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GETTING AHEAD

OR LOSING GROUND:

ECONOMIC MOBILITYIN AMERICA

BY JULIA B. ISAACS, ISABEL V. SAWHILL, AND RON HASKINSThe Brookings Institution

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Julia B. Isaacs is the Child and FamilyPolicy Fellow at The Brookings Institutionand a First Focus Fellow. Her currentresearch examines investments in childrenin the federal budget and the economicmobility of families across generations.Before joining Brookings in 2006, shewas the Director of Data and TechnicalAnalysis in the office of the AssistantSecretary for Planning and Evaluation

(ASPE) in the U.S. Department of Healthand Human Services (HHS). Herparticular expertise was in providingsenior HHS officials with quick turn-around analyses of legislative andbudgetary proposals related to welfarereform, child care, and child welfare.Prior to joining ASPE in 1998, shespent three years doing research onchildhood development and schoolfinance at the American Institutesfor Research and 10 years providingnonpartisan policy analysis to the U.S.Congress through the CongressionalBudget Office. While at CBO, she wasresponsible for analyzing the cost impactof legislation affecting food stamps, childnutrition, child care, and child welfareprograms. A former foster parent, shehas a Masters in Public Policy from theUniversity of California at Berkley andis a former foster parent.

Isabel V. Sawhill is a Senior Fellow andco-director of the Center on Children andFamilies at The Brookings Institution.She holds the Cabot Family Chair. Sheserved as Vice President and Directorof the Economic Studies program from2003 to 2006. She is the author and editorof numerous books and articles, includingtwo volumes of Restoring Fiscal Sanity ,with Alice Rivlin (Brookings Institution,

2004 and 2005), One Percent for the Kids: New Policies, Brighter Futures for Americas Children (Brookings Institution,2003), Welfare Reform and Beyond:The Future of the Safety Net , withR. Kent Weaver, Andrea Kane and RonHaskins (Brookings Institution, 2002),Updating the Social Contract: Growthand Opportunity in the New Century ,with Rudolph Penner and TimothyTaylor (Norton, 2000), and Getting Ahead: Economic and Social Mobility in America, with Daniel P. McMurrer(The Urban Institute, 1998). Dr. Sawhillserves on various boards and was anAssociate Director of the Office of Management and Budget from 1993-1995. She currently serves as Presidentof The National Campaign to PreventTeen and Unplanned Pregnancy.

Ron Haskins is a senior fellow in theEconomic Studies Program, and co-directorof the Center on Children and Familiesat The Brookings Institution and seniorconsultant at the Annie E. Casey Foundationin Baltimore. He is the author of WorkOver Welfare: The Inside Story of the1996 Welfare Reform Law (BrookingsInstitution, 2006) and a senior editorof The Future of Children . In 2002 he

was the Senior Advisor to the Presidentfor Welfare Policy at the White House.Prior to joining Brookings and Casey,he spent 14 years on the staff of theHouse Ways and Means Human ResourcesSubcommittee, first as welfare counselto the Republican staff, then as thesubcommittees staff director, and whilethere was the editor of the 1996, 1998,and 2000 editions of the Green Book.From 1981 to 1985, he was a SeniorResearcher at the Frank Porter GrahamChild Development Center at the Universityof North Carolina, Chapel Hill. He holdsa Bachelors degree in History, a Mastersin Education, and a Ph.D. in DevelopmentalPsychology, from UNC, Chapel Hill.Haskins lives with his wife in Rockville,Maryland and is the father of fourgrown children.

JULIA B. ISAACS ISABEL V. SAWHILL RON HASKINS

The authors thank Julie Clover of The Brookings Institution and Ianna Kachorisof The Pew Charitable Trusts for invaluable editorial assistance.

All Economic Mobility Project materials are guided by input from the Principals Group and the projects Advisory Board. However, the views expressed in this

volume represent those of the authors and not necessarily of any affiliated individuals or institutions.

February 2008

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ince our nations founding, the promise of economic opportunity has beecentral component of the American Dream. An economy that grew to bworlds biggest and most dynamic also held out the promise that hard w

vision, and riskregardless of family backgroundwould be rewarded. Perhaps thremarkable byproduct of the growth of the American economy over the past chas been steady growth in the share of Americans who have been able to achie

comfortable life and have every hope of seeing their children do even better.

While the American Dream remains a unifying cultural tenet for an increasingldiverse society, it may be showing signs of wear. Growing income inequality andgrowth suggest that now is an important moment to review the facts about opportand mobility in America and to attempt to answer the basic question: Is the AmDream alive and well?

With funding and leadership from The Pew Charitable Trusts, and involving schofrom The American Enterprise Institute, The Brookings Institution, The HeritaFoundation and The Urban Institute, the Economic Mobility Project was createdexplore these and other questions fundamental to gauging the health and status the American Dream. This volume, authored by a team of scholars at The BrooInstitution, is one in a series of major research products that aim to enlighten futhe public dialogue on economic opportunity. While it offers reassuring findingin some areas, in many others there is room for concern.

Our hope is that by arming the public and policy makers with facts about the sof opportunity in America today, we will stimulate and frame a debate about w

policies are likely to be most effective in ensuring that the American Dream endfor the next century.

E C O N O M I C M O B I L I T Y P R O J E C T : An Initiative of The Pew Charitable Trusts

F O R E W O R D Getting Ahead or Losing Ground: Economic Mobility In Americiii

FOREWORDBY STROBE TALBOTT AND REBECCA W. RIMEL

S

Sincerely,

Strobe Talbott President The Brookings Institution

Rebecca W. Rimel President and Chief Executive Officer The Pew Charitable Trusts

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OVERVIEWBY ISABEL V. SAWHILL, 1 The Brookings Institution

or more than two centuries,

economic opportunity andthe prospect of upwardmobility have formed the bedrockupon which the American story hasbeen anchored. Indeed, a desire toescape from the constraints of moreclass-based societies was the drivingforce luring many of our ancestorsto this New World, and millions of immigrants continue to flood our

borders in search of the AmericanDream. Americans continue to believethat all one needs to get ahead isindividual effort, intelligence, andskills: coming from a wealthy familyis far from a necessity to achievesuccess in America.

Many Americans are evenunconcerned about the historicallyhigh degree of economic inequalitythat exists in the United States today,because they believe that big gapsbetween the rich and the poor and,increasingly, between the rich andthe middle class, are offset by ahigh degree of economic mobility.Economic inequality, in this view,

is a fact of life and not all that

disturbing as long as there is constantmovement out of the bottom anda fair shot at making it to the top.In short, much of what the publicbelieves about the fairness of theAmerican economy is dependenton the generally accepted notion thatthere is a high degree of mobilityin our society.

Are those beliefs justified? Is thereactually a high degree of mobility inthe United States? Is America still theland of opportunity? With new dataand analysis, this volume addressesthese questions by measuring howmuch economic mobility actuallyexists in America today.

In sum, the research reviewed inthis volume leads us to the viewthat the glass is half empty andhalf full. The American Dreamis alive if somewhat frayed. Mostpeople are better off than theirparents, but slower and less broadlyshared economic growth has madethe economy more of a zero-sum

game than it used to be, with very

high stakes for the winners. Somesubgroups, such as immigrants, aredoing especially well. Others, suchAfrican Americans, are losing grou

Americans have generally beentolerant of unequal outcomes in thpast, even as gaps between the richand the poor have risen, since mosbelieve that opportunities to get

ahead are abundant and that hardwork and skill are well rewarded.We find considerable fluidity inAmerican society. Ones familybackground as a child, measuredin terms of either income or wealthhas a relatively modest effect onones subsequent success as an aduespecially if one grew up in middleclass circumstances. Those at the tor bottom of the ladder are somewless mobile. In addition, there is noevidence that opportunity has increain a way that might offset the slowand less broadly shared growth of income and wealth that families haexperienced. Nor is there evidencethat the United States is in any

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way exceptional when comparedto other advanced countries. Indeed,a number of advanced countriesprovide more opportunity to theircitizens than does the United States.

UNDERSTANDING

ECONOMIC MOBILITY

Broadly defined, economic mobilitydescribes the ability of people tomove up or down the economicladder within a lifetime or from onegeneration to the next. Most of the

chapters in this volume measuremobility in the United States in termsof family income; however, wealthalso plays an important role in thestory, a topic examined in Chapter IV.

