Economic mobility is central to the American Dream. Lately, however, there has been a lot of debate about whether this integral part of the dream is dead. Do successive generations do better than their parents? Has the United States become a rigid “class society,” or is Horatio Alger’s vision of economic advancement through hard work still alive and well?
I conclude that economic mobility is still a key part of the American story. But populists on the left and the right see stagnation and decline. They are off base. Here’s why.
How To Measure Relative Mobility
I have analyzed data from the Panel Study of Income Dynamics (PSID), an ongoing project at the University of Michigan that has followed families from 1968 to the present. The PSID records information about a household and then follows the children from that household when they grow up and start families of their own. The study has collected a wealth of information about families across generations, which makes it possible to compare members of different generations at the same point in their life cycles.
The measure of family income used here includes labor market earnings, interest, dividends, and government cash transfers (for example, Social Security benefits) to family members. I ranked families in the data set on this basis, with the family receiving the most income at the top and the family receiving the least income at the bottom. I then assigned each family to one of five equal size quintile groups.
Now imagine that there are two generations: “parents” and “children.” Calculate a quintile rank for each family in the “parents” generation when the parents are adults and for each family in the “children” generation when the children are adults. Because we are following families across generations, we know the income rank of the family in which a child was raised when that child was young—that is, the “parents” income rank—and we know the income rank of the family in which the child is an adult, heading the household.
Using the PSID data, I grouped together people who were in their 40s in recent years (2013-2017). To compute a measure of their permanent income, I took the average of their annual income across the years when they were in their 40s. I adjusted income for household size and inflation, and computed an income quintile rank for these current 40-somethings.
I wanted to know whether their rank was the same as the rank of the family in which they grew up. I then followed the same procedure for their parents. Specifically, I identified the household in which they grew up and computed an income quintile rank for their parents when the parents were in their 40s.
Workers Move Up Over Generations
The results are summarized in the Chart 1. Each of the five vertical bars captures the income quintile in which today’s adults were raised—that is, their parents’ quintile. The color-coded segments within each vertical bar show where today’s adults started and where they ended up.
If you are born at the top, will you stay at the top as an adult? If you are born at the bottom, can you make it to the top when you become an adult? In other words: How “sticky” is income rank within the same family across generations? According to my data, about 36 percent of children raised in the bottom income quintile remain there as adults, and about 39 percent of children raised in the top quintile are themselves in the top quintile when they are in their 40s.
What to make of these findings? On the one hand, arguing that one-third of children raised in the bottom remain there when they reach their prime earning years makes America seem like a rigid class society. On the other hand, arguing that two-thirds of children raised in the bottom escape that position as adults makes America seem quite upwardly mobile.
The same issue presents itself with stickiness at the top. Of the children born into the top quintile, 39 percent stay there. That sounds sticky. But what if, instead, I characterized the data as saying that well over half of the children raised at the top do not remain at the top as adults?
I have a hard time using these relative, or rank-based, mobility statistics to arrive at firm conclusions about the state of economic mobility. Another challenge with relative mobility statistics is that it is very difficult to know the “right amount” of relative mobility, or the amount of relative mobility that corresponds to a just society or to a society that meets the demands of the American Dream.
I am, of course, eager for more children raised in the bottom to rise to the top. But because relative mobility is rank-based, for every person who moves up the ladder, someone else has to move down. In other words, if you are cheering for more upward mobility, you are necessarily also cheering for downward mobility. I find it something of a struggle to cheer enthusiastically for downward mobility.
Moving Up Is an Absolute Good
Relative mobility is not the only kind of mobility, nor is it necessarily the most important. We can also look at rates of absolute mobility, which is a measure of how living standards themselves and not relative income rank change over time.
It’s easy to decide how much absolute mobility we want in America: more! Positive absolute mobility corresponds directly with improving standards of living. And it’s easy to support increasing absolute mobility on moral grounds. Everyone can do better under this concept of mobility. Looking at mobility through this lens, no one has to do worse for someone else to do better.
Using the same data and definitions as before, I computed absolute mobility statistics. As Chart 2 shows, I found that around 73 percent of Americans in their 40s have higher incomes than did their parents. Among children raised in the bottom quintile, 86 percent have gone on to enjoy higher incomes than their parents. In other words, 86 percent of today’s 40-somethings who were raised in the bottom quintile have higher incomes than their parents did when the parents were in their 40s. This is particularly important since upward mobility from the bottom of the income distribution is what we should care about most.
For adults who were raised in the second quintile, about 76 percent enjoy a higher income than their parents. This is important because this quintile represents many in the working class, a group that has received considerable attention from populists in both political parties, including President Trump and several Democratic presidential candidates.
This analysis suggests that America is clearly an upwardly mobile nation. The common experience is for children to have higher incomes than their parents. This is particularly true of children raised in the bottom 20 percent and, really, for those raised outside the top 20 percent.
America Has Not Finished Moving
Assessing all aspects of economic mobility is hard, and this article is certainly not intended to be a comprehensive summary. I have focused on income mobility, but earnings, wealth, education, or occupation mobility is also worth examining. I have also focused on intergenerational mobility, but mobility within a generation is also important.
Furthermore, I have presented a broad picture of mobility between generations but haven’t offered mobility results among different races. While African Americans were included in this analysis, as a group they are noticeably less mobile than white Americans. This is troubling.
Americans should not be complacent. We should hope for and work toward a future where incomes grow more rapidly within the same family across generations, where more children go on to out-earn their parents, and by wider margins. Americans rightly have high expectations.
Could there be more upward mobility in America? Yes. But if you have to pick between the American Dream of upward mobility being alive or dead, between America being a class society or not, the data strongly supports the description of America as an upwardly mobile society. America is not a class society, where little intergenerational progress takes place. The American Dream is not dead.
Of course, what we care about most is whether today’s young people will be upwardly mobile, not whether today’s 40-year-olds did better than their parents. We should pursue that goal aggressively, as if the American Dream is slipping from our grasp—even if it’s not.