In 1970, 30-year-olds had a 90 per cent chance — almost a guarantee — of earning more than what their parents earned at the same age, adjusted for inflation. Ten years later, a 30-year-old still had an 80 per cent chance of making more money than their parents.
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This cornerstone of US identity — that if you put in hard work, a better future awaited — long separated the US from other countries in the American imagination. But in practice, that idea is increasingly evading the country’s young people.
In contrast to previous generations, about half of 30-year-olds in 2016 are earning less than their parents earned at the same age. And it is not just something about the age of 30. The trend also holds if you compare today’s 40-year-olds to their parents, according to a new paper by Raj Chetty and a team of economists that showed that US social mobility fell by more than 70 per cent in the past half-century.
The effect even held when accounting for gross domestic product growth. That is, even if GDP had grown as fast for 30-year-olds today as it had for 30-year-olds in 1970, the researchers found that today’s 30-year-olds would still be falling behind their parents. Instead, inequality has been chiefly to blame. The only thing Mr Chetty and his colleagues found that could reverse this mobility decline was if income growth rates had held steady across all US income groups instead of going primarily to the country’s top earners.
In other words, if the total amount of US income was the same today, but middle and lower-class households took home the same share of income that they had 50 years ago, the drop in social mobility would not be as drastic as it is today.
That falls in line with other research released this month by another group of economists memorable in the field of inequality research, including Thomas Piketty. Since 1970, the average US worker’s income has increased about 77 per cent, adjusted for inflation.
At first blush, that sounds quite good. But Mr Piketty and his colleagues found that wages for households in the bottom half of earners have seen no rise in real income at all since the 1970s.
Instead, almost all of the income gains had gone to those at the very top. During the same time period, incomes for the top 1 per cent of earners rose 216 per cent. Incomes for the entire bottom 90 per cent of US earners rose only about 30 per cent.
This changing distribution of US income and loss of social mobility — by extension, the decline of the American dream — has tangible effects on US society and its political system.
When inequality is worse — even controlling for factors such as income per capita — trust levels and educational outcomes decline across society, researchers found in 2009. The relationships held true not only when compared between developed countries but across US states as well. After the 2016 election, when distrust for societal institutions took centre stage and education proved to be a major factor that divided voters, these findings from almost a decade ago begin to seem like ominous foreshadowing.
Recent work adds to this body of research. A 2015 paper found that political polarisation also rises with inequality. The resulting political deadlock that the researchers observed in the state legislatures they studied created a vicious cycle that rendered lawmakers almost completely incapable of addressing the policy problems that had cultivated inequality in the first place.
There is some more bad news on the horizon for social mobility, presuming it is indeed as linked to income inequality as Mr Chetty and his colleagues suggest. In 2013, the US government forecast that inequality would rise in the next 20 years by just as much as it did in the past 25 years. And if the boom in capital markets continues and top earners receive as much of a relative tax break under president-elect Donald Trump as researchers say they will, the income gap between US earners may grow even larger