Mobility also has a time dimension.One can talk about mobility overa lifetime, between generations, orover a short period such as a year ortwo. Unlike analyses that investigateshorter-term fluctuations or volatilityin incomes, this volume focuses mainlyon intergenerational mobilitytheextent to which children move up ordown the income ladder relative totheir parents. This intergenerationalfocus is intended to capture the spiritof the American Dream, in whicheach generation is expected to dobetter than the one that came before.

We also need to distinguish betweenchanges in income across a generationthat are the result of absolute and relativemobility and differentiate both of these from changes in income thatare due to rising or falling inequality.

Imagine the economy as a ladderupon which we are all perched atsome level. This ladder may begetting taller, boosting everyonesincomes, as the result of economicgrowth. In this volume, we referto this asabsolute mobility . At thesame time, the rungs on the laddermay be getting closer together orfurther apart as incomes becomemore or less equally distributed.We call this a change in the degreeof income inequality. Finally, theability of people to move from one

rung to another may be changingas well, depending on the extentof opportunity. We call this achange inrelative mobility .

Much prior research and publicdiscourse has focused on the rateof economic growth or on the factthat income inequality has beenincreasing in recent decades. Muchless has been written about relativemobility since it requires followingwhat happens to specific individualsincomes over their life course or overseveral generations. But knowingmore about the degree of relativemobility in the United States isessential to judging the fairnessof our society.

To illustrate the importance of relative mobility, consider threehypothetical societies withidentical distributions of wealthy, poor, andmiddle-class citizens.2

The Meritocratic Society:In this society those who work the

hardest and have the greatest talent,regardless of class, gender, race,or other less-germane characteristichave the highest income.

The Fortune Cookie Society:In this society, where one ends upbears no relation to talent or energyand is purely a matter of luck.

The Class-Stratified Society:In this society, family background all-importantchildren end up in same relative position as their pare

Mobility between classes is small tnonexistent.

Given a choice between the three,most people would choose to live a meritocracy, which is, by its natufairer and more just. In a meritocrasuccess is dependent on individual acwhereas in a class-stratified or fortcookie society, they are buffeted byforces beyond peoples control. Evif the level of income inequality widentical in each of these societies,most people would judge them qudifferently. In fact, most individualmight well prefer to live in a meritocwith more income inequality than a class-stratified or fortune cookiesociety with a more equal incomedistribution. It is worth noting, howethat even in a meritocracy people aborn with different genetic endowmand are raised in different familyenvironments over which they haveno control, raising fundamentalquestions about the fairness of evea perfectly functioning meritocracyThese circumstances of birth may


O V E R V I E W Getting Ahead or Losing Ground: Economic Mobility in America2

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be the ultimate inequalities in anysociety. That said, a meritocracy witha high degree of relative mobility isclearly better than the alternatives.

In what follows we give specialemphasis to relative mobility,but since changes in an individualfamilys fortunes also reflect whatis happening to economic growth(absolute mobility) and how broadly thatgrowth is shared (changes in incomeinequality), we first examine all threesources of change and then return

to how, in combination, they haveaffected the economic well-being of individual Americans.

Economic Growth

A growing economy ensures thateach generation is better off than theprevious one. Economic growth is animportant source of upward mobility.A middle-class family in 2008 hasaccess to many goods and servicesthat were either not available inthe past (computers, cell phones,microwaves) or were consideredluxuries (air travel, air conditioning,television).

But economic growth and the upwardabsolute mobility it brings familieshas slowed. From 1947 to 1973, therate of growth of the typical familysincome was unusually rapid, roughlydoubling in a generations time.However, since 1973 the increaseover a generations time has beenmuch smaller, about 20 percent, asnoted in Chapter II. In other words,

the tide lifting all boats has weakenedwith the result that improvementsfor the youngest generation havenot kept pace with what their parentsand grandparents experienced.

Underlying this trend have beenchanges in the earnings of both menand women. Especially surprising isthe finding that men in their 30stoday are earning less than did themen of their fathers generation (menwho were in their 30s in the 1970s).As documented in Chapter V, in 2004

the inflation-adjusted incomes of menin their 30s were 12 percent less, onaverage, than the incomes of men intheir fathers generation at the sameage. Clearly this group of younger menhas not benefited from the economicup-escalator that has historicallyensured that each generation woulddo better than the last.

And yet in spite of declining incomesfor young men, family incomes havecontinued to rise over the past severaldecades, albeit slowly. Families arebetter off because more women havegone to work, and the rise in womensearnings has outpaced the decline formen. No longer can the typical familydepend on a single earner to movethem up the economic ladder.

However, a number of factorscomplicate the interpretation of these and other data on family incomes.The first is the declining size of theAmerican family which means thatthe average family has fewer peopleto support and thus is financially

better off for this reason alone. Thesecond is the time squeeze and extcosts for child care or other work-related expenses associated with thloss of a full-time homemaker withthe family. The third is the growingimportance of non-cash benefits, sucas health insurance provided byemployers or the government. Thefourth is our focus on what is happento thetypical family, whose fortunemay improve little in a period whemost of the gains from growth aregoing to people who are concentra

at the top of the distribution. Finallthere has been a substantial declinemarriage rates over the past generatIf having two earners is critical to teconomic success of many of todayfamilies, then this decline, by deprivmany families of a second earner, hreduced economic mobility. Thus, famsize and structure both play a criticrole in the mobility story, with thegrowth of the two-earner family bethe primary factor that has saved thtypical family from downward mobi

All of these complexities should bkept in mind as one reads this volumbut none of them should, in our vieoverturn the basic conclusion thatfamily income growth has slowed.In the process, income inequalityand relative mobility have becomeincreasingly important sources of tchanging fortunes of individual fami

Inequality

As suggested above, one reason thaverage family has not fared better



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in recent decades is economicgrowth has not been broadly shared.Inequality of both income and wealthhas been increasing, as documentedin Chapters II and IV. Inequalityof family incomes fell until the late1960s but has risen steadily eversince. Wealth is even more unevenlydistributed than income, and theconcentration of assets at the topof the income distribution has beengrowing at least since 1989.

Relative Mobility

These facts about inequality tellus nothing about who is rich or poor.Todays rich may become tomorrowspoor or vice versa. So the more importantquestion may be how much opportunityexists for individuals to move up anddown the economic ladder. That is,how much relative mobility do wehave in the United States? Do theadvantages of birth persist into asecond generation or do they dissipateas each generation makes its own wayin the world? Does the child born inNewark have anything like the lifeprospects of a child born in BeverlyHills? Just how much opportunity dochildren from families with varyingamounts of income and wealth have toget ahead? If all or most children havea decent shot at the American Dream,then the fact that the dream mayproduce very large fortunes for someand very small fortunes for othersmay not cause much concern. Indeed,large prizes for success may simplystir the kind of ambition and strivingnecessary to a dynamic economy.

These questions about relative mobilityare especially relevant during a periodin which inequalities of income andwealth are on the rise. If there werelittle or no economic inequality andall incomes across society were similar,discussions of relative mobility wouldhave little resonance: people could notimprove their economic status significantlyby changing ranks. Put differently,if the rungs on the economic ladderwere closer together, then occupyingone rung rather than another wouldhave few consequences. However, in

a society with a high level of economicinequality, in which the rungs on theladder are increasingly distant fromone another, where one stands onthe ladder matters a great deal. Asincome inequality has grown andthe ability of economic growth to makeeach generation better off than thelast has weakened, the question of how much opportunity each individualhas to move up or down the ladderis critical.

Americans strongly believe that hardwork and talent lead to economicsuccess. This underlying belief inthe fluidity of class and economicstatus has differentiated Americansfrom citizens in the majority of otherdeveloped nations. As documented inChapter III, compared to their globalcounterparts, Americans are far moreoptimistic about their ability to controltheir own economic destiny. They arefar more likely to believe that peopleget rewarded for intelligence, skill,and effort and far less likely to believethat its the governments responsibility

to reduce differences in income. Tpublic believes, in short, that we shohave a society based on equality ofopportunity, not equality of outcom

So what is the state of opportunityrelative mobility in the United StatJust how fluid a society do we havIn this volume, we approach thisquestion by examining in detail, anwith new data, the extent to whichfamily background determines whone ends up in the overall distributof income and wealth.

