The American dream is becoming a rarity – Lifetime earnings mobility has declined since the early 1980s as inequality has increased

Desdemona Despair

By David Brodwin
23 August 2016

(U.S. News & World Report) – If you work hard and play by the rules you will get ahead, according to the American Dream.

But working hard and playing by the rules now feels like running in place to a lot of Americans. The past few years of economic data justify their complaint: Most of the productivity gains in the U.S. economy have been captured by the top 1 percent, and most working Americans have seen their standard of living plateau rather than rise.

Economic stratification has spurred politically explosive resentments. And these resentments have encouraged economists to seek a better understanding of economic mobility – or the lack thereof. Is America still a land of opportunity despite rising inequality? And is education – often hailed as the key to getting ahead – still an important part of the solution?

A recent study by Michael Carr and Emily Wiemers of University of Massachusetts, published at Washington Center for Equitable Growth, offers some insights. Carr and Wiemers have developed a way to track the earnings of individual workers over 15-year spans. Their research tells us how mobility has changed over the past four decades, and how mobility varies with gender and level of education. Their findings suggest the dream still lives – but that it’s getting harder to rise up the economic ranks, even for those who have a college education. […]

As inequality mounts, and our society slowly becomes more stratified, political unrest will increase. This unrest has transformed the presidential election campaign. Regardless of who wins, the pressure will grow to find more equitable ways to expand opportunities and to share the wealth that results. [more]

The American dream is becoming a rarity

ABSTRACT: There is a sizable literature that examines whether intergenerational mobility has declined as inequality has increased. This literature is motivated by a desire to understand whether increasing inequality has made it more difficult to rise from humble origins.  An equally important component of economic mobility is the ability to move across the earnings distribution during one’s own working years. We use survey-linked administrative data from the Survey of Income and Program Participation to examine trends in lifetime earnings mobility since 1981. These unique data allow us to produce the first estimates of lifetime earnings mobility from administrative earnings across gender and education subgroups.  In contrast to much of the existing literature, we find that lifetime earnings mobility has declined since the early 1980s as inequality has increased. Declines in lifetime earnings mobility are largest for college-educated workers though mobility has declined for men and women and across the distribution of educational attainment. One striking feature is the decline in upward mobility among middle-class workers, even those with a college degree. Across the distribution of educational attainment, the likelihood of moving to the top deciles of the earnings distribution for workers who start their career in the middle of the earnings distribution has declined by approximately 20% since the early 1980s.

The Decline in Lifetime Earnings Mobility in the U.S.: Evidence from Survey-Linked Administrative Data