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Americans’ Odds of Earning More Than Parents Have Plunged

  • Associated Press

FILE - Consumers hold shopping bags as they walk along Michigan Avenue on July 29, 2016 in Chicago, Illinois. A study reports that the likelihood that young adults will earn more than their parents has plummeted in recent decades.

The likelihood that young adults will earn more than their parents has plummeted in recent decades, a study has found, fueling concerns that the American dream of steady upward mobility is foundering amid a widening wealth gap.

Just half of Americans born in 1984 earned more at age 30 than their parents did at that age, down from 92 percent in 1940, according to research released Thursday by Stanford economist Raj Chetty and five colleagues.

The study found two reasons for the drop: Income inequality has widened, so that even when the economy has grown, fewer Americans have received enough income gains to overtake their parents. And average annual economic growth has slowed since 1980, compared with the 35 years after World War II.

“Reviving the ‘American Dream’ of high rates of mobility will require economic growth that is spread more evenly across the income distribution,” Chetty and his co-authors wrote.

Anxieties about status and economic opportunity formed a backdrop to the 2016 election campaign, with many voters concerned that their children wouldn't fare as well as they had. Conversely, many younger voters worry that they won't do as well as their parents, largely because of sluggish income growth and higher costs for housing, health care and student debt.

Trump’s promise

Chetty's research suggests that those concerns are well-founded. The decline in mobility occurred across all states but was worse in Rust Belt states such as Michigan and Indiana, both of which backed Donald Trump.

Trump has indicated that his administration will focus on accelerating economic growth but has said less about income inequality. His choice for Treasury secretary, Steven Mnuchin, has said the administration's policies will increase the economy's growth to as high as 4 percent annually, from the roughly 2.2 percent pace that's prevailed since the recession ended. The U.S. economy hasn't posted 3 percent growth for a full year since 2005.

Chetty's study underscores how much faster and more evenly distributed economic growth was after World War II. By 1970, when those born in 1940 were 30 years old, 92 percent — nearly all Americans, across all income levels — were earning more than their parents had at that age.

“Growth patterns after the war were magnificent,” said Nathaniel Hendren, an economist at Harvard and co-author of the study. “They were high, but also broadly shared across the income distribution.”

Among the poorest 10 percent of Americans, 94 percent of those born in 1940 had surpassed their parents' income 30 years later. That fell to 70 percent for those born in 1980 and who reached 30 years of age in 2010.

The middle class suffered a sharper drop: 93 percent of those born in 1940 into families with median household incomes — halfway between the top and bottom — had fared better than their parents by 1970. By 1980, only 45 percent of those born into the middle class did better than their parents 30 years later.

And for children born into the richest 10 percent in 1940, nearly 90 percent did better than their parents. That figure plunged to 33 percent in 1980, partly because it became harder for children of wealthy families to surpass their parents.

Problem for rich, poor alike

Those figures show that mobility has fallen for everyone — rich and poor. Hendren suggested that that might, in fact, make it a less polarizing problem.

“This is something that everybody shares,” Hendren said. “It is perhaps a little less divisive than what one might have thought.”

The study follows separate research released this week by Thomas Piketty at the Paris School of Economics and two colleagues that documented worsening income inequality since 1980. That study found that Americans in the bottom half of the income scale have experienced stagnant income since 1980.

Adjusted for inflation, the bottom 50 percent earned about $16,000 in 1980 and earns about the same now, the paper concluded.

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