Rags to Riches?
The American Dream Is Less Common
in the United States than Elsewhere
How many times have you heard “you can be what you want to be if only you
work for it ”? The American dream has brought millions to our shores, legally
or surreptitiously, in search of upward economic mobility. And, over the
decades, millions of children of immigrants or of working-class Americans have
prospered and advanced in our competitive economy.
But how easy is it for the children of poor parents to become prosperous? Recent
evidence shows that there is much less mobility in the United States than most
people assume. Horatio Alger notwithstanding, rags to rags and riches to riches are
not the norm in this country to a greater degree than in many other developed
nations. Our current education system, antidiscrimination laws, and other public
policy tools that aim to give the children of poor parents a fair shot at a high
income are not getting the job done. We may all believe in the American Dream, but
we have a lot of work to do if we are to make that dream a reality.
Studies show that life chances differ profoundly depending on the circumstances
into which a child is born (see Figure 1, page 2). Only a small share of the children
of the poor end up earning high incomes—most remain in or near poverty.
The columns in Figure 1 show the income quintile (five groups in 20 percent
increments) that people end up in as adults if they were born into the bottom 20
percent of the income distribution. Of those born into the bottom fifth of the
income distribution, 42 percent
end up where they started—at
the bottom. Another 24 percent of those born into the bottom
fifth move up slightly to the
next-to-bottom quintile (still
below the average). Only 7
percent of those born into the
bottom fifth end up in the top
tier—providing the relatively rare
rags-to-riches stories that
Americans celebrate.
Conversely, nearly 40 percent of
those who are born into the top
quintile remain there, while
barely 6 percent of those born
into the top 20 percent end up
in the bottom fifth. So a person
born into the top quintile is
more than five times as likely to
end up at the top as a person
born into the bottom quintile.
Research also shows that sons and their fathers might have very different incomes some years (as
one would expect if there were a lot of income mobility), but the more years one averages, the
more closely sons’ incomes match their fathers’ incomes. Father or son may have a few unusual
years, but if one averages fifteen years of a father’s income, there is a close association with his
son’s income (also averaged for several years). Figure 2 shows how the association rises as the
comparison period is extended.1
How can we explain the close association
of fathers’ and sons’ incomes? There seems
to be little economic mobility in the United
States. But could this interpretation be
wrong?
Maybe the obstacles to mobility are
unrelated to economic and social
forces. The lack of movement across
income levels might be attributable to
inheritance of intelligence, with capable
families ending up at the top and weak
performers at the bottom.
nger We Look,
the More Sons Look Like Their Fathers
1. If the association were 1.0, a father and son would be
expected to have the same income. An association of 0.0
would mean that the son’s income bears no relationship
to the father’s. The closer the value is to 0.0, the greater
the income mobility.
Alternatively, perhaps mobility is limited by social and economic obstacles:
Maybe the children of the poor (at every level of ability) obtain less and
inferior schooling compared to the children of the rich.
Maybe wealth passed on during life and at death gives the children of rich
parents their advantage. Maybe social networks and other aspects of social class drive opportunity
toward children of people in similar social circumstances.
Economists have employed sophisticated techniques to try to disentangle many of
these possible explanations as to why people tend to remain at income levels
comparable to those of their parents. But the best research explains remarkably
little about the strong association between fathers’ and sons’ incomes.
Figure 3 shows the results of work by Samuel Bowles and Herbert Gintis, which
concludes that similarities in intelligence can account for only about 4 percent of
4
Perhaps most surprising is substantial evidence that citizens of other advanced
countries are more likely to climb the economic ladder successfully than
Americans. Figure 4 illustrates results from a variety of studies in other countries.
As in the United States, different studies come up with different numbers because
they use different data and, more important, because they average fathers’ and
sons’ incomes over different periods of time. As Figure 2 illustrates, the association
between fathers’ and sons’ incomes in studies conducted in the United States
ranges from less than 0.3 to more than 0.6, where 0.6 implies a high association of
fathers’ and sons’ incomes—that is, low economic mobility—while 0.3 implies
somewhat greater mobility. One survey reported an average value in many U.S.
studies of 0.43. In Figure 4, the studies for Scandinavia, Germany, and Canada
suggest greater mobility than in the United States. These results are not conclusive
because of differences among the studies in data sources and methods, but it is
likely that economic mobility in the United States is lower than in the Scandinavian
countries, Germany, and Canada.
In the end, we are left with a double challenge: Why is economic mobility in the
United States so limited, and what policies can improve the prospect that people
born into low-income families will be able to earn substantially more than their
parents? This is an important question not only because we want a fair society but
also because we want to make good use of the potential of all of our citizens.
7http://tcf.org/publications/pdfs/pb441/ragrichrc.pdf
Prepared
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