Economic Mobility: Is the American Dream Alive and Well?

The title of this post is the title of a report issued by the Economic Mobility Project. This project is a collaboration between the Pew Charitable Trusts and The American Enterprise Institute, The Brookings Institution, The Heritage Foundation, and The Urban Institute. The participants believe that
"....economic mobility plays a central role in defining the American experience and that more attention must be paid to understanding the status and health of the American dream."The issue of economic mobility is critical to understand. We have sold ourselves on the notion that it is acceptable to shortchange the general population on providing an adequate economic security net because we provide plentiful opportunities for hard-working individuals to move up the economic ladder and better themselves. We also shrug our shoulders when confronted with increasing income inequality, comforted by the belief that we can work hard and become one of those excessively paid people at the top. We refer to this as "The American Dream." It makes a compelling story, but is it true? That is the question the Economic Mobility Project seeks to address and understand.

The report I have linked to is short, easy to read, and chock full of interesting data. The authors define "absolute mobility" as a rising or falling dynamic that tends to carry everyone with it in one direction. The term "relative mobility" refers to the dynamic that allows individuals to raise or lower their position relative to others.

It is relative mobility that is promised in the American Dream. And we are led to assume that it is uniquely in America where such bountiful opportunities exist. What does the Economic Mobility Project observe?
"Using the relationship between parents’ and children’s incomes as an indicator of relative mobility, data show that a number of countries, including Denmark, Norway, Finland, Canada, Sweden, Germany, and France have more relative mobility than does the United States."Why is it that whenever we discover something unpleasant about ourselves it turns out to be something associated with our ties to the British? Why couldn’t we have been colonized by the Scandinavians?
"Compared to the same peer group, Germany is 1.5 times more mobile than the United States, Canada nearly 2.5 times more mobile, and Denmark 3 times more mobile. Only the United Kingdom has relative mobility levels on par with the United States."What this data means is that if you are born rich and incompetent then you are in the right country and have a good chance of eventually dying rich and incompetent. If you are born poor and competent you should move to Europe or Canada as soon as possible. If you stay here, the odds of becoming rich and competent are not good.

This report also has some things to say about absolute mobility. It does this by comparing salaries from different generations of men in their thirties. They find that between 1964 and 1994 the inflation adjusted salaries (median personal income) for this class of men rose 5%. Comparing a more recent pair of generations, 1974 and 2004, income fell 12% across that generation. That means that the American Dream of seeing your children do better than you is already ancient history. The only thing that keeps families afloat is the entry of women into the job market. If you compare the same figures for family income for the same sets of people you find that between 1964 and 1994 family income rose 32%. The more recent data between 1974 and 2004 indicates that family income rose only 9%. Clearly the two-income family is running out of steam. So much income is being funneled to the high earners that there is only one thing left for the middle class to do. So get off you duffs, show some ambition, and get out there and create the three-wage-earner family. Just think how interesting that could become.

There is yet one more knife to be sunk into the back of the working class. The report plots productivity growth and median family income growth between 1947 and 2005. The two curves track almost exactly until about 1980 (the Reagan years!) at which point income begins to lag behind. Curiously enough, during the Clinton years income did not catch up but it at least rose at the same rate as productivity. Even more curiously, about the time George W. took office, income growth went dead flat while productivity grew ever faster.

We seem to have stumbled into an economy where profits and pay have become somewhat disconnected. There is no economic law that says that the number of "good" jobs must equal the number of people, but here is a political law, actually a law of the jungle too, that says that if enough people are poor, under-paid, and generally unhappy, bad things are likely to happen. It would behoove our politicians to start addressing this long-term problem and look beyond the current election cycle.

That is enough venting for now. These are all complex issues that require more study and illumination. The Economic Mobility Project continues to pursue these studies. There are more reports to read and ponder over. Check out their web site if you are interested.

More to come—much more.