Friday, January 20, 2017

The Fading American Dream | Trends in Absolute Income Mobility since 1940

Raj Chetty et al. (NBER Working Paper No. 22910 | Dec 2016) - One of the defining features of the “American Dream” is the ideal that children have a higher standard of living than their parents. When children are asked to assess their economic progress, they frequently compare their own standard of living to that of their parents. 

Such measures of absolute income mobility – the fraction of children earning or consuming more than their parents – are also often the focus of policy makers when judging the degree of economic opportunity in the U.S. 

Around 90% of children born in 1940 across the entire income distribution earned more than their parents did at age 30. That percentage dropped each decade, with only about 50% of children born in 1980 earning more than their parents. The likelihood that children at age 30 had a higher inflation-adjusted income than their parents did when they were the same age has been dropping over the last several decades.