As shown in Chapter I, the view thAmerica is the land of opportunitdoesnt entirely square with the facIndividual success is at least partlydetermined by the kind of familyinto which one is born. For examp42 percent of children born to parenin the bottom fifth of the incomedistribution remain in the bottom,while 39 percent born to parents in thetop fifth remain at the top. This istwice as high as would be expecteby chance. On the other hand, thisstickiness at the top and the bottois not found for children born intomiddle-income families. They havroughly an equal shot at movingup or moving down and of endingup in a different income quintilethan their parents.

One method that scholars use todetermine how much relative mobor fluidity exists in the United Stateto estimate statistically the extent to wa parents economic status affects theconomic position of their adult child



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The most common measure, calledintergenerational income elasticity,has been calculated by numerousresearchers, with varying results,but most estimates of this measurefind that it is in the neighborhoodof 0.5. This number means that, onaverage, if a childs parents incomeis 20 percent higher than the averagefamily in the parents generation, thenthe chances are that as an adult thechild will have an income that is 10percent higher than the average forhis or her generation. In short, if this

mobility measure is 0.5, about half of the advantage of growing up in amore affluent family is transmittedfrom parents to their children.

Two chapters in this volume, ChaptersV and VI, consider whether thisadvantage is different for men andwomen or for blacks and whites.For both men and women, butespecially for women, there is anadditional route to upward mobilitybeyond earning a good income:marrying well. If a child marriessomeone whose income prospectsare similar to the childs own parents,then marriage may help to preservethe initial advantages or disadvantagesconferred by ones family background.Whatever the mechanism by whichparents transmit their advantagesto their children, the evidencesuggests that sons and daughtershave fairly similar rates of mobilityacross generations.

The story for black families ismore disturbing. Not only are the

mobility prospects for poor blackchildren worse than the prospectsfor poor white children, but inaddition, the majority of blackchildren born to middle-incomeparents in the late 1960s have lessfamily income than their parents did.In short, they have been downwardlymobile. Although this finding is basedon a fairly small sample, this failureof middle-income black families topass their advantages on to theirchildren does not suggest thatracial economic gaps will close

any time soon.

It is not only parents income but alsotheir wealth in the form of financialassets such as stocks and bonds, andnonfinancial assets such as equity in ahome, that can provide advantages tothe next generation. Parents may usetheir assets to improve their childrenschances of getting ahead, for exampleby paying for their education, or theymay make direct transfers to theirchildren either before or after death.Chapter IV, which reviews the currentdata on wealth and its effects onintergenerational mobility, concludesthat parent-child wealth correlationsare similar to parent-child incomecorrelations but that each generationdoes have a reasonable shot ataccumulating assets. Moreover,the author cautions against thinkingthat the positive advantages wealthyparents confer on their childrenprimarily reflect the direct inheritanceof wealth between generations: onlyabout one-quarter of families actuallyreceive inheritances. Whatever benefits

wealthy parents pass on to theirchildren, they are more subtle orindirect than simple gifts of cashor other assets.

What are we to conclude from theresearch on relative mobility? Doethe United States have the kind of equality of opportunity so oftenheralded in our public discourse?After all, some association betweethe incomes of parents and childreis to be expected since children wialways inherit certain advantages

from their parents, if for no otherreason than because they sharesimilagenes. Thus, we should not expectthe correlation between parents andchildrens income or wealth to be zer

While there is certainly room formore research and debate in thisarea, the international comparisonsanalyzed in Chapter III reveal thatthere is less relative mobility in theUnited States than in many otherrich countries. One well-regardedstudy finds, for example, that theUnited States along with the UniteKingdom have a relatively low rateof relative mobility while Canada,Norway, Finland, and Denmarkhave high rates of intergenerationamobility. France, Germany, andSweden fall somewhere in the middl

Finally, most of the historical analysdetailed in Chapter II, reveals that thhas been no strong trend in relativemobility since about 1970, althouga few studies suggest that relativemobility may have declined. In sum



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inequalities of income and wealthhave clearly increased, but theopportunity to win the larger prizesbeing generated by todays economyhas not risen in tandem and has,if anything, declined.

THE AVERAGE FAMILYS

EXPERIENCE

What does all of this mean for theaverage family? How have absoluteand relative mobility along with growingeconomic inequality affected individual

families over the past three decades?

The first thing to note is that Americanshave become quite pessimistic of lateabout economic prospects for theirchildren. Less than one-third of votersin exit polls after the 2006 electionsaid that they thought life would bebetter for the next generation.3 Butis such pessimism warranted? Howdoes this attitude stack up againstthe historical evidence?

Based on new data, Chapter I findsthat two out of three people havemore inflation-adjusted income thando their parents. Thus, most adultchildren are doing better than theirparents did. And yet there is a downsideto this good news: one out of threeAmericans has a family income thatis below what their parents was ageneration ago. These changes ininflation-adjusted income mayunderstate improvements in well-being since families tend to be smallernow and because various benefits thathave increased in value, such as health

insurance, are not included in theincome measures used for the researchin this volume.

However, more of these families mustrely on two earners to get ahead andpay the extra costs for child care andother work-related expenses that thisentails. To some people, a findingthat despite the increased work hoursassociated with the growth of two-earnerfamilies, one-third of American familiesare worse off than their parents isdisturbing. They will argue that had

economic growth been higher andmore broadly distributed over the past30 years, many more of todays adultswould have been able to climb theeconomic ladder. Others will emphasizethe fact that two out of three peopleare better off than their parents. Fromthis second perspective, there is muchto celebrate and the hand-wringingabout rising inequality of income couldbe viewed as unwarranted.

The Special Case of Immigrants

There is one group for whom thestory is especially positive: immigrants.Virtually all of the research on thefortunes of American families citedthus far is based on a sample of thosewho were born in this country. Immigrantfamilies are not included in the surveysfor the simple reason that if ones parentswere born in another country, data ontheir income is not readily available.But as noted in Chapter VII, devotedspecifically to the immigrant experience,for this group the American Dreamis alive and well.

About 1.5 million immigrants (two-thirds of them legal and one-thirdillegal) come to the United Statesevery year, hoping to improve theilives and those of their families.Because wages and standards of liviare often higher in the United Statethan in their country of origin, mosof them experience a big jump in theconomic prospects. Those who cofrom industrialized countries earn mthan their native-born counterpartswhile those who come from lessindustrialized countries, like Mexi

earn less than non-immigrants in thUnited States but still far more thathey could have earned in their homcountry. And by the second generattheir children, on average, are doineven better than their parents.

To be sure, the low levels of educaamong recent immigrants from Meand similar countries means that soimmigrants, although upwardly morelative to their parents, are still earnless than the average American. Stit seems fair to conclude that the UnStates remains the land of opportunfor those born in many other parts the world.

Looking Forward: The Roleof Education

What can we as a society do to ensurthat todays children have the kindof opportunities needed to improvethe fortunes of individual families othe coming generation? There is a wiheld belief in America that educatiis the great leveler, and there is stro



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evidence that education contributessubstantially to earnings and that itcan boost the mobility of childrenfrom poor and low-income families.As noted in Chapter VIII, a collegedegree is increasingly the ticketto improving or maintaining onesrelative position in the economy.

If it is obvious that education hasgreat potential to boost the economicmobility of the less fortunate, it isimportant to ask whether the nationsschools do enough to promote economic

mobility. An examination of preschool,K-12, and undergraduate and graduateeducation in the United States revealsthat the average effect of educationat all levels is to reinforce ratherthan compensate for the differencesassociated with family backgroundand the many home-based advantagesand disadvantages that children andadolescents bring with them into theclassroom. There is no reason toexpect change in the disappointingeffect of education on economicmobility unless effective reformsare aggressively pursued at all levels.Any detailed discussion of suchreforms is beyond the scope of thisvolume, but the issue should be frontand center for those concerned aboutexpanding opportunity.

A GUIDE TO THE REST

OF THE VOLUME

The purpose of this volume is notto address these policy challengesbut rather to provide as objectiveand comprehensive a look at the data

as possible. The chapters that followinclude far more information thanis reflected in these introductorycomments, including a great dealof new data and analysis. For thisreason, the reader is encouragedto dip into the succeeding chapters,each of which is briefly summarizedbelow.

Economic Mobility of Families Across Generationsby Julia Isaacs

This comprehensive view of intergenerational mobility looksat how the three sources of changein an individual familys fortuneshave contributed to their economicposition. In examining each of these,Chapter I finds a mixed story formobility in the United States.

The current generation of adultsis better off than the previous one,but their incomes are more unevenlydistributed. Median family incomefor adults who were children in thelate 1960s and are now in their 30sor 40s increased 29 percent, from$55,600 for parents to $71,900 fortheir children, adjusting for inflation.The biggest gains have occurred atthe top of the distribution and thesmallest at the bottom.

