Is the American Dream Only a Dream? (Fall 2012 Trust Magazine)

Source Organization: Pew Center on the States

Author: Jodi Enda

09/25/2012 - There are few things more American than the American Dream. The notion that this country is a place of equal opportunity and economic mobility, where anyone who plays by the rules and works hard can get ahead, is engraved on the national psyche and has lured millions to our shores. Over the centuries, through good times and bad—including the current economic downturn—Americans have held true to their belief in the Dream.

But comprehensive research by the Pew Economic Mobility Project shows that it is not always easy for children born into poverty to move up the economic ladder. Rich people, more often than not, remain rich, and poor people, more often than not, remain poor.

The economy is uppermost on many people’s minds these days but the project’s research looks back over time, comparing generations. And while the long-term impact of the latest downturn is yet to be seen, the picture from the past is troubling. “Seventy percent of people who start at the bottom never get to the middle,” said Erin Currier, the Economic Mobility Project manager.

With the economy continuing to sputter four years after the Great Recession began, it may not be surprising that economic mobility has entered the political lexicon, especially in this campaign season. Candidates in both parties have embraced Pew data, and policy makers in Congress, with the project’s assistance, have formed a bipartisan caucus on the issue.

Pew’s attention to the subject predates the latest concerns on the economy, going back before the downturn, which hit in 2008. Two years earlier, the institution assembled a group of experts representing the breadth of the ideological spectrum to begin research on economic mobility in the United States. That research has led to a series of reports, fact sheets, public opinion polls and the first-ever state-by-state look at the subject. Before Pew’s work, the very term “economic mobility” was not widely used. Today, it is part of the vernacular in political debates, policy forums and the news media. There is a reason the work has resonated so much, Currier said: “It gets to the heart of the American Dream.”

Picture an escalator

There are two types of economic mobility, and both are important. “Absolute mobility” refers to how people are faring compared with their parents. By this measure, America is doing well: A full 84 percent of adults have higher incomes than their parents did at a comparable age, according to the latest project study released in July. It reviewed family income and wealth from 1968 to now and, like all project work, adjusted for inflation.

“Relative mobility” is another thing altogether. It refers to whether people change places compared with others on the income ladder. The United States is not doing as well by that measure. The study, Pursuing the American Dream: Economic Mobility Across Generations, reported that 43 percent of people whose parents were in the bottom fifth of the economic ladder stayed there as adults and 70 percent of them remained below the middle quintile. Only 4 percent of this group has moved to the top fifth of the income ladder.

Conversely, a full 40 percent of people whose parents were in the top fifth of the ladder have remained there as adults, and 63 percent stayed above the middle quintile. Just 8 percent slipped to the bottom. So even though the vast majority of Americans are earning more than their parents did, a much smaller segment has moved ahead compared with their contemporaries.

It’s as if everyone were on an escalator that was moving them up, but relatively few people changed places on the steps. High absolute mobility coupled with somewhat stagnant relative mobility is partly due to the tremendous economic growth that has occurred over the past 40 years.

“The rungs of the income ladder have widened during the past generation, reflecting economic growth at all levels, but especially at the top,” the report said. Although the median income for people on the bottom rung of the ladder grew by 74 percent from one generation to the next, it increased by 126 percent for people on the top rung. So, even if people who start at the bottom earn significantly more than their parents did, their income growth may not be enough to move them to the next rung of the ladder. Put another way: “The world got more unequal. Rewards got differentiated by a ton,” said Tim Smeeding, who is on the project’s advisory board and directs the Institute for Research on Poverty at the University of Wisconsin-Madison, where he is a public affairs and economics professor.

Results are particularly stark for African Americans. Nearly two-thirds—65 percent—of African Americans in the study were raised at the bottom quintile of the income ladder, compared with 11 percent of whites. All told, 83 percent of African Americans were raised below the median fifth of the income ladder.

In absolute terms, the vast majority of people in both races exceeded their parents’ incomes, though whites did so in greater percentages. But when it came to relative mobility—moving to a different step on that escalator—a sharp difference emerged. More than half of African Americans, or 53 percent, who were raised at the bottom income level remained there as adults, compared with 33 percent of whites. African Americans move down the ladder more commonly than whites do, too. More than half—56 percent—of African Americans raised in the middle of the income ladder slipped to one of the bottom two rungs as adults, compared with 32 percent of whites. Moreover, African Americans have significantly smaller median incomes than whites: $29,000 versus $55,000.

Based on the data, the project concluded that three key elements most strongly influence Americans’ movement up and down the income ladder: education, savings and neighborhoods. People who attend and graduate from college and those who save money and buy assets, such as homes or property, have a distinct advantage over those who don’t.

