what went wrong blog

Rags to rags: Economic mobility hard to come by

Tuesday, July 10th, 2012 

Are you better off than your parents? You might not think so, but new data from the Pew Center on the States suggests that for most people, the answer is yes. But the report also shows if your parents were poor, you are likely to be poor, as well, and if they were well off, so are you.

In other words, it is both hard to climb the economic ladder, and to fall off it. The findings somewhat call into question the historical Horatio Alger rags-to-riches American mythology.

“The data showed that parental background had a strong input on where people end up,” said Erin Currier, manager of the Pew Center's Economic Mobility project.

Data collected from 1968-2009 compared economic situations of one generation to the next at similar ages, based on quintiles of income and wealth. A majority of Americans, 84 percent, were able to achieve higher incomes than their parents, regardless of where they started. An even greater proportion of those born the poorest, 93 percent, were able to surpass their parent’s income as adults.

But increases in income are the result of “broad-based economic growth” Currier said, and thus there remains a “stickiness at the ends” as opposed to movement from one income quintile to the next. Of those born to families with the lowest incomes, 70 percent never saw the middle class. The same was true for nearly two-thirds of those born to families with the highest incomes.

“Their income gains simply aren’t as large as the income gains of their peers, prohibiting them from moving up the rungs,” Currier said.

While income inequality has dominated the headlines, the accumulation of generational wealth provides a more nuanced picture of American economic mobility. While half of Americans are able to do better than their parents in family wealth, their positions remain mostly static. A sizable majority, two-thirds, of those raised in the top two rungs of the wealth ladder maintained their place while the same percentage stayed in two bottom rungs.

Even more troubling, wealth actually declined from one generation to the next for all but the most wealthy to start, with the least wealthy bearing the brunt of decline. The data reported a staggering 63 percent drop in wealth from one generation to the next for those children born into families who had the least.

Monday’s report from Pew is the first including post-Recession data. The Federal Reserve’s Survey of Consumer Finances, released last month, revealed a 39 percent drop in family wealth between 2007 and 2010, reducing median household net worth to the same point as 1992. For most Americans, home equity, devastated by the housing bust, served as a primary source of wealth—even more so the lower down the wealth ladder.

“The less wealth you had going into the Great Recession the greater your wealth loss in the end,” said Reid Cramer, director of the Asset Building Program at the New America Foundation. The program advocates for policies that help to increase economic security through asset ownership, including savings. Pew data showed children born to low-income parents who had higher savings were more likely to see upward mobility later in life. A college degree was also a key driver of upward mobility, making movement from the bottom to the top 4 times as likely.

But there are those who are still trying to create their own American Dream. Two-thirds of blacks raised in the middle actually fell below it as adults, compared to only a third of whites. Neighborhood poverty was a key indicator of downward mobility, according to Pew. Well over half of blacks were in the bottom quintiles of both income and wealth. Census data shows a significant widening of the persistent racial wealth gap. In 2010, median white household net worth was 22 times higher than that of their black counterparts, up from 12 times in 2005.

“When we took away legal discrimination it opened room for some families to move up. We still had a very large problem with people born in the lower rungs,” Cramer said.

What Went Wrong

Donald Barlett and James Steele are revisiting America: What Went Wrong, their landmark 1991 newspaper series, in a new project with the Investigative Reporting Workshop. Over the next year, the project team will examine how four decades of public policy has shaped America's ongoing economic crisis.

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