The Atlantic: Severe Inequality Is Incompatible With the American Dream

In this article, Alana Semuels discusses research by Miles Corak and others on inequality and mobility.

Excerpt:

The numbers are sobering: People born in the 1940s had a 92 percent chance of earning more than their parents did at age 30. For people born in the 1980s, by contrast, the chances were just 50-50.

The finding comes from a new paper out of The Equality of Opportunity Project, a joint research effort of Harvard and Stanford led by the economist Raj Chetty. The paper puts numbers on what many have seen firsthand for years: The American dream—the ability to climb the economic ladder and achieve more than one’s parents did—is less and less a reality with every decade that goes by.

There are two main reasons why today’s 30-somethings have a harder time than their parents did, according to the authors. First, the expansion of the gross domestic product has slowed since the 1950s, when growth was frequently above 5 percent a quarter. That means the economic pie is growing at a slower rate than it once did, so there’s less to go around. Second, the distribution of that growth is more unequal, and more benefits are accruing to those at the top. Those at the bottom, on the other hand, are not able to achieve as big a share as they once did. Their wages are not growing, so they are stuck at the same level as, or below, their parents. “Because incomes have been stagnant for a relatively large proportion of society, it’s harder for people who stay within that chunk to beat their parents in absolute terms,” Robert Manduca, one of the paper’s co-authors, told me.

 

The problem is less with the existence of such wealth than with how it is created and preserved. For one thing, people at the top are able to use their ample resources to help their children get ahead and stay in their parents’ income bracket. People on the lower rungs of the economic ladder can’t access the same resources. “The relatively rich will skew the chances that their children will do better,” said Miles Corak, a Canadian economist who has studied how inequality informs intergenerational mobility. As children make their way through the education system, their parents’ financial situation tends to inform how successful they are: A child with a nanny, access to pre-school, a tutor, and paid-for college tuition will likely have more professional success in life than a poor child.