Two out of three of todays adultshave higher levels of inflation-adjustedfamily incomes than their own parents.Compared to their parents, they alsolive in families or households thatare smaller and where there is often

a second earner. The higher onesparents income, the less likely oneto surpass it. If ones parents incomwas high, the only way to surpass through economic growth. Adults whparents were lower on the ladder csee an increase in their incomes, bobecause of economic growth and becthey move up the ladder relative totheir parents, and many do. Indeedfour out of five children whose parwere in the bottom fifth of the incodistribution end up with higher incomthan their parents.

Contrary to American beliefs abouequality of opportunity, a childseconomic position is heavily influenby that of his or her parents. Forty-twpercent of children born to parents inbottom fifth of the income distributremain in the bottom, while 39 percborn to parents in the top fifth remaat the top. Children of middle-incoparents have a near-equal likelihooof ending up in any other quintile,presenting equal promise and perilfor those born to middle-class parentOnly 6 percent of children born toparents with family income at thevery bottom move to the very top.

Finally, the chapter combines theconcepts of absolute and relativemobility to create four new categorieabout one-third of Americans areupwardly mobile and as such havsurpassed their parents income antheir parents economic rankings.About one-quarter of Americans ariding the tide, remaining in thesame relative economic position



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but making more than their parentsin absolute terms. A small group of individuals (5 percent) are fallingdespite the tide, having surpassedtheir parents income yet having fallenbehind their parents in economicstanding. Finally, about one-thirdof Americans are downwardlymobile and as such are bothearning less than their parents andhave failed to rise above their parentseconomic position. That the portionsof the country that are upwardlymobile and downwardly mobile

are about the same highlights theconclusion that the mobility storyfor American families is quitemixed: while the economy is workingfor some, many others are still beingleft behind.

Trends in IntergenerationalMobility by Isabel Sawhill

Knowing what the trends have beenfor mobility is useful for interpretingother developments in Americansociety, such as rising economicinequality, and in assessing the degreeto which the opportunity to get aheadmay have changed in recent decades.Chapter II further details trends in thethree sources of change that togetherdetermine a familys fortunes: economicgrowth, income inequality, andrelative mobility.

The chapter finds that throughoutAmerican history families have movedup the ladder primarily as a resultof economic growth. In short,absolute mobility was high for

much of the nations history. Butfor the most recent generations, thoseborn after about 1970, economicgrowth has had less impact on theaverage family and absolute mobilityhas declined.

While absolute mobility has beendeclining, income inequality has beenrising. Economic growth is no longeras broadly shared as it was in the1950s and 1960s, so growing gapsbetween the rich and poor have beenforming since the 1970s.

These growing gaps along with slowergrowth make it more important thanever that children have an opportunityto improve their relative status bymoving up the economic ladder. Solidstudies, such as those by Gary Solonand Christopher Jencks, suggest thatthere is little evidence that relativemobility has increased or decreasedsince about the 1970s. However, theresearch base for coming to any firmconclusions is limited and the studiesdo not all agree. For example, accordingto studies by Bhashkar Mazumderand colleagues, relative mobilityhas declined.

Looking forward, there is notyet sufficient data to say with anyconfidence what the experienceof subsequent generations will be.However, it is clear that with growingeconomic inequality and slowingeconomic growth the effects of familybackground on ones ultimateeconomic success are more importantthan they used to be.

International Comparisonsof Economic Mobility by JuliaIsaacs

A comparison of mobility in Amerwith mobility in other countries revanother aspect of the opportunity tget ahead. Chapter III concludes thfor the most part, the widely heldassumption of greater economicmobility in the United States isnot borne out by the evidence, desthe fact that Americans have morefaith in their ability to get ahead than

do many people abroad.

The chapter summarizes the workof Miles Corak who, in a comparisof mobility in the United States wimobility in several developed Europnations, concludes that America islow-mobility country in which abohalf of parental earnings advantageare passed onto sons. The UnitedKingdom is also classified as a lowmobility country, while France, Germand Sweden are mid-range, and CanaNorway, Finland, and Denmark areconsidered high-mobility countrieswhere less than 20 percent of incoadvantages are passed onto childre

The chapter also reviews researchby Markus Jntii and colleagues thdelves more deeply into this questiby examining how the relationshipbetween the earnings of parents anchildren varies for individuals whoare on different rungs of the econoladder. They find that starting at thbottom of the earnings ladder is mof a handicap in the United States



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than in other countries. In other words,though there is stickiness at the topand bottom of the earnings ladder inall countries, there is a particularlyhigh amount of stickiness at thebottom for Americans.

There is some good news, however,from this research. First, workers inthe middle of the earnings distributionare fairly mobile across all countries,and occupational mobility appears tobe higher in the United States thanin Europe. Second, the United States

seems to rank high when comparedwith some less developed countriesin terms of intergenerational mobility.And finally, U.S. workers seem aslikely as European workers to moveup or down the earnings ladder in a5- or 10-year period.

The chapter notes that the internationalliterature focuses only on relativemobility measures and ignores theimportant effects of economic growth.It thus calls for future cross-countryresearch investigating both absoluteand relative mobility in order to gaina more comprehensive view of theopportunity of people in differentcountries to get ahead.

Wealth and Economic Mobilityby Ron Haskins

Previous chapters have shown thatthere is a substantial relationshipbetween the income of parents andthe income of their adult children.Does the same relationship existfor the wealth of parents and their

children? Ron Haskins examinesthis relationship and concludes thatparent-child correlations in the amountof wealth families hold are similarto parent-child correlations intheir incomes.

What have the trends in wealth beenover the past few decades? Haskinsshows that from 1989 to 2004, thegrowth of wealth in the United Stateswas unusually strong but also veryunevenly distributed. This was especiallyso for financial assets, with the top

one percent of households controllingan average of 50 percent of all financialassets in 2004.

Indebtedness, which reduces netassets and thus wealth, has also beenincreasing. Since 1949, total debt asa percentage of disposable personalincome has increased nearly fourfold.Haskins shows that those likely toexperience trouble with excessive debtare concentrated at the bottom of theincome distribution, so the lower theincome, on average, the higher therate of excessive debt.

How wealth is distributed in thecurrent generation is important,but equally important is whetherthe winners in a given generationcan pass their winnings on to theirchildren or use their winnings toboost the economic prospects of theirchildren. The intergenerational wealthelasticity, similar to the intergenerationalincome elasticity discussed in otherchapters, expresses the percentagevariation to expect in a childs wealth

in connection with a percentagevariation in his or her parents wealthRecent studies have found wealthelasticities between .32 and .50 inthe United States, indicating thatthe wealth of children is quite strongcorrelated with the wealth of theirparents.

The greatest wealth similarity isbetween parents and offspring at thextremes of the income distributioFor example, children whose parenare in the top quintile of the wealth

distribution have a 36 percent chanof also being in the top quintile an60 percent chance of being in one the two top quintiles in their adult yeHowever, there is still considerablemovement by adult children to wequintiles other than the one occupiedtheir parents. For example, 35 percof adult children of parents in the lowwealth quintile moved up to the tothree quintiles, while over 40 perceof those born to parents in the topwealth quintile moved down to thebottom three quintiles. This suggesthat there is a much greater level of intergenerational fluidity than hasbeen suggested by recent accountsin the popular press.

Given the relatively strong relationbetween parents wealth and the weof their children, it is important toquestion why this relationship exisThere are two possible reasons:parents could help their childrenachieve wealth by making investmentin their development or by giving thmoney directly. However, the majo



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of families do not receive substantialgifts or inheritances from their parentsor others, suggesting that more indirectinfluences are at work. This findingcombined with the data cited aboveindicates that the American economycontinues to facilitate the productionand accumulation of wealth in eachnew generation.

Economic Mobility of Menand Women by Julia Isaacs

If Chapter I provided new data on

how todays families are faring relativeto their parents, Chapters V, VI, andVII look beyond the story for all familiesto examine how mobility may havevaried for men and women, for blacksand whites and for immigrants andnative-born Americans.

In Chapter V, Isaacs examines how menand women have fared economicallyover the past few decades and whetherthe transmission of economic advantagefrom parents to children has differedfor sons and daughters.

