Social mobility remains stable in the US: Good or bad news?

American historian James Truslow Adams coined the term “American Dream” in the 1930’s. He defined it as the state in which life “should be better and fuller for everyone, with opportunity for each according to ability or achievement, irrespective of the fortuitous circumstances of birth or position.” An October 2013 poll from Gallup found that 52 percent people in the US perceived the average person as having the chance to get ahead. In 1998, 81 percent of people had this perception. There is a concern among politicians, media, and public opinion that social mobility is declining in the US and with it the possibility of attaining the American dream.

Conversely, a recent study by NBER, “Is the United States Still a Land of Opportunity? Recent trends in Intergenerational Mobility,” indicates that intergenerational social mobility has remained stable for the last 30 years. Also, it confirms the relatively low levels of social mobility of US in comparison to some other Western countries. In 2010, a study from the OECD showed that in the US 40 percent of the economic advantage that high-income fathers have over low-income ones is transmitted to their children. As a reference, this figure is 30 percent in Germany and 50 percent in the United Kingdom. In Nordic countries and Canada, it is smaller than 20 percent.

Regarding statistical data, this new study is much bigger than previous ones, including all American citizens who claimed tax returns and more than 40 million children born between 1971 and 1993. The authors estimated intergenerational mobility for children born before 1986 through: (1) correlation between the percentile income ranks of parents and their children and (2) the probability that a child reaches the top fifth of the income distribution conditional on his/her parents’ income quintile. For children born after 1986, they examined the correlation between parents’ income ranks and children’s college attendance rates.

The study finds that none of these ranked-based measures have changed significantly over time. As shown in the graph below, the probability that a child born into the lowest income quintile would, during his adult life, enter the highest income quintile was 8.4 percent if he was born in 1971. If he was born in 1986, the observed probability was 9 percent.

Similarly, the probability that a child born into the middle of the income distribution would reach the highest income quintile during his adult life was 18.5 percent if he was born in 1971, and 19.8 percent if he was born in 1986. The graph shows this steadiness in social mobility between 1971 and 1986.

If we consider college attendance, the results show a slight increase in social mobility. The study finds that children born to the highest-income families in 1984 were 74.5 percent more likely to attend college than those from lowest-income families. For children born in 1993, this gap reduced to 69.2 percent.

Although most measures of mobility have remained stable or even increased slightly, the study finds that social mobility decreased for the low-middle income families in the second lowest quintile of the income distribution. As the graph above also shows, the probability that a child born into the second lowest income quintile would reach the highest income quintile during his adult life decreased from 18.5 percent if he was born in 1971 to 13.8 percent if he was born in 1986. Hence, the chances of reaching the highest income group for the low-middle and the lowest income families are becoming closer.

The authors add that although most mobility measures have remained stable, income inequality has increased over the period of their sample. They provide a useful visual analogy: “The rungs of the ladder have grown further apart (inequality has increased), but children’s chances of climbing from lower to higher rungs have not changed (rank-based mobility has remained stable).” They explain that the reason that income inequality does not appear to affect social mobility is that much of the increase in inequality comes from the extreme upper tail (e.g. the top one percent), which would not be strongly associated with social mobility.

Then, what is behind the social mobility? In another study using the same data, the authors found several interesting details that might offer some insight. First, intergenerational mobility varies substantially across geographic areas. For example, the probability that a child born to the lowest income quintile reaches the highest income quintile is 10.5 percent in New York, NY but only 5.5 percent in Detroit, MI. Second, the authors find that intergenerational mobility is strongly correlated to family structure. The factor of children living in single-households has the single strongest correlation with upward mobility among all the variables explored. The authors also identified residential segregation and the strength of community social networks as important factors correlated to social mobility.

The American dream stays alive in some ways. It is encouraging that upward social mobility has not declined for most of the population in the United States. Americans currently in their twenties have the same chances of moving ahead in society as people born two decades ago. However, it is not clear if those chances are good enough. In any case, researchers, and policymakers must be cautious and look further into the causes and consequences of social mobility.

Article Source: Raj Chetty & Nathaniel Hendren & Patrick Kline & Emmanuel Saez & Nicholas Turner, 2014. “Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility” American Economic Review, American Economic Association, vol. 104(5), pages 141-47

Feature Photo: cc/(Al Case)