Measuring the Dream (Summer 2009 Trust Magazine article)

Source Organization: The Pew Charitable Trusts

Author: Sandra Salmans


08/12/2009 - “What, now, of the future?” That question was raised when the term “American Dream” was coined in 1931. Pew’s Economic Mobility Project has asked it again, and is answering with hard data. 

The American dream that has lured tens of millions of all nations to our shores in the past century . . . has been a dream of being able to grow to fullest development as man and woman, unhampered by the barriers which had solely been erected in older civilizations, unrepressed by social orders which had developed for the benefit of classes rather than for the simple human being of any and every class. And that dream has been realized more fully in actual life here than anywhere else, though very imperfectly even among ourselves.

It has been a great epic and a great dream. What, now, of the future?

—James Truslow Adams, The Epic of America 

Writing in the depths of the Great Depression in 1931, Adams was understandably concerned about the future of the American Dream, the term he is believed to have coined. Although Adams’s phrase had a much broader meaning, over the years the American Dream came to describe the potential for children to achieve a better material life than their parents—and, in the postwar years, that Dream was a genuine reality.

Today, with the nation in the grip of the worst economic crisis since the Great Depression, the American Dream sometimes seems to be in jeopardy. Reflecting on voters’ accounts of “jobs lost and homes foreclosed, hours cut and benefits slashed,” President Obama has observed, “It’s like the American Dream in reverse.”

Yet a recent poll by Pew’s Economic Mobility Project finds that eight in 10 Americans believe it is still possible to get ahead despite the current economy, and nearly two-thirds predict that their children will have a better standard of living than their own.

“The poll confirms that America is a country of strivers, people who look ahead, who think that ambition, hard work and individual drive are what defines economic success as opposed to other factors like the state of the economy,” explains John E. Morton, managing director of Pew’s Economic Policy department, which houses the Economic Mobility Project. “Americans are optimistic because historically they have experienced or seen great examples of social fluidity.”

In 2006, when Pew decided to undertake an exploration of economic mobility in the United States, there was more concern about the growth in income inequality than about the ability to achieve the American Dream. The subject of economic mobility—the ability of an individual or a family to move up or down the economic ladder within their lifetime or across generations— attracted more attention among academics than among the public and policy makers.

But the project’s findings, often surprising and provocative, have generated headlines in the media across the country and significantly raised the profile of the issue, making it part of the national economic debate. During the presidential primary season last year, both Barack Obama and John McCain cited the project’s findings.

“We feel that we’ve put mobility on the map in a very constructive way,” says Morton.

A Unifying Perspective

The Economic Mobility Project has brought together respected thinkers from six leading policy organizations— the American Enterprise Institute, the Brookings Institution, The Heritage Foundation, the New America Foundation, the Peter G. Peterson Foundation and the Urban Institute—to investigate the status of the American Dream.

The choice of scholars from think tanks spanning the ideological spectrum, who have a history of productive collaborations, was deliberate. “Our goal was to help frame the national economic debate in a bipartisan manner,” notes Morton. “To do that, we needed to ensure that we had a strong and broad coalition as well as solid and unassailable facts.” Guiding the project is an eight-member advisory board of academics who are well regarded for their own studies of economic mobility.

This bipartisan approach was designed in part to avert the kind of ideological deadlock that has quashed previous discussions of income inequality. In the recent past, Morton notes, liberals have vociferously lamented the inequality of both income and wealth, which has risen steadily in the last 40 years, while conservatives have often described the gap as a manifestation of “fair returns to the new economy.”

The Economic Mobility Project sought to avoid falling into such an either/or trap by focusing on an issue that unites all parties, irrespective of ideological persuasion: the cherished American belief that everyone has a chance to succeed in life—or, as Morton notes, “where you are born doesn’t dictate where you’ll end up.”

To tackle the subject in a comprehensive and politically neutral manner, the project has focused on the two essential components of measuring economic mobility.

The first, absolute mobility—the gauge traditionally relied upon by conservatives—refers to a dynamic in which a growing economy acts as an engine that pushes living standards higher for everyone over time. This theme was popularized by President John F. Kennedy, when he said that “a rising tide lifts all boats.”

However, the rising-tide notion does not capture the second key concept—namely, relative mobility, which is more often focused on by liberals and examines how people change position on the income ladder. That is, it speaks to whether the boats are changing places but says nothing about the strength of the tide.