Isaacs finds that women in their30s today have substantially higherpersonal income than comparablyaged women in their mothersgeneration but still make less thantheir male counterparts. Men haveexperienced something entirelydifferent. Inflation-adjusted medianincome for men in their 30s fell by12 percent between 1974 and 2004.These two trends together led to aslight increase in family incomesover the same time period.

Unlike personal income growth, relativeincome mobility for sons and daughtershas been quite similar. One exceptionis lower mobility rates for the daughtersof low-income parents as comparedwith the sons of low-income parents,a difference that is at least partlydue to the fact that the daughters aremore likely to become single parents.

Isaacs finds that the intergenerationaltransmission of advantages for men isprimarily driven by a relatively strongrelationship between the earnings of

fathers and sons. For both sexes, butespecially for women, intergenerationaltransmission is also affected by thetendency to marry those whose incomeprospects are similar to ones parents.

The findings highlight the importanceof recognizing that economic mobilitygenerally occurs within the contextof families and is not solely a resultof individuals operating as loneeconomic agents.

Economic Mobility of Black andWhite Families by Julia Isaacs

Throughout history blacks have hadlower median incomes and higherpoverty rates than whites in the UnitedStates. Some progress in closing thesegaps has occurred, but the pace of change has often been slow or evenmoved in the wrong direction. WhileIsaacs shows that median family incomeshave risen for both black and whitefamilies over the past 30 years, theyhave risen less for black families, inpart because of declines in the incomes

of black men combined with lowmarriage rates in the black populatiThe result was no steady progressin reducing the family income gapbetween blacks and whites betwee1974 and 2004. In 2004, medianfamily income of blacks ages 30 to 3was only 58 percent that of whitefamilies in the same age group.

The data also reveal a significantdifference in the extent to whichblack and white parents are ableto pass their economic advantages

onto their children. Isaacs finds thanot only are white children more lito surpass their parents income thblack children at a similar point inthe income distribution, but they aalso more likely to move up the ladwhile black children are more liketo fall down. Indeed almost half ofblack children whose parents weresolidly middle class in the late 196end up falling to the bottom of theincome distribution, compared to 1percent of white children. And blachildren from poor families have poprospects than white children fromsuch families: more than half (54percent) of black children born toparents in the bottom quintile remathere, compared to 31 percent of white children.

There is still much work to be donin this field, and Isaacs cautions ththe current analysis is hindered by thsmall number of minority househoin the longitudinal surveys used tomeasure intergenerational mobilityShe calls for analysis of additional



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data sets as well as more extensiveresearch on factors contributing toracial differences to better understandthe different mobility experiences of blacks and whites.

Immigration: Wages, Education,and Mobility by Ron Haskins

The American engine of economicassimilation continues to be a powerfulforce, but the engine is incorporatinga fundamentally different and largergroup of immigrants than it did in

earlier generations. Immigration roseduring the 1960s, 1970s, and 1980s,and has remained at a high level of nearly one million legal immigrantsentering the country each yearthroughout the 1990s. In addition tolegal immigrants, it is estimated thatabout 500,000 illegal immigrantsnow arrive each year.

The effects of a much larger numberof immigrants on the wages andemployment prospects for native-born Americans is a hotly contestedissue, and one which has not beenresolved. One side, represented byGeorge Borjas of Harvard, argues thatincreases in less-skilled immigrantshave reduced wages and employmentand increased incarceration rates forblacks. The other side, represented byDavid Card of Berkeley, argues thatimmigrants have affected the demandfor goods as well as the supply of labor and that the American economyhas had little difficulty absorbingimmigrant labor without imposingcosts on the native-born.

While the debate over the impact of immigration on native-born Americansis by no means resolved, there is littledebate that these immigrants haveimproved their circumstances bycoming to the United States and areexperiencing strong upward mobilitybetween generations. Not only is thefirst generation to arrive in the UnitedStates likely to be much better off than their parents in the home country,dramatically so in the case of immigrantsthat come from less industrializedcountries, but the second generation

(the children of immigrants) alsoexperiences upward mobility on average.

The story for second generationimmigrants is largely determined bythe large degree of assimilation thattakes place between the first andsecond generation. While first generationimmigrants from non-industrializednations tend to earn less than averagenon-immigrant workers, those fromindustrialized nations tend to earnmore. By the second generation thewages of both groups move towardaverage non-immigrants wages, sosecond generation immigrants fromnon-industrialized nations generallyexperience upward relative mobility,while those from industrialized nationstend to move in the opposite direction.As a much larger number of todaysimmigrants come from less industrializedcountries, in the aggregate, there is aclear trend of upward mobility amongstsecond generation immigrants.

At the same time, because theseimmigrants from less industrialized

countries are becoming more numerand have a relatively low level of educational attainment, the relativewages of first and second generatioimmigrants have been declining ovethe last 60 years compared to non-immigrants. In 1940, new immigrawere earning almost 6 percent morthan non-immigrant workers; in1970, recent arrivals were stillearning 1.4 percent more than theirnon-immigrant counterparts; in 200first generation immigrants earned20 percent less than the typical non

immigrant worker. Relative wages fsecond generation immigrants havedeclined similarly.

Although there is considerableassimilation, immigrants in theUnited States resemble their non-immigrant counterparts in the wayin which certain advantages persistbetween generations. However, asrecent immigrants have become moreducationally disadvantaged, thechallenge of assimilation for thesecond generation will be greater.

Education and EconomicMobility by Ron Haskins

In this chapter, Haskins reviews thebasic facts showing the strong correlabetween education and income, wievery additional degree from highschool through graduate or professioschool improving ones income. Henotes that although Americans arebecoming more educated on thewhole, the upward trend has slowein recent decades, especially for me



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In addition, whites and Asians havesignificantly higher rates of graduationfrom both high school and collegethan do blacks and Hispanics.

Furthermore, data support theassumption that because educationhas such a strong influence on income,it has a strong influence on economicmobility across generations as well.Haskins shows that a greater percentageof adult children with college degreesexceeded their parents income thanthose without a college degree across

the entire income spectrum. Thus,whatever ones family background,education provides an importantboost to ones future prospects. But

education does not erase the effectsof family background. Strikingly,children from low-income familieswith a college education are no morelikely to reach the top of the incomeladder than children from high-income families without a collegeeducation. In short, education iscritical to success in todays economyand an important explanation of why some groups get ahead whileothers are left behind, but it cannotcompletely erase the effects of familybackground on ones ultimate success.

While most Americans view educationas the great leveler and a key factorin increasing the mobility of individuals

and their families, Haskins finds, ahave others, that education in the UnStates is not doing as much as it coto improve the fortunes of individuAmericans. Indeed, Haskins concluthat at every level from preschool, the K-12 system, to the nationscolleges and universities, the averageffect of education is to reinforce thdifferences associated with familybackground. This conclusion is baseon the fact that test score gaps byrace and income are large even atan early age, and despite many eff

at reform, educational achievemenhas changed little and the gapsbetween more and less advantagedstudents have closed only modestly



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NOTES1 Some of the material for this chapter is drawn from an earlier essay co-authored by Isabel Sawhill and John Morton, entitledEconomic Mobility: Is the American Dream Alive and Well? Also see Sawhill and McLanahan, 2006.

2 For more discussion, see Sawhill, 1999.3 National Election Pool Exit Poll Results, Edison Media Research, November 7, 2006. http://exit-poll.net/ orhttp://www.cnn.com/ELECTION?2006/pages/results/states/US/H/00/epolls.0.html

RESOURCESMcMurrer, Daniel P. and Isabel V. Sawhill. 1998.Getting Ahead: Economic and Social Mobility in America.Washington, DC:Urban Institute Press.

Sawhill, Isabel V. and John E. Morton. 2007. Economic Mobility: Is the American Dream Alive and Well? WashingtEconomic Mobility Project, an initiative of The Pew Charitable Trusts.

Sawhill, Isabel V. and Sara McLanahan. 2006. Introducing the Issue. Future of Children, 16 (2): 317.

Sawhill, Isabel V. 1999. Still the Land of Opportunity? Public Interest,no. 135.



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A C K N O W L E D G E M E N T S

This chapter is authored by Julia Isaacs of The Brookings Institution and is a product of the Economic Mobility Project, an initiative of The Pew Charitable Trusts. Researchsupport was provided by Thomas DeLeire of the University of Wisconsin-Madison and

Leonard Lopoo of Syracuse University, who provided tabulations of data from the Panel Study on Income Dynamics. Additional research support was provided by Emily Roessel of The Brookings Institution. The author also acknowledges the helpful comments of

Isabel Sawhill and Ron Haskins of The Brookings Institution, Christopher Jencks of Harvard University, and John E. Morton and Ianna Kachoris of the Economic Mobility Project at The Pew Charitable Trusts.

