Friday, December 09, 2016

The Dream is Over

The American dream of upward mobility is foundering amid a widening wealth gap. The likelihood that young adults will earn more than their parents has plummeted in recent decades, a study has found.

Just half of Americans born in 1984 earned more at age 30 than their parents did at that age, down from 92 percent in 1940, according to research by Stanford economist Raj Chetty and five colleagues.

The study found two reasons for the drop: Income inequality has widened, so that even when the economy has grown, fewer Americans have received enough income gains to overtake their parents. And average annual economic growth has slowed since 1980, compared with the 35 years after World War II. The decline in mobility occurred across all states but was worse in Rust Belt states such as Michigan and Indiana.

Among the poorest 10 percent of Americans, 94 percent of those born in 1940 had surpassed their parents’ income 30 years later. That fell to 70 percent for those born in 1980 and who reached 30 years of age in 2010.
The middle class suffered a sharper drop: 93 percent of those born in 1940 into families with median household incomes — halfway between the top and bottom — had fared better than their parents by 1970. By 1980, only 45 percent of those born into the middle class did better than their parents 30 years later.
And for children born into the richest 10 percent in 1940, nearly 90 percent did better than their parents. That figure plunged to 33 percent in 1980, partly because it became harder for children of wealthy families to surpass their parents.

Those figures show that mobility has fallen for everyone — rich and poor.

The study follows separate research released this week by Thomas Piketty at the Paris School of Economics and two colleagues that documented worsening income inequality since 1980. That study found that Americans in the bottom half of the income scale have experienced stagnant income since 1980. Adjusted for inflation, the bottom 50 percent earned about $16,000 in 1980 and earns about the same now, the paper concluded.

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