“If you look at absolute mobility without relative mobility, or vice versa, you have an incomplete picture,” notes Morton. “Looking only at absolute mobility ignores what happens at the individual level—if there is growth, everyone goes up; and if there isn’t, everyone stays the same or goes down. On the other hand, focusing only on relative mobility ignores how broader economic forces may shape the experience of the individual.

“In this project, we’ve made the case that both are important to how Americans experience the American Dream.”

Getting Ahead or Losing Ground?

Partnering with colleagues at the Brookings Institution, including Isabel V. Sawhill, Julia B. Isaacs and Ron Haskins, the project released a series of reports last year that examined the economic mobility of all Americans and zeroed in on different demographic subgroups such as immigrants, men and women, and blacks and whites. “We wanted to learn where the data find pockets of immobility and where they suggest we’re doing pretty well,” says Morton.

Using data that match parents with their children, the project found that two-thirds of adult children had more family income than their parents did at a similar age. However, fewer Americans also moved ahead in relative terms. Forty-two percent of Americans born to parents at the bottom of the income distribution remained in the lowest income group as adults, while 39 percent of Americans born to parents with the highest income remained in the highest income group as adults. This “stickiness” at the ends of the income distribution is twice as high as would be expected by chance, and raises concerns, particularly for families at the bottom of the income ladder.

In total, one-third of families were upwardly mobile, making more income than their parents and moving ahead of their parents’ position in the income distribution. One-third were “riding the tide”—that is, they were better off in absolute terms but unchanged in their relative position. The remaining third were downwardly mobile, making less than their parents’ family income and falling behind their position in the income distribution.

But it is when the project teased apart the data for different groups—specifically, African Americans—that the results became more provocative still.

Project studies found that black children were less likely than white children to move ahead of their parents’ economic rank in every parental income group—and that, for African-American parents, even attaining middle-income status offered relatively little protection for their children. A startling 45 percent of black children whose parents were solidly middle-income ended up falling to the bottom-income quintile as adults, compared to only 16 percent of white children born to middle-income parents. Although the report did not explore the reasons underlying these numbers, the facts alone generated a whirlwind of important discussion and debate by experts and the general public.

Despite these very disconcerting findings, Americans on the whole still strongly believe that, with hard work and determination, we can move up the income ladder. In March of this year, the project released the first-ever comprehensive national opinion survey on economic mobility and the American Dream. It found that, even in the face of one of the worst economic crises in almost a century, nearly three-quarters of Americans said their economic circumstances will improve in the next ten years—a belief that crossed party lines, education levels and demographic groups. In fact, African Americans were the most optimistic group, followed by Hispanics and whites.

Americans have traditionally been less likely than citizens of other developed nations to believe that coming from a wealthy family is important to getting ahead, and they are more optimistic about their ability to control their own economic destiny through hard work. The project’s poll confirmed, by a 71-to-21 percent margin, that Americans place greater emphasis on opportunity than inequality— that it is more important for our country to provide people a fair chance at improving their economic standing than it is to reduce inequality.

The Promise of Economic Opportunity

Indeed, the promise of economic opportunity was one of the founding notions of an independent and free United States of America and has since served as a powerful engine of growth and social cohesion. But while the belief in this ideal remains strong, the project’s findings have revealed that there is less relative mobility in the United States than in most of the nine industrialized nations included in the survey.

Specifically, relative mobility was highest in Canada, Norway, Finland and Denmark; in the mid-range in France, Germany and Sweden; and lowest in the United States and the United Kingdom.

In fact, starting at the bottom of the earnings ladder is more of a handicap in the United States than it is in other countries. Only 8 percent make the “rags to riches” climb from the bottom to the top rung in one generation, compared to 11 to 14 percent elsewhere.

“Many people have believed that the U.S. has more inequality but more mobility,” notes David T. Ellwood, Ph.D., dean of the John F. Kennedy School of Government at Harvard University. (A leading scholar on poverty and welfare, Ellwood serves on the project’s advisory board.) But if mobility is low, he says, “and you put those two together, it’s disturbing.”

An important question, then, is: What determines mobility? Why do some people experience mobility, either upward or downward, while others do not? The project had established that over generations, parental income matters a great deal to mobility, but it is certainly not the only influence. To explore these other factors further, the project’s partners at The Heritage Foundation weighed in with a report on the leading drivers of economic mobility across generations.

It grouped them into three categories: social capital (family, community, school- and work-based relationships); human capital (education, health); and financial capital (wealth, home ownership, retirement savings). It concluded that education, savings rates and family income and structure were the primary drivers of mobility.

