The Frayed American Dream

November 28, 2007

A sharp rise in income inequality in the United States over the past few decades has created large gaps between the haves and the have-nots. Yet public tolerance—if not acceptance—of these gaps is still widespread. One reason may be the belief on the part of many Americans that plenty of opportunity exists to get ahead, especially for one’s children. But what is the evidence that children do better than their parents, giving them a true shot at the American dream?

Based on some interesting new research conducted at Brookings, and released by the Pew Economic Mobility project, most of today’s adults are better off than their own parents were when they were growing up. Specifically, two out of three people have higher family incomes than their parents did in the late 1960s and early 1970s. The converse: one third remains worse off.

Moreover, much of the gain in income across generations is due to the fact that far more families now have two earners. Men’s earnings have grown little, if at all; but women have entered the labor force in record numbers and their earnings have risen along with their greater involvement in the work world. So, yes, today’s families are better off than their own parents were in the late 1960s or early 1970s. But they are also working more and struggling with the greater time pressures of juggling work and family responsibilities.

Not only are these gains in family income primarily the result of a second paycheck, they are not equally distributed across the population. The good news is that those who started out in the bottom fifth of the income distribution have a good chance of surpassing their parents’ incomes. We find that 82 percent of those born into poverty are absolutely better off than their parents in the sense that they have higher incomes in inflation-adjusted terms, though the gains are usually quite small. In fact, only 36 percent of them make it into the middle class or higher (that is, the top 60 percent in terms of family income) and a paltry 6 percent reach the top rung on the ladder where one fifth of their contemporaries reside.

If one happens to have been born into a family that was both black and poor, the odds that one will move up the economic ladder are even worse. Moreover, one of the most provocative findings of the new research is that African-American parents in the middle class have great difficulty in passing on their affluence to their children, who often end up falling below their parents in income and economic status.

Is a 36 percent chance of making it into the middle class or higher enough to sustain the hope embodied in the American dream? Will the one-third who are downwardly mobile continue to support open borders and the other hallmarks of a market economy? And, should African-Americans be content with having less opportunity than whites to improve their lot and pass on the achievements of one generation to the next?

Our answer is that America could and should do better. Many members of the middle class are only one earner away from poverty. Children from poor and minority families are not achieving economic success in large numbers. Research done at Brookings and elsewhere shows that outcomes for children can be improved through home visiting to new parents, early childhood education, more qualified teachers in every classroom, along with more access to health care and to a college education, all of which could help families across the country realize their aspirations. Opportunity does exist in America. It is the opportunity to repair a frayed American dream.