance of being in the top two fifths as an adult.

That’s the impact of picking the right parents — increasing the chances of ending up middle- to upper-middle class by a factor of three or four.

Comparisons with other nations can also be helpful, though interpreting the evidence is surprisingly tricky. Research shows that most Western European and English-speaking nations have higher rates of mobility than does the United States. Cross-national studies of mobility typically consider the “intergenerational elasticity” of earnings — the amount of additional earnings that an extra 10 percent in parental earnings buys children in adulthood. By this third way of measuring mobility, we are definitely worse off than Canada, Australia, and the Nordic countries, and probably worse off than Italy, France, Germany, and the United Kingdom. An easy way to characterize how bad we look is to compare ourselves with our neighbors to the north. In Canada, a boy whose father earns twice as much as his friend’s dad can expect to have about 25 percent more in earnings as an adult than his friend. In the United States, he’ll have on average 60 percent more.

If the size of the boost that children get from greater parental income differs between countries, that could be either because parental income buys more access to the best opportunities in one country than it does in the other, or because the best opportunities are compensated more highly in one country than the other. It may be no more unusual for Americans from modest origins to become top executives than it is for similarly situated Danes, but American CEOs make a lot more money than Danish CEOs do. In this scenario, it’s not that opportunities to obtain the best slots in the United States are less fairly distributed than in other countries, it’s simply much more lucrative to occupy those slots here.

So, which is it? Research suggests that by the time they were in their 40s, American children born in the 1950s should have experienced the same earnings mobility as their Swedish counterparts if the economic payoff for additional schooling were not so much higher in the United States — and, more important, if that payoff had not grown so much between generations. And educational mobility in the two countries — the connection between parent and child schooling — was actually very similar for this generation. Opportunity for top slots may therefore have been as widespread in the United States as in Sweden.

However, evidence indicates that American children born since the 1950s have had lower educational mobility than children in Sweden and other Western nations. And recent research indicates that the link between parental income and educational advantages on one hand and child academic outcomes on the other is stronger in the United States than in other Western countries. So it may be that higher pay for better slots and narrower opportunities to occupy the best slots both now contribute to lower earnings mobility in the United States. Still, our country does not look particularly bad in terms of occupational mobility — similarity the degree of between the desirability of parents’ and children’s jobs. And in the broadest sense, that may be the best measure of opportunity for different slots.

So what is the bottom line? The cross-national evidence on relative mobility is tricky to interpret. The cross-national evidence on absolute mobility is nonexistent. The evidence on educational and occupational mobility across countries is enormously complicated. Discerning trends in mobility within the United States is far from easy.

What is clear is that in at least one regard American mobility is exceptional: not in terms of downward mobility from the middle or from the top, and not in terms of upward mobility from the middle — rather, where we stand out is in our limited upward mobility from the bottom. And in particular, it’s American men who fare worse than their counterparts in other countries. One study compared the United States with Denmark, Norway, Sweden, Finland, and the United Kingdom. It found that in each country, whether looking at sons or at daughters, 23 to 30 percent of children whose fathers were in the bottom fifth of earnings remained in the bottom fifth themselves as adults — except in the United States, where 42 percent of sons remained there

Cross-national surveys show that Americans are more likely to believe they live in a meritocracy than are residents of other Western nations. When told in an EMP poll that Sweden and Canada have more mobility than the United States, just four in ten said it was a major problem. One explanation for this finding is that high living standards and levels of absolute mobility make relative mobility of secondary concern for Americans. Indeed, EMP polling indicates that an overwhelming 82 percent prioritize financial stability — keeping what they have — over “moving up the income ladder.” In that case, tending to the American Dream demands that policymakers work to promote absolute upward mobility.

But Americans across the ideological spectrum are unhappy with the lack of relative upward mobility out of the bottom. When given the actual percentage of people stuck in the bottom, 53 percent of Americans, and half of conservatives, deemed it a “major problem.” Living up to our values therefore requires policymakers also to focus on increasing upward relative mobility from the bottom.

The most direct way to increase upward absolute mobility is with policies that promote strong economic growth, which in turn requires a focus on economic efficiency. But here relative mobility comes back in — because low relative mobility is inefficient. The mass of people stuck at the bottom is likely to represent an incredibly costly misallocation of human resources. Of course, one-fifth of the population has to be in the bottom fifth, but that quintile does not have to be filled so disproportionately with the children of disadvantaged parents. Many people in the bottom fifth are likely to have made the same bad choices as their parents before them. Different people will hold them more or less accountable for their shortcomings, and that is a major fault line of American politics.

But many people in the bottom fifth have presumably “worked hard and played by the rules.” Reducing economic and other barriers in ways that do not encourage gaming of the system should, then, help some subset of Americans rise out of the bottom, increase their productivity, and thereby promote economic growth that will help everyone else too.

Increasing upward relative mobility from the bottom is also likely to foster growth-enhancing competition. The diminished threat of downward mobility among those born to advantage threatens to sow the seeds of complacency. Among children with parents in the top fifth, 40 percent will remain there themselves, and nearly two-thirds of them will remain in the top two fifths. Again, the point is not that none or few of them deserve to be there. But practices such as legacy admissions to Ivy League schools clearly allow some advantaged children to coast in ways that sap economic growth.

Where to look to encourage more upward relative mobility? Begin with the fact that just 16 percent of those who start at the bottom but graduate from college remain stuck at the bottom, compared with 45 percent of those who fail to get a college degree. There is a legitimate debate about whether pushing academically marginal students into college will give them the same benefits that current college graduates receive, but there are surely financially constrained students who would enroll — or who would stay enrolled — if they could afford to.

EMP research has also shown that children with divorced parents are less likely to escape the bottom than other children. Just as it is not incontestably established that sending more disadvantaged kids to college would increase upward relative mobility, it is also debatable whether reducing divorce would do so. But reducing the number of unplanned pregnancies would unquestionably reduce the number of children experiencing divorce and other disadvantages. Since it is more common among parents in the bottom than elsewhere, reducing unplanned pregnancy would lower the number of children starting out at the bottom and thereby reduce the number of children stuck there down the road. And it would improve the mobility prospects of many of the adults avoiding pregnancy.

Finally, remaining in the bottom is much more common among black families than white families. While much remains to be learned about why this is so, another EMP report starkly shows that black and white children grow up in entirely different economic worlds. Simply put, two-thirds of black children experience a level of neighborhood poverty growing up that just 6 percent of white children will ever see. That is a national tragedy. It’s certainly hard to see how the kids are to blame.

Broad-based economic growth, international competitiveness, and the ideals composing the American Dream all require that policymakers heed Governor Daniels’s call. Increasing upward absolute mobility — for all, but with a particular focus on those who start out at the bottom — should be the primary goal of policymakers. The first political party that commits itself to putting upward mobility first and that credibly takes on the challenge will be ascendant.

– Mr. Winship is a fellow at the Brookings Institution and was formerly the research manager of the Pew Economic Mobility Project. The Hertog/Simon Fund for Policy Analysis provided support for this article and the one following. NR is grateful for its generosity.

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