What’s more, people who grow up in high-poverty neighborhoods—even if their families are not themselves impoverished—are at a definite disadvantage. This is a problem for the vast majority of African Americans. “If you’re poor, you’ll be less likely to make it to the top quintile or to middle-class status. But if you’re in the wrong neighborhood, you’re less likely to make it as well,” said Eugene Steuerle, a fellow at the nonpartisan Urban Institute and one of nine principals who worked on the project from its inception. “That’s something we need to worry about.”

According to Smeeding, family and environment also play a big role in mobility. “Some parents are much better equipped than others,” Smeeding said. “Parents who have been through the education system can advise their kids. People who haven’t graduated from high school aren’t going to walk to a school and say, ‘What’s going on?’ or counsel their kids on where to go to college. It’s harder.”

Steuerle and Smeeding are just two of several experts involved with the project who are concerned about Americans’ ability to fulfill the American Dream. One notable achievement of the project was forging uncommon agreement among principals representing the right, the center and the left of the ideological continuum, each of whom weighed in on the project’s research agenda and reports prior to release.

A road map

Although the notion of economic mobility is a tenet of American society, Pew concluded it might be more in reach elsewhere. Sixteen studies commissioned by Pew, the Russell Sage Foundation and the Sutton Trust looked at the relationship between parents’ education and economic levels and their children’s achievements in the United States, Canada, Australia and seven countries in Europe.

The link between parents’ levels of education and their children’s achievements was strongest in the United States. Here adolescents whose parents attended at least some college reaped an achievement advantage of 85 percentage points compared with adolescents whose parents had little schooling. In Australia, the gap was narrowest, at 34 percent. “There are other places that look like they’re doing a better job of creating upward mobility for their citizens,” said Reid Cramer, an Economic Mobility Project principal and director of the Asset Building Program at the New America Foundation, a liberal think tank.

The question, then, becomes what to do about it. Two opinion polls conducted by Pew showed that not only do people still believe in the American Dream, “they believe there’s a role that government should play in leveling the playing field,” Currier said.

The project’s bipartisan principals group did fashion a “road map,” published in late 2009, that laid out policy ideas to enhance the possibility of upward mobility for all Americans.

“We, as leading scholars with perspectives spanning the ideological spectrum, believe that more can and must be done to make the American Dream accessible to all Americans,” the road map began. “Our shared goal is to improve upward mobility for everyone, with a particular emphasis on lower-income Americans, those who face the most difficulty in moving up the income ladder. We are calling for nothing less than a fundamental shift toward government policies that are mobility-enhancing and a more targeted allocation of existing mobility expenditures towards low- and moderate-income families.”

The experts criticized the federal government for not sufficiently helping Americans move up the income ladder. Citing project research, they pointed out that in 2006, the United States spent $1.3 trillion on “income maintenance programs” such as Temporary Assistance for Needy Families, Social Security and food stamps, that aim to keep recipients from falling below a minimum income level, but just $746 billion on programs that would help improve their station in life. On top of that, they said, that money went disproportionately to higher-income families. The road map recommended a shift in priorities, at no net cost to taxpayers. It called for a rejiggering of expenditures to help people get an education—from preschool through college—and learn work skills. It suggested easing welfare rules that make it harder for people to move up the ladder by penalizing them if, for instance, they save money or get married. It said the government should promote marriage and responsible fatherhood, and make it easier for people to move out of poor neighborhoods. It recommended adjusting tax policies to help low-income families save money, buy homes and open retirement accounts.

“The primary thing we’ve got to focus on is people at the low end, who really don’t have a chance to start moving up the ladder,” said Stuart Butler, a principal on the project and director of the Center for Policy Innovation at the Heritage Foundation, a conservative think tank. “The real problem is people who don’t get on the ladder in the first place.”

Butler noted that the project focused on economic mobility rather than income inequality, an issue that also has been in the news of late. Income inequality refers to yawning wage gaps between the rich and the poor. Economic mobility is all about opportunity. “They may not particularly like those billionaires,” Butler said, “but Americans put a much higher value on the opportunity to move up than on differences in outcomes.”

Still, he and others said, moving up is more challenging now, in part because of the recession. Not only did people lose jobs and savings, but as housing prices fell so did the ability to tap into their equity to send their children to college. “It’s getting really hard to give your kids a chance,” said Smeeding, of the University of Wisconsin. It will be harder still for the next generation of parents, people who now are in their 30s, he said.

In mid-July, Pew helped form a congressional Economic Mobility Caucus, a bipartisan group that will share the latest mobility data and help lawmakers assess the impact of public policy on Americans’ ability to move up the economic ladder. The caucus will be chaired by Sen. Ron Wyden, a Democrat from Oregon, and Sen. Jerry Moran, a Republican from Kansas.

“It’s time,” said Cramer, “to re-Americanize the American Dream.”

Jodi Enda is a Washington-based journalist who last wrote for Trust about Pew's work to improve the administration of elections.

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