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ECONOMIC MOBILITY OF

FAMILIESACROSS GENERATIONS

BY JULIA B. ISAACS, The Brookings Institution

or most Americans, seeingthat ones children are betteroff than oneself is the essence

of living the American Dream. Indeed,much of the American spirit is grounded

in the belief that with determinationand hard work, one can rise fromhumble beginnings and achieve acomfortable, middle-class life, if not great wealth.

Do children in America, in fact,advance beyond their parents in termsof family income? Do children fromdifferent family backgrounds havean equal shot at rising in society?

This chapter seeks to answer thesetwo central questions about theeconomic mobility of families acrossrecent generations. To explore thesequestions, the analysis focuses onmeasures of absolute mobility, orhow overall trends in economic

growth lead to increased economicwell-being, and measures of relativemobility, or how easily Americansof different family backgrounds moveup or down the income ladder, inrelative economic standing.

A Note about Method As explained in the overview chapter,

economic mobility has increasinglybecome a family enterprise. Accordingly,this study focuses on family incomes of both the parents and children in thissample. In chapters that follow, outcomes

by gender, race, and education areanalyzed for these same families.

The primary source of data for thisanalysis is a nationally representativesample of children who were ages018 in 1968. These children andtheir parents have been tracked formore than 36 years through thePanel Study of Income Dynamics(PSID), allowing comparison of thechildrens income as adults withtheir familys income in childhood.

Specifically, total family income of the now-grown children averaged acrossfive recent years (1995, 1996, 1998,2000 and 2002) is compared withthe five-year average of their parents

income in 19671971. (Furthermethodological discussion of the PSIDdata sample and how family incomeis defined is provided in Appendix A.)

Any analysis that seeks to compre-hensively assess the health of theAmerican Dream and economicopportunity must consider both

absolute and relative mobility.Traditional measures of absolutemobility involve comparisons of growth at different points in theincome distribution. This chapter

introduces a new measure of mobthat directly compares children anparents when assessing growth inreal income. For analysis of relatimobility, parents and children areranked by family income and thendivided into five equal-sized grouor quintiles. The analysis then measuthe extent to which families movefrom one quintile to another.

In addition to analyzing absolute arelative mobility independently, thstudy introduces a new typology tintegrates these two key conceptsdescribes how Americans experieeconomic mobility in America to

REAL INCOME GROWTH:

THE CURRENT GENERATION

IS BETTER OFF THAN THE

PREVIOUS ONE

Adults who were children in 1968twho were in their 30s and 40s at tend of the centurytend to havemore income than did their parengeneration at the same age.

F


I

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E C O N O M I C M O B I L I T Y O F F A M I LI E S Across Generations16

Median family income rose by 29percent between the two generations,from $55,600 in inflation-adjusteddollars to $71,900.1 Mean or averagefamily incomes, which are morestrongly influenced by incomes atthe top of the income distribution,grew even more rapidly, from $61,600to $88,000 (a 43 percent increase).

Income growth occurred not onlyat the median but throughout theincome distribution, as shown inFigure 1. When parents and children

are each ranked by family incomeand divided into quintiles, the dividinglines between groups are alwayshigher for the childrens generationthan the parents generation.

For example, those parents in thetop fifth in 19671971 have familyincome of $81,200 or higher; thecomparable benchmark is $116,700or higher for the adult childrensgeneration. Parents with a familyincome of $50,000 place in themiddle-income group, but in the

next generation, that family incomeranks in the second-to-bottom quintile.

Further, as many observers havepointed out in recent years, theamount of growth has been unevenlydistributed over the past few decades,with the most rapid growth concentratedat the top of the income distribution.This trend is also visible in Figure 1,which shows income growth at themedian of each fifth of the incomedistribution. Median family incomein the top quintile grew by 52 percent,

compared to only 18 percent for thebottom fifth. (Note that this figuredoes not directly compare adult childrenwith their own parents: families whoare in the top fifth of the childrensgeneration may not have been in thetop fifth in the parents generation.)

Other data sets with more detailedinformation on individuals at the verytop suggest that growth rates wereeven higher at the top 1 percent. TheCongressional Budget Office foundthat income of the top 1 percent rose

176 percent, based on after-tax persoincome between 1979 and 2004.2

Four important points aboutthe overall increases in incomeshould be noted:

(1) Incomes and incomegrowth are particularly highin this study, which is based ona sample of native-born adultsat prime earning ages. Familyincomes in the PSID sample weremeasured in 19671971, when

parents had an average age of 41years, and again in 19952002,when their adult children had anaverage age of 39 years. The growin median family income between1969 and 1998 was only 9 percenwhen using the Census BureausCurrent Population Survey (CPS)which includes a greater age rangand immigrants. When CPS dataare restricted to native-born familheads, of prime-earning ages, thegrowth rate in median family incois similar to the 29 percent observin the PSID data.3

(2) The growth in familyincomes over this time periodwas accompanied by a shrinkingin family size. According to CurrePopulation Survey data, the averafamily size for adults in their 30sshrank from 4.5 to 3.2 personsbetween 1969 and 1998. Taking intconsideration the smaller familysize as well as the growth in famiincome, families are generally betoff economically today.4


FIGURE 1

Source: Brookings tabulations of PSID data on family income averaged over several years.

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

F a m i l y I n c o m e ( 2 0 0 6

d o l l a r s )

Parents Generation Childrens Generation

Change in Income Distribution fromParents Generation to Childrens Generation

$23,100$27,200

$50,900

$71,900

$97,900

$151,900

$41,700

$55,600

$72,600

$100,100

$33,800-$48,800

LESS THAN$33,800

$48,800-$65,100

$65,100-$82,100

$82,100AND ABOVE

+52%

+35%

+29%

+22%

+18%

$40,300-$62,000

LESS THAN$40,300

$62,000-$84,000

$84,000-$116,700

$116,700AND ABOVE

MEDIANS:

MEDIANS:

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(3) Much of the growth in familyincome is because more womenhave gone to work. Moreover,average earnings have increasedfor those women who do work.In contrast, earnings of men in their30s have remained surprisingly flatover the past four decades. (SeeChapter V Economic Mobilityof Men and Women.)

(4) Non-cash contributionsmay affect upward mobility.These analyses of changes in family

income do not include the effectsof fringe benefits, such as employer-provided health insurance andretirement benefits, nor do theyinclude the effects of taxes and non-cash benefits such as food stamps.Data constraints prevent thesevariables from being easily addedto the detailed analysis, but thereis some evidence to suggest thatupward mobility over the past fourdecades would be somewhat higherif these non-cash contributions wereincluded. (For further discussion of

non-cash contributions to economicwell-being, see Appendix B).

ABSOLUTE MOBILITY:

MOST AMERICANS HAVE

MORE INCOME THAN

THEIR PARENTS

While a comparison of medianfamily incomes suggests how onegeneration is faring relative to earliergenerations, it does not describe howindividuals fare relative to their ownparents. To address this question,

levels of family income were comparedbetween matched pairs of childrenand parents, rather than betweenaggregate statistics for one generationand an earlier one. The simplestversion of this new measure is ayes/no determination of whetherchildren have higher income thantheir parents.

Two out of three Americans havehigher family incomes today thantheir own parents had some 30years ago.

More specifically, 67 percent of Americans who were children in1968 had higher levels of real famincome in 19952002 than theirparents had in 19671971 (seeFigure 2).5 The remaining one-thirof Americans had income equal toless than their parents income, afadjusting for inflation. Americansoptimistic views about mobility anopportunity in America may stemfrom the fact that two out of threechildren have higher levels of absoincome than their parents. That fam

incomes rise over a 30-year periodnot surprising. In fact, more childrmight have advanced beyond theirparents income if economic growhad been higher and more equallydistributed over the past 30 years.

While it would be instructive tocompare this statistic to earliergenerations, the PSID only begancollecting data in 1968. Nor has thtype of measure been done for othcountries to allow for internationacomparisons. It is thus hard to saywhether it is good news that twout of three children have incomeabove the income of their parentsor bad news that the statistic isnot higher.

Children born to parents in thebottom fifth are more likely tosurpass their parents incomethan are children from any otherbackground.

