A flurry of recent headlines proclaims that climbing the income ladder has not grown harder in America in recent decades. Referring to a study published by the National Bureau of Economic Research, many pundits have concluded that the widespread belief that a widening gap between rich and poor has made it harder to get ahead is wrong.
Not so fast. It is true that the study found that the rate of mobility has pretty much remained constant over the last couple of decades. But that doesn’t mean we don’t have a problem. If you’re born to poor parents, you still have a terrible time bettering yourself economically in America, especially if you happen to be born in the wrong place.
The researchers, an impressive group including Harvard's Raj Chetty, Nathaniel Hendren, Emmanuel Saez, Patrick Kline of UC Berkeley, and Nicholas Turner of the Treasury Department, looked at people born from the '70s to the '90s to determine how they are doing relative to their parents. Last summer, the same researchers from Harvard and Berkeley released a study on income mobility at the local level. You have to put these two studies together to get an understanding of what’s going on.
The researchers have found that it’s still harder to move from poverty to affluence in the United States than in most other wealthy countries, like Denmark. "In some sense, how could it have gotten worse?" Hendren asked the Huffington Post. "It's not like we're losing the American Dream. We never really had it."
What you really find in the research is a tale of two Americas—one where dreams can happen, one where they tend to fizzle. You have a decent shot at getting ahead if you live in certain areas of the country, but if you were born in others, you’re chances are pretty slim.
Remember George and Louise Jefferson from the popular sitcom? They wouldn't have been able to “move on up” if they were from Atlanta rather than New York. The researchers found that lower-income children living in cities in the Northeast, upper Midwest and the West Coast have much greater odds of reaching higher rungs on the economic ladder than those from cities in the Southeastern or the industrial Midwest. Geography is destiny, the research shows. Your odds of reaching the top fifth starting from bottom fifth are better than 10 percent in San Francisco, New York and Boston, but lower than 5 percent in Charlotte, Columbus and Atlanta. In Memphis, your chances are just 2.8 percent.
The key issue, the researchers say, “is not that prospects for upward mobility are declining in the U.S. as a whole but rather that some regions of the U.S. persistently offer less mobility than most other developed countries.”
Also, if there’s a big gap between rich and poor in your community, your chances of moving up the ladder are getting worse. As the researchers put it, “Because inequality has risen, the consequences of the ‘birth lottery’—the parents to whom a child is born—are larger today than in the past.”
One question we might ask is that, given the fact that more Americans are going to college, more women are working and minorities are facing less discrimination than several decades ago, why hasn’t the overall mobility gotten better?
While the research finds that people in their 20s and 30s are doing about as well as their parents, it doesn’t look at current trends that may hold you back or knock you down to a lower rung going forward. For example, if you’re a 30-year-old, your salary may be as high as your dad’s was at your age, but you’re also less likely to have a pension, and you’ll probably face higher medical costs in the future. Kids born after 1970 were lucky to have parents whose incomes were boosted by postwar prosperity, and thus reaped the benefits of this economic investment in their children. Kids may not be able to count on this going forward. These factors may suggest that a mobility plunge could be already in the making if we don’t make certain smart moves, like expanding Social Security, as Sen. Elizabeth Warren has urged.
But most of all, your luck depends on where you grow up. The research reveals five factors that influence your chances of climbing the economic ladder.
1. Less segregation: Areas that have high African-American populations face lower mobility, and whites living in predominantly African-American communities also have lower mobility. Translation: it’s the geography that matters rather than your individual race. In addition, areas where poorer people are residentially segregated from middle-income individuals also suffered decreased mobility.
2. Less income inequality: Areas with a smaller middle-class had lower rates of upward mobility. Interestingly, a high concentration of income in the top 1 percent was not highly correlated with mobility patterns. The researchers aren’t sure what this means, but suggest that shrinking the middle-class is a bigger impediment than increased income at the tippy top.
3. Better primary schools: Looking at such indicators as test scores and high school dropout rates, the researchers found, unsurprisingly, that you have a greater chance of climbing the economic ladder if you had access to high-quality primary schools growing up. More spending per student correlates to greater social mobility.
4. Greater social capital: High upward mobility areas tend to have strong social networks and community involvement, which can range from religious connections to more participation in local civic organizations. Clearly, voter supression is not a recipe for reaching the American Dream.
5. Greater family stability: Places where kids are being raised more often by single mothers show a lower rate of mobility— and even the children of two-parent households who live in areas where there are a lot of single mothers tend to have less mobility. This suggests that it’s not the status of the parents per se that matters, but rather the geography.
All in all, the research shows a picture that helps us understand both what we're doing right and what we're doing wrong. A country that looked more like San Francisco and less like Charlotte would offer more children the chance to grow up and realize their dreams.