The takeaway message “is that most people’s mobility is determined by what happens to them in their early years,” says Stuart M. Butler, vice president of domestic and economic policy studies at Heritage and lead author of the report. For example, the relationships that a child is exposed to early on and at school, the parents’ education and the child’s level of education can have a huge bearing on that youngster’s eventual mobility, upward or downward.

That was also the conclusion of Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago who is on the project’s advisory board and has done extensive work of his own on economic mobility. In a study conducted for the project, he focused exclusively on upward mobility from the bottom half of the income distribution. He concluded that academic test scores in adolescence are the best single predictor of a child’s likelihood to move up the economic ladder.

Regardless of race, Mazumder says, adolescents scoring in the top 25 percentiles have a similar rate of upward mobility. The scores, he explains, are probably a “stand-in” for a variety of factors, including parents’ income, the quality of the schools and neighborhood, and the availability of health care.

All of those factors can promote (or get in the way of) earning the college degree that has traditionally been viewed as the ultimate key to success in America. As the Brookings Institution’s Ron Haskins notes, “Education is the single most important factor” behind upward mobility.

Indeed, Haskins’s study on education confirmed that a college degree vastly improves one’s prospect for upward mobility. Children of low income families who earn a college degree are four times more likely to reach the top of the income ladder than those who do not get a degree.

At the same time, the project found intriguing exceptions to the rule. Strikingly, children from low-income families with a college education are no more likely to reach the top of the income ladder (19 percent) than children from high-income families without a college education (23 percent). While a college education significantly improves chances for upward mobility, family background appears to matter even more.

How to improve the odds of upward mobility is the subject of vigorous and productive debate among the project’s principals. Butler of The Heritage Foundation, for example, emphasizes the role of the family and community in fostering basic cultural values that can lead to—or away from—a successful outcome, while Haskins argues for government investment in education all along the way.

In a follow-up study for the project, conducted by Haskins and colleagues at the Urban Institute, he suggests ways to get more low-income youngsters into college and help them graduate. “Family background is very important, but there are enough other factors to work with, so let’s figure out how to work with them,” he says, citing a host of programs from prekindergarten interventions to mentorships and support in college. “We know what has to be done.”

A Policy Road Map

But first, to determine how much was already being done by government, the project’s partners from the Urban Institute conducted a comprehensive inventory of federal spending on the key factors that influence mobility. The researchers identified several hundred programs, totaling almost $750 billion in direct spending and tax subsidies, that are designed to build capabilities, encourage work or motivate savings. These include work-related subsidies such as 401(k)s and the earned income tax credit, savings and home-ownership incentives, and education and child health supports. However, the largest part of this investment does not go to the disadvantaged groups that struggle the most to climb the income ladder.

The net result, the researchers concluded, was a federal budget that promoted mobility for some but often excluded the poor, and in some ways may have actually discouraged upward mobility for lower-income households.

Interestingly, the project’s recent poll finds that Americans have independently come to the same conclusion. It reports that a plurality of Americans think that government hurts more than it helps people move up the economic ladder. At the same time, they also believe that a range of policies—including making college more affordable and supporting job training and early childhood education— would be effective in encouraging upward mobility.

Over the next year, the project will continue to add to its nonpartisan fact base, issuing reports that delve deeper into the factors that affect mobility. In addition, it will pursue research on international comparisons of mobility and specific areas of concern such as the racial gap in mobility.

The project will also take the important step of stimulating bipartisan dialogue among its partners and the public about how best to address the challenges our nation faces in fulfilling its promise of economic mobility. “While our poll found that Americans have an abiding faith in their ability to get ahead, it is important for policy makers to note that perception may not necessarily coincide with reality,” says Ianna Kachoris, the project’s manager. “Special attention should be paid to improving mobility, particularly for the most disadvantaged Americans.”

Eventually, Morton says, the project’s work will result in a “bipartisan policy road map” that will guide policy makers by defining broad areas of agreement on the factors influencing mobility. That there is rising interest in this issue is evidenced by the fact that, shortly after taking office, President Obama named a special assistant for mobility and opportunity within the White House Domestic Policy Council.

Ultimately, the hope is that the project can offer help in restoring the reality of the American Dream for more Americans. “The real challenge for any nation is to think about how we increase and enhance opportunities in such a way that people really do move upwards,” says David Ellwood. “In the end, our nation will thrive or diminish depending on whether or not we have a system that provides a chance for people to rise based on hard work.”

You can learn more about the Economic Mobility Project and read all of its reports at www.economicmobility.org.

Sandra Salmans is senior writer of Trust.

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