More than four out of five childreborn to parents in the bottom quint


FIGURE 2

Source: Brookings tabulations of PSID data.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

PARENTS IN4TH QUINTILE

PARENTS IN

TOP QUINTILE

ALL CHILDREN

Percent of Children with Family Income above theirParents, by Parents Income Ranking

PARENTS INMIDDLE QUINTILE

PARENTS IN2ND QUINTILE

PARENTS INBOTTOM QUINTILE

66%

67%

82%

74%

67%

43%

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have greater family income than theirparents. In contrast, less than half (43percent) of those whose parents arein the top fifth of income surpass theirparents. The higher ones parentsincome, the less likely one is to riseabove it.

An associated view of income growthis provided in Figure 3, which showsthe extent to which children of parentsin each quintile surpass their parentsincome. This approach provides apicture of the economic performance

of the typical child from each of thefive groups of family background.

The higher the parents income, thehigher the income of the adult child.

If there were no connection betweenparents and their childrensincomethat is, if there was perfectmobilitythe median family incomesfor each group of children would be$71,900, the same as the medianfamily income for the overall population.Instead, the incomes of adults whose

parents were in the top fifth of theincome distribution exceed the incomesof children from all other economicbackgrounds, and each subsequentgroup has somewhat lower income.Those whose parents are at thebottom of the income distributionhave less than half as much familyincome as those whose parents wereat the top ($46,100 compared to$99,700).

However, the higher the parentsincome, the lower the amount

by which children surpass theirparents.

Median family income for children of parents in the highest income groupis actually the same as their parentsmedian family income. Economicallyprivileged children usually grow upto have high incomes relative to otheradult children, but not relative totheir own parents. At the other endof the spectrum, children whoseparents were in the bottom fifth havealmost twice as much income as their

parentsthough not enough to brinthem abreast of their contemporaries6

A comparison of parental and aduchild incomes in actual dollar leveprovides a basic measure of mobilthat may be consistent with how mpeople think about their own econoprogress. Such measures are stronaffected by overall levels of econogrowth, and how this economic grohas translated into income growthHowever, a child with an incomethat is $10,000 above his or her

parents may not be doing well if most of his or her childhood peershave gained $20,000, because thechild may perceive he or she hasfallen in relative economic status.Thus it is also important to examirelative mobility, a topic of considerstudy by economists and sociolog

RELATIVE MOBILITY:

CHILDRENS PROSPECTS

ARE LIMITED BY FAMILY

BACKGROUND

Do children from different familybackgrounds have an equal shotof rising to the top or falling tothe bottom of the income ladder?Measures of relative mobilityaddress the question of how childmove up and down in social rankrelative to their initial starting poinor family background. For thisanalysis, individuals were assigneone of five income groups, from loto highest, first according to theirparents income and then accordinto their own income as adults.


FIGURE 3

Source: Brookings tabulations of PSID data on family income averaged over several years.

Change in Median Family Income fromParents to Childrens Generation(matched-pairs, sorted by parental income group)

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

M e d i a n F a m i l y I n c o m e i n E a c h

I n c o m e G r o u p ( 2 0 0 6 d o l l a r s )

BottomQuintile

SecondQuintile

MiddleQuintile

FourthQuintile

TopQuintile

Parents Family Income Group

Childrens generation

100%

52%27%

25%

0%

Percent changein median income

Parents generationOverall median incomechildrens generation: $71,900Parents generation: $55,600

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The two rankings were thencompared to see if children havemoved up or down in incomeranking.

All Americans do not havean equal shot at getting ahead,and ones chances are largelydependent on ones parentseconomic position.

A graphic representation of theprobabilities of transitioning fromone income group to another over a

generation is presented in Figure 4,which shows that the probabilityof ending up in a particular incomequintile as an adult depends onwhere ones parents were in theincome distribution.

Children born to parents inthe top quintile have the highestlikelihood of attaining the top,

and children born to parentsin the bottom quintile have thehighest likelihood of being inthe bottom themselves.

This phenomenon is referred to asstickiness at the ends of the incomedistribution. As shown in Figure 4,it is fairly hard for children born inthe bottom fifth to escape from thebottom: 42 percent remain there andanother 42 percent end up in eitherthe lower-middle or middle fifth.Only 17 percent of those born toparents in the bottom quintile climbto one of the top two income groups.At the other end of the distribution,39 percent of children born toparents in the top fifth attain the

top themselves with an additional23 percent landing in the fourthhighest quintile.

Surprisingly, American childrenfrom low-income families appearto have less relative mobility thantheir counterparts in five northernEuropean countries, accordingto a recent international studyof earnings of fathers and sons.Whereas 42 percent of Americansons whose fathers had earnings inthe bottom quintile had low earnings

themselves, the comparable percentaranged from 25 to 30 percentin Denmark, Finland, Sweden,Norway, and the United Kingdom(see Chapter III, InternationalComparisons of Economic Mobility

The chances of making it tothe top of the income distributiondecline steadily as ones parentsfamily income decreases .

Middle-income children are only haas likely as children from the top

fifth to climb to the top themselve(19 percent compared to 39 percenMoreover, only 6 percent of childborn to parents with family incomin the bottom fifth move to the vetop of the distribution, indicating ththe rags to riches phenomenon omoving from the bottom to the topof the income ladder is infrequent.Nonetheless, there is a fair amounof mobility, and those born at thetop of the income distribution havno guarantee of staying there. Wh39 percent of those born into the tfifth of the income distribution stathere, more than halfthe remain61 percentmove downward in tincome ranking.7


FIGURE 4 Childrens Chances of Getting Ahead or Falling Behind,by Parents Family Income

100%

90%

80%

70%

60%

50%

40%

30%

20%

10% P e r c e n t o f A d u l t C h i l d r e n i n E a c h

F a m i l y I n c o m e G r o u p

bottomQuintile

SecondQuintile

MiddleQuintile

FourthQuintile

TopQuintile

Parents Family Income Group

Percent adultchildren with incomein top quintile

Percent adultchildren with incomein fourth quintile

Percent adultchildren with incomein middle quintile

Percent adultchildren with incomein second quintile

Percent adultchildren with incomein bottom quintile

42%

23%

19%

11%

6%

25%

23%

24%

18%

10%

17%

24%

23%

17%

19%

8%

15%

19%

32%

26%

9%

15%

14%

23%

39%

Source: Brookings tabulations of PSID daon family income averaged over several

years and reported in 2006 dollars. Note: The bars show the probability of reaching an income ranking for childrenof a certain parental ranking. For examplethe first bar shows that 42 percent of thosewhose parents were in the bottom quintileended up in the bottom quintile themselve23 percent of them ended in the second quintile, 19 percent in the middle quintile,11 percent in the fourth quintile and 6 percent in the top quintile.

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Children born to middle-incomeparents are close to the perfectmobility condition of beingequally likely to move to anyquintile in the income distribution.

Children whose parents are in themiddle quintile are about as likelyto stay in the middle (23 percent)as to jump to the top (19 percent)or fall to the bottom (17 percent).One reason that children in themiddle show more mobility thanthose at the tails of the distribution

is that one can move either up ordown from the middle, whereasthose who start at the top or bottomcan move in only one direction.

A number of other researchers havefound similar results when analyzing

intergenerational mobility througha transition matrix such as the onepresented in Figure 4.8 Researchersalso have developed summarystatistics that capture intergenerationalmobility information in a singlenumber that summarizes the society-wide relationship between parent andchild incomes. The most commonsuch measure, intergenerationalincome elasticity, would be 0.0 ina hypothetical society where parentalincome has no effect on a childseconomic prospects and 1.0 where

there is a one-to-one correspondencebetween parental income and adultchild income.9

Recent estimates of the intergenerationalincome elasticity in the United Statesrange from about 0.4 to 0.6, meaning

that about half of the difference inincome between families in onegeneration persists into the nextgeneration.10 This aggregate measurof relative mobility is particularlyuseful when comparing the UniteStates to other countries, or whencomparing different points in timeand is used in other chapters in thvolume. However, it measures incof both parents and children relatito the average for their own generatand is silent on absolute growthacross generations.

A NEW TYPOLOGY: ONE-

THIRD OF AMERICANS MOVE

UP IN BOTH ABSOLUTE AND

RELATIVE TERMS

Since many Americans think of thAmerican Dream in terms of bothgaining higher incomes and risingsociety, it is important to demonstrhow Americans move beyond theparents in both absolute and relatiterms.

