Issue Brief

Ups and Downs: Americans' Prospects for Recovery After an Income Loss

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As Americans face rising unemployment rates and greater uncertainty about the future in this current economic downturn, this report investigates the extent to which the American economy promotes upward economic mobility (in the form of income growth) and prevents downward economic mobility (in the form of income declines), and whether it does so to the same degree as in the past.

There is widespread consensus that the current recession is likely to affect more families than any since the Great Depression. But more fundamental than the impact of any one recession is whether the United States has entered an era in which families must permanently lower their expectations for income growth and brace themselves for more and bigger income losses.

Focusing on the household incomes of working-age adults (those aged 26 through 59), the report assesses how income gains, drops, and recovery have varied from 1967 through 2004. The analyses include both short-term and longer-term fluctuations in income, examining how many people are able to recover from income declines, how long their recovery takes, and differences across demographic groups in both.

The findings indicate that the American economy promotes upward mobility over two- and ten-year periods just as well as it has in the past. Americans are no more likely to experience income drops than they have been in the past, and they recover from those drops at similar rates. Nevertheless, for many Americans—today as before—an income drop is a significant and permanent financial setback, and the current recession—like previous ones—will prove to be an unfortunate turning point for millions of families.