American pipe dream: Odds of adults out-earning parents drops sharply, study finds

STANFORD, Calif. — If Horatio Alger was still writing stories today, would his characters enjoy successful upward mobility as easily as they did in the 1800s? A new study finds that the odds of individuals born in the 1980s to earn a higher income their parents has dropped notably versus people born in the 1940s.

Academics at Stanford University, led by esteemed economics professor Raj Chetty, looked at the rate of economic mobility in the U.S., which they measured by one’s ability to earn more than their parents through the promise of the “American Dream”— i.e. rising above one’s peers with sufficient effort.

Is the American Dream still feasible?
An infographic conveying results by Chetty et al., which reveal that the probability for children to attain a higher income than their parents has dropped dramatically — from more than 90 percent for children born in 1940 to 50 percent for children born in the 1980s. This material relates to a paper that appeared in the 28 April 2017, issue of Science, published by AAAS. The paper, by R. Chetty at Stanford University in Stanford, CA, and colleagues was titled, ‘The fading American dream: Trends in absolute income mobility since 1940.’ (Carla Schaffer / AAAS)

Previous researchers had been stymied in analyzing the longitudinal ability for individuals to accomplish upward mobility over their parents, in large part because of the lack of sufficient datasets that could examine the issue.

To accomplish their goals, Chetty et al. took an innovative approach, combining data from the U.S. Census and Current Population Survey with tax records, all while controlling for variables such as inflation.

In the course of their research, the academics found that only half of individuals born in the 1980s earned more than their parents.

This figure is alarming, especially when one takes into consideration how 92 percent of those born in 1940 out-earned their parents.

Region did play a factor in one’s ability to outpace their parents’ earning potential. States in the Midwest— e.g. Indiana and Illinois— saw the greatest declines in upward mobility, while many states in the Northeast, such as Massachusetts and New York, were affected the least.

While the researchers determined that a slowing GDP growth rate may be somewhat responsible for the decline in upward mobility, the decline in mobility has mostly been due to an economic distribution that increasingly favors the wealthy.

Ultimately, without a change in the current distribution of wealth, a change in any other variable would only have a modest effect upon the ability for individuals to demonstrate upward mobility, the researchers argue.

Governmental initiatives, such as raising minimum wage and creating more tax incentives for those who need them, could assist in narrowing the economic gap.

The study’s findings were published in the journal Science.