Decades of rising income inequality and slowing economic growth have eroded a pillar of the American dream: the hope that each generation will do better than the one that came before, according to new research released Thursday.
If the findings hold up, they have profound economic, social and even political implications. The decline in what economists call “mobility” — how easy it is to move up the income ladder over a lifetime or across generations — has been especially stark in the Rust Belt states that helped propel Donald Trump to victory in last month’s presidential election.
In 1970, according to the research, conducted by Stanford economist Raj Chetty and several co-authors, roughly nine out of every 10 American 30-year-olds earned more than their parents did at the same age, after adjusting for inflation. In 2014, only half of 30-year-olds could say the same.1These figures refer to household income. The authors also looked at individual income — comparing sons to their fathers, for example — and other measures. All show the same general trend. The slowdown in mobility shows up in all 50 states and is true across the income spectrum. The biggest declines were among the children of middle-class families.
The researchers identify two main drivers of the drop in mobility. First, economic growth has slowed in recent decades. That means the economic pie is growing more slowly than it used to, which makes it harder for each generation to surpass the previous one — there is less new income to go around. Second, income inequality has risen, which means that fewer people are benefiting from any new income being generated. Chetty and his colleagues estimate that inequality is more than twice as important as slowing growth, accounting for more than 70 percent of the decline in mobility.
Their research comes out the same week as a separate study by French economist Thomas Piketty and others that found that the bottom half of American adults by income today earn no more in pre-tax income than the bottom half of American adults did in the 1970s.
“There really is a dramatic change in what’s going on in the income distribution in the U.S.,” said Nathaniel Hendren, an economist at Harvard and another of the latest paper’s authors. “The rungs of the ladder are growing further apart, so the difference in outcomes in being born to a rich family versus being born to a poor family is getting greater.”
Full report with graphs in article.