The so-called “American Dream” is fading. One of the defining features of this national perception is that children were supposed to have a higher standard of living than their parents and previous generations. However, a recent paper published by the National Bureau of Economic Research is showing that the U.S is not living up to this ideal.
The authors estimated the rates of absolute income mobility, the fraction of children who earn more than their parents, since 1940. They measured absolute mobility by comparing the household income of an individual at age 30 with their parents’ household incomes at the same age. The results are devastating.
The percentage of children born in 1940 who were earning more than their parents was a little bit higher than 90%. After four decades the percentage for children born in 1980 is lower than 50%. According to the authors, absolute income mobility has decreased across all income levels, affecting middle-class families harder.
When it comes to states, the rate of decline varies. The largest decreases can be found in industrial Midwest states, such as Michigan and Illinois and in some states of the west coast.
Why has the absolute mobility rate decreased so much? According to Chetty et al, there are two important trends that can explain this. First, a lower growth in GDP rates and, second, larger inequality in the distribution of growth. Put simply, the country has not been growing at the same rate as it did in the past and the growth that it is producing is not being evenly distributed across the country’s entire population.
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