25 May Economic Mobility in the U.S. — The Myth and the Reality
The Economic Mobility Project has released a fascinating and disturbing report entitled “Economic Mobility: Is the American Dream Alive and Well?” The entire report is well worth a read, but what I found particularly striking was how poorly the U.S. does in terms of economic mobility relative to other developed Western countries, particularly the much-maligned ones in Scandinavia:
The report summarizes the results:
Data on relative mobility suggest that people in the United States have experienced less relative mobility than is commonly believed. Most studies find that, in America, about half of the advantages of having a parent with a high income are passed on to the next generation. This means that one of the biggest predictors of an American child’s future economic success — the identity and characteristics of his or her parents — is predetermined and outside that child’s control. To be sure, the apple can fall far from the tree and often does in individual cases, but relative to other factors, the tree dominates the picture.
These findings are more striking when put in comparative context. There is little available evidence that the United States has more relative mobility than other advanced nations. If anything, the data seem to suggest the opposite. 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. 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 those of the United States.
Ironically, despite this sobering data, the myth of the American dream is alive and well — Americans continue to be much more optimistic about economic mobility than their developed-country counterparts:
The underlying belief in the fluidity of class and economic status has differentiated Americans from citizens in the majority of other developed nations. As the data… suggest, compared to their global counterparts, Americans have tended to be far more optimistic about their ability to control their own economic destinies through hard work, less likely to believe that coming from a wealthy family is important to getting ahead, less likely to think that differences in income within their country are too large, and less likely to favor the government’s taking responsibility to reduce those differences.
Lest the report be dismissed as leftist propaganda, it’s worth noting that the Economic Mobility Project is a joint effort of the The American Enterprise Institute, The Brookings Institution, The Heritage Foundation, and The Urban Institute.
Hat Tip: Kevin Drum at the Political Animal.
The June issue of The Atlantic has a piece by senior editor Clive Crook (‘Rags to Richers, Riches to Riches’) that discusses this as well, and I suspect his essay is based on the Economic Mobility Project’s report, as he nowhere cites anything more specific than, to paraphrase, ‘recent research.’ The ideological tenacity of the belief in ample opportunity for economic mobility and its corresponding recalcitrance in the face of contrary evidence reminds me of the following (with family resemblance?) from Elster’s Making Sense of Marx (1985): “Both the freedom to change employer and the freedom to become an employer oneself give rise to ideological illusions that embody the fallacy of composition. The first is the inference from the fact that a given worker is independent of any specific employer to the conclusion that he is free from all employers, that is independent of capital as such, to the conclusion that all workers can achieve such independence. It might look as if the conclusion of the first inference follows validly from the premise of the second, but this is due merely to the word ‘can’ being employed in two different senses. The freedom of the worker to change employer depends,… Read more »
Kevin,
There’ve been several studies to this effect over the last few years, and there are more disturbing aspects — e.g., other studies suggest that there’s still less (upward) intergenerational mobility in the US for minorities. Indeed, the obvious fact that race is inherited, together with the fact that wealthier parents tend to have better educated and healthier kids, have been posited (I recall) as explaining the high US i-g elasticity. On the comparative front, I wonder if this does or could control for varying rates of taxation; one could imagine that wiping out an inheritance, or reducing retained income as a whole, diminishes the significance of a parent’s income by a good margin.
Notwithstanding that last remark (and prior to the first comment Patrick above) I wouldn’t ever have supposed that this was leftist propaganda, as you disclaim in your coda. That said, other work from within this project might have its biases, left or right; the report seems to have been authored by Brookings and Pew, and maybe the next one will be AEI/Heritage.
I should have clarified the comparison with the Elster quote by stating that I think the myth of the American Dream persists by way of the same fallacy of composition: individuals tend, as economic actors, to generalize locally valid views into invalid global propositions (perhaps facilitated here by the availability heuristic). As Elster explains, this local-global fallacy leads to cognitive failures: “This is perhaps the most powerful part of the Marxist methodology: the demonstration that in a decentralized economy there spontaneously arises a fallacy of composition with consequences for theory as well as for practice.”
Wouldn’t most socialist (I use that term loosely) countries have artificially high economic mobility by virtue of a compressed income range, bounded on the bottom by social entitlements and on the top by progressive taxation?
Seeing as how economic mobility is invariably defined by percentiles, it would seem to me their numbers would be inflated, while, in terms of benefit to the person, there was very little real mobility.
If moving to the next bracket provides the individual with far less benefit than the equivalent movement in a country such as the US, are they really enjoying the benefits of increased economic mobility?
Mr. Gross, Your nomenclature is loose to the point of being without a referent and irrelevant: the states with higher economic mobility are states within the worlds of “welfare capitalism,” not socialism of any sort.* On an earlier and still useful study, please see Goodin, Robert E., Bruce Headey, Ruud Muffels, and Henk-Jan Dirven, eds., The Real Worlds of Welfare Capitalism (Cambridge, UK: Cambridge University Press, 1999). Their book provides a nice typology distinguishing between the “liberal welfare regime,” the “social democratic welfare regime,” and the “corporatist welfare regime.” Interestingly, “the social democratic welfare regime turns out to be the best choice, regardless of what you want it to do. The social democratic welfare regime is clearly best on its home ground of minimizing inequality. But it also turns out to be better at reducing poverty than the liberal welfare regime, which targets its welfare policy on that to the exclusion of all else. The social democratic welfare regime is also at least as good at promoting stability (and arguably at least as good at promoting social integration) as is the corporatist welfare regime, which ostensibly attaches most importance to those goals. The social democratic welfare regime is also best… Read more »