The Inclusive Economy
From Rags to Tatters: The State of the American Dream
By Ethan Geiling on 07/10/2012 @ 07:30 PM
The vast majority of Americans make more than their parents, but that doesn’t mean they’re climbing the economic ladder.
New research from the Pew Economic Mobility Project shows that 84% of Americans have higher incomes than their parents did at the same age, adjusting for inflation. Similarly, 50% of Americans have greater wealth than their parents did. This is known as absolute mobility, and by this measure the American Dream appears fully intact. However, even though many Americans are earning more than the previous generation, the extent of this extra income often isn’t enough to move them into a new income bracket.
Relative mobility measures an individual’s rank in the income distribution compared to his or her parents. Forty-three percent of Americans raised in the bottom fifth of the income distribution remain there as adults, and only 4% make it to the top income quintile. The classic “rags to riches” story is more of a Hollywood fairytale than an actual reality.
One of the central tenants of the American Dream is that anyone – regardless of family wealth, economic background, and race – has the same opportunity to build a better life. Pew’s research suggests otherwise; Americans raised at the bottom of the income distribution are likely to remain there as adults. Likewise, individuals born into wealthy households are more likely to remain at the top of the income distribution. This phenomenon is known as “stickiness at the ends.”
For certain groups – like blacks and adults without a college degree – economic mobility is even more elusive.
Among the middle class, only 23% of blacks accumulate more wealth than their parents, compared to 56% of whites. And blacks are more likely to fall out of the middle class than whites. Sixty-eight percent of blacks raised in the middle of the income distribution fall to the bottom as adults, compared to just 30% of whites. Pew’s study does not include Latino families or other households of color because the sample size is too small in the Panel Study of Income Dynamics, Pew's data source for the project.
Receiving a college degree makes a person three times more likely to rise from the bottom of the family income ladder all the way to the top. Almost half of people without a college degree raised in the bottom fifth of the income ladder will remain there as adults. But only 10% of people with a college degree will remain at the bottom of the ladder.
Read the full report: Pursuing the American Dream: Economic Mobility Across Generations