To examine the chances that childremovement consists of both changesin absolute income levels and relaeconomic standing, the mobilitymeasures used for this analysis


B o t t o

mQ u i n t

i l e

S e c o

n dQ u i n t

i l e

M i d d l

eQ u i n t

i l e

F o u r t h

Q u i n t

i l e

T o p

Q u i n t

i l e

A l l

F a m i l i e s

Upwardly mobileHigher income and 58 52 36 26 N/A(1) 34up 1 or more quintiles

Riding the tide

Higher income and 24(2)

20 23 32 34(1)

27same quintile

Falling despite the tideHigher income and N/A(2) 1 7 9 10 5down 1 quintile

Downwardly mobileLower income and 18 26 34 33 57 33lower/same quintile(3)

Total all childrens families 100 100 100 100 100 100

Parents Family Income Rank

TABLE 1 Childrens Chances of Experiencing both Absolute andRelative Mobility, by Parents Family Income(percent in each category)

Source: Brookings tabulations of PSID da Notes: (1) Those in the top quintile cannotmeet this definition of upwardly mobile,because there is no quintile above the topquintile.11(2) Those in bottom quintile cannot meet this definition of downwardly mobile, because there is no quintile below thebottom quintile.(3) Any observation with income exactly equal to parents is also classified asdownwardly mobile.

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were combined in a new, four-parttypology, presented in Table 1.12

This typology suggests that whilemany Americans are getting aheadin absolute terms, they are notnecessarily moving up the incomedistribution. As incomes have grown,the whole distribution has shiftedupward over time.

One-third of all children areupwardly mobile under thenew typology.

These children are getting ahead of their parents in real family incomeand also moving up ahead of theirparents in economic ranking (by oneor more quintiles). This means thatof the 67 percent of Americans whohave higher family incomes thantheir parents, only half move aheadof their parents in income ranking.About half of the children in thebottom and second quintiles areupwardly mobile.

About one-quarter of childrenare riding the tide.

The next generation is getting aheadof their parents income in absoluteterms but remaining in the sameeconomic position as their parents.Making up 27 percent of Americansoverall, those riding the tide are morelikely to be in the two top quintiles.

A small group of children,5 percent, are falling despitethe tide.

They get ahead of their parentsincome in absolute terms but fallbelow their parents economicposition.13 Close to one tenth of individuals born into the middle,fourth and top quintiles are fallingbehind despite having more incomethan their parents. This trend maycontribute to the much-discussedanxiety of middle-class Americanstoday.

One-third of Americansare downwardly mobile.

The next generation is fallingbehind their parents in both realfamily income and relative rank.One-third of the families in themiddle and fourth quintiles aredownwardly mobile, and more thanhalf of those in the highest incomegroup are downwardly mobile.

CONCLUSION

Traditionally, studies of economicmobility have looked at either absoluteor relative mobility, but not both.Both types of mobility are importantto assessing the health of theAmerican Dream.

By all measures, many Americansdo get ahead of their parents in realincome. Assessing absolute mobilityacross these two generations revealsthat median family income hasincreased, as would be expectedin a period of a growing economy.Moreover, a direct intergenerationalcomparison shows that two-thirds

of Americans make more familyincome in real terms than theirparents did. However, the otherone-third fails to surpass theincome of their parents, leavingroom for further improvement.

Economic position is stronglyinfluenced by parental economicstanding. Children of low-incomeparents and middle-income parenare much less likely to make it tothe top quintile than are childrenborn to parents in the top quintile

Further, a high percentage of low-income children remain in thebottom fifth, calling into questionthe dream that all children haveequal chances of achieving economsuccess.

A new typology of mobility thatintegrates elements of absolute anrelative mobility reinforces the findithat some Americans experience aincrease in real income over theirparents without moving up in relativstanding. This typology indicatesthat only half of the two-thirds of Americans who make more familincome than their parents are upwardmobile in the sense of also movinup one or more quintiles. Anotherone-third of Americans are eitherriding the tide, that is, moving uin income without changing relatistanding, or falling in relative rankdespite making more than theirparents in family income. Finally,one-third of Americans are actualdownwardly mobile in both incomand economic rank.


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E C O N O M I C M O B I L I T Y O F F A M I L I ES Across Generations22


NOTES1 Unless noted otherwise, all incomes are reported in 2006 dollars, using the CPI-U-RS to adjust for inflation. Family incomes are shigher in this PSID sample than in traditional Census Bureau statistics, for reasons discussed in note 3.2 Congressional Budget Office, 2006. Though using a somewhat different income measure and time period, the Congressional Budg(CBO) finds a similar pattern of higher growth at the top than the bottom. Specifically, CBO reports that between 1979 and 2004, aincome rose by 69 percent for the richest one-fifth and 176 percent for the top 1 percent, compared to 41 percent overall and only 6for the poorest fifth of the income distribution. See note 20 for fuller description of the after-tax income measure used in the CBO 3 Comparisons of the PSID and CPS indicate that the PSID estimates of income are generally higher than those in the CPS, but follotrends over time. (See Gouskova and Schoeni, 2007; and Yong-Seong Kim and Stafford, 2000). Also, family incomes and income ghigh in this analysis because it focuses on families with children in the United States in 1968, excluding the elderly and very youngwell as those without children in 1968 and the large number of immigrants who have arrived since 1968. (For information on immimobility, see the chapter Immigration: Wages, Education, and Mobility). While the CPS has lower incomes, it has similar growththe analysis is restricted to a subsample of CPS families that resemble the PSID families in age, presence of children, and native-boas shown in the table below:

4 Family income adjusted for family size (by dividing family income by the square root of family size) grew by 33 percent after infl$22,400 to $29,800, according to CPS data for all families in 1969 and 1998.5 The percentage of children who are better off than their parents would increase from 67 percent to 81 percent if family incomes weadjusted for family size, because the childrens generation has smaller family size. Also note that the same analysis was done on a rsample, of adults ages 3348 (instead of 2752), to explore the sensitivity of the results to the age range at which the incomes of adchildren were measured. Under the tighter age sample, the number of adult children who exceeded their parents income was slightbut still rounded to 67 percent.6 Note that the analysis classifies individuals into five groups based on parental income status, and then measures change from that pincome status. One would therefore expect some increase from the lowest parental income status, consistent with a tendency calledto the mean; those with extreme scores at one point in time due to random chance or luck will tend to have less extreme scores whmeasured later. Some of the parents who are classified into the bottom category may be experiencing atypically low income in thosrelative to their life-time experiences or the experiences of their children. Using five years of income rather than one introduces fewdistortions, as the one year might represent abnormally low income.7 This downward movement by 61 percent of children born at the top helps explain the finding (presented in Figure 3) that the adulmedian incomes of children from the top fifth is slightly below the median income for their parents. This occurs despite the fact th39 percent who remain at the top are doing extremely wellrecall from Figure 1 that income growth was highest at the top of the distribution. However, the downward mobility of the others brings down the median income of this group, particularly when compato their parents, 100 percent of which are, by definition, at the top fifth of the parental generation.8 See Hertz, 2005; and Jntti, Bratsbert, Roed, Rauum et al., 2006 for two recent analyses using the PSID data; see Peters, 2002 foranalysis using data from the National Longitudinal Survey of Youth (NLS). Administrative data offers another opportunity to track longitudinally, but such analyses are generally limited to individual earnings, not family income.9 The intergenerational elasticity (IGE) measure comes from a linear regression equation estimating the relationship between childreparents income, with both child and parental income expressed in logarithmic measures. It measures the percentage difference in echild income associated with a one percent difference in parental income. The same technique can be used to measure the intergeneelasticity of earnings as well as income. In societies where there is more inequality in the childrens generation than the parents genthe IGE can fall outside the 0 to 1 range. To interpret the IGE, imagine a group of parents whose income is 80 percent higher than If they are in a society with an IGE of 0.5, then their children will, on average, have incomes that will be 40 percent higher than ave(80 percent x 0.5). If they live in a society where the IGE is only 0.2, then their childrens income would average only 16 percent aaverage (80 percent x 0.2). And at the extreme of an IGE of 0, any large group of children would have average incomes unrelatedto the income of their parents.

PSID Longitudinal Sample of Those who were children in 1968 $55,600 $71,900 29CPS Cross-Sectional Samples of Family Heads ages3048, who have children and who are native-born $48,003 $63,233 32CPS Cross-Sectional Sample of All Family Heads(including unrelated indi

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