Pethokoukis, Economics, U.S. Economy

How’s the American Dream doing? Well, which one?

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There are two ways to define economic mobility: 1) absolute mobility, whether each generation is financially better off than the one before; and 2) relative mobility, whether you can change your income rank  vs. your parents. Most Americans probably think both measures important. We want to be more prosperous than mom and dad, but also be able to change our circumstances and make our dreams come true.

“Only in America,” as boxing promoter Don King likes to say. Or as the tagline for Rocky puts it: “His whole life was a million-to-one shot.” But of course, we would prefer better odds for most of us and our kids.

A San Francisco Fed study – using data tracking families since 1968 — looks at both versions of the American Dream, finding one healthier than the other. Looking at absolute mobility, researchers Leila Bengali and Mary Daly find the United States “highly mobile.” Over the sample period, 67% of US adults had higher family incomes than their parents, including 83% of those in the lowest birth quintile, or bottom 20% (versus 54% for children born into the top quintile, or top 20%.)

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But with relative mobility, the study’s finding are “not so encouraging.” For folks born in the middle three quintiles, there is significant mobility. Kids born to parents in the middle move “freely across income quintiles.” But for kids born to parents in the top or bottom of the income distribution, life is “sticky,” as economists put it. For those born into the lowest quintile, 44% are still there as adults with 22% rising just to the second quintile. Similarly, the study points out, “children born into the top quintile, 47% are still there as adults. Only 7% fall to the bottom quintile.”

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Can’t a good education — as well as a powerful left hook — counteract the stickiness of birth circumstances? Yes. The study points out that 30% of bottom-quintile kids who graduate college rise to the top quintile vs. 5% who don’t graduate college. But here’s your trouble: While over half the kids born into the top 20% get a degree, only 7% of those born into the bottom 20% get one.

 

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Bengali and Daly:

This indicates that birth circumstances contribute to the stickiness at the top and bottom/ of income distribution, either directly or through differential access to education. … In this case, an individual’s ability to reach the highest economic ranks of society seems at least partially determined by the income rank into which they were born.

4 thoughts on “How’s the American Dream doing? Well, which one?

  1. “This indicates that birth circumstances contribute to the stickiness at the top and bottom/ of income distribution, either directly or through differential access to education.”

    “Birth circumstances” = habits and values of successful people. There’s nothing sinister or exclusionary about it.

    How to stay out of poverty:

    “1. Graduating from high school.
    2. Waiting to get married until after 21 and do not have children till after being married.
    3. Having a full-time job.
    If you do all those three things, your chance of falling into poverty is just 2 percent. Meanwhile, you’ll have a 74 percent chance of being in the middle class.”

    Read more at Jacksonville.com: http://jacksonville.com/opinion/editorials/2012-01-27/story/three-rules-staying-out-poverty#ixzz2NFHcaySW

    • I’d add a fourth: Invest regularly in Vanguard Total Stock mutual fund and studiously avoid anything or anyone discussing the fate of the stock market, good or bad. Certainly in recent history, patient stock ownership has made and preserved wealth in a way that nothing else has, including employable skills. Trouble is, even the middle class has great difficulty letting stock investments ride.

    • The issue isn’t neccessarily outright poverty. It is that it is very tough to advance beyond where you began. If you began in the lower middle class, you stay in the lower middle class. Heck even the regular middle class is becoming harder and harder to support family life because wages are stagnant and you can’t advance.

      Graduating from high school is a no brainer. Yet it’s pretty well established that it’s hard to marry when you are lower class, and lack a college education, considering that marriage has disappeared amongst the lower class.

      So while all of these things are important, the situation has become a lot more complicated.

  2. Education is huge no doubt when studying earning potential over a persons life.Last I read was that a individual who graduates high school then goes on to earn a bachelors degree will make on average a million dollars more in lifetime income than a non educated worker in the US.

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