POLITICS FEBRUARY 8, 2012
When Americans express indifference about the problem of unequal incomes, it’s usually because they see the United States as a land of boundless opportunity. Sure, you’ll hear it said, our country has pretty big income disparities compared with Western Europe. And sure, those disparities have been widening in recent decades. But stark economic inequality is the price we pay for living in a dynamic economy with avenues to advancement that the class-bound Old World can only dream about. We may have less equality of economic outcomes, but we have a lot more equality of economic opportunity.
The problem is, this isn’t true. Most of Western Europe today is both more equal in incomes and more economically mobile than the United States. And it isn’t just Western Europe. Countries as varied as Japan, New Zealand, Singapore, and Pakistan all have higher degrees of income mobility than we do. A nation that prides itself on its lack of class rigidity has, in short, become significantly more economically rigid than many other developed countries. How did our perception of ourselves end up so far out of sync with reality?
IN THE 1830s, Alexis de Tocqueville wrote that, in notable contrast to the “aristocratic nations” of Europe, the United States was a place where “new families are constantly springing up, others are constantly falling away, and all that remain change their condition.” Karl Marx sounded a similar note in 1865 when he observed that “the position of wages laborer is for a very large part of the American people but a probational state, which they are sure to leave within a longer or shorter term.” But it was two American writers who probably did the most to shape our country’s self-image as the land of unbounded opportunity. They were Horatio Alger, of whom you’ve probably heard, and James Truslow Adams, of whom you probably haven’t. When Alger and Adams were alive—and also, for that matter, when Tocqueville and Marx contributed their observations—American opportunity was a much closer match to their superlatives than it is now.
Alger wrote Ragged Dick (1868), Luck and Pluck (1869), and other dime novels for boys about getting ahead through virtue and hard work. To call these books popular would be an understatement; fully 5 percent of all the books checked out of the Muncie, Indiana, public library between November 1891 and December 1902 were authored by Alger. Adams was a more cerebral fellow who wrote books of American history. His influence stems from the fact that one of these books—The Epic of America (1931)—introduced the phrase “the American dream” to our national discourse. Writing at the start of the Great Depression, Adams envisioned not “a dream of motor cars and high wages merely,” but rather “a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”
Born half a century apart, neither Alger nor Adams could claim to have risen from the bottom. Both came from well-established families whose American roots dated to the early seventeenth century. Alger could trace his lineage to three Pilgrims who in 1621 sailed to Plymouth Plantation on the Fortune, the second English ship to arrive there. Adams—no relation to the presidential Adamses—was descended from a man who arrived in Maryland in 1638 as an indentured servant and, within three years, possessed 185 acres. Alger’s father was a Unitarian minister; Adams’s a stockbroker. Both fathers were men of good breeding and education who struggled to make ends meet but were able—at a time when more than 90 percent of the population didn’t finish high school—to obtain higher education for their sons. Alger went to Harvard; Adams went to Brooklyn Polytechnic and, briefly, Yale. Both sons followed their fathers into the ministry and finance, respectively, before they became full-time writers.
Each author was, in his own way, highly successful, but the upward trajectory of these two literary careers would make poor material for a Horatio Alger tale. The circumstances of Alger’s job change are especially problematic. At 34, he vacated the pulpit abruptly when he was charged with “the abominable and revolting crime of unnatural familiarity with boys.” Alger did not dispute the accusation, which was based on the testimony of two teenage boys in his parish, ages 13 and 15, who said Alger had molested them and on rumors that he’d abused other youths in similar fashion. After confessing his guilt privately to William James, the founding father of American psychology, Alger never spoke of it again. Adams left Wall Street under less lurid circumstances. He simply disliked the work and resolved to stop once he amassed $100,000. Reviewing his accounts on his thirty-fifth birthday, he concluded that he’d achieved his goal—the equivalent of about $2 million in current dollars—and resigned the following day. Adams spent much of his subsequent life abroad and wrote The Epic of America in London.
Alger and Adams celebrated America’s capacity for upward mobility, but neither writer idealized his country to anything like the extent that would later be credited to the name Horatio Alger and the phrase “the American dream.” Alger worked into his later juvenile fiction much moralizing against the robber barons’ self-dealing and cruel treatment of the downtrodden. “He has done more harm than he can ever repair,” a character in Alger’s 1889 novel, Luke Walton, laments about a villain modeled on the Gilded Age stock manipulator Jay Gould. Adams deplored America’s tendency to celebrate “business and money-making and material improvement as good in themselves” and its refusal “to look on the seamy and sordid realities of any situation in which we found ourselves.” He even complained about America’s maldistribution of wealth. Still, neither writer had much taste for radical politics. Alger was essentially a mugwump—a good-government Republican distrustful of machine politics and Free Silver populism. Adams was a Tory-minded political independent who became a severe critic of Franklin Roosevelt’s New Deal, which he deemed financially irresponsible.
Both men bequeathed to the United States an exaggerated notion of itself as a mobile society because they lived during the peak years of American mobility—the latter half of the nineteenth century and the early years of the twentieth, when the American industrial revolution was wreaking maximum creative destruction on what had previously been an agrarian economy. The best way to measure mobility is to calculate the economic position of an individual relative to the rest of society and compare that with the economic position of that person’s child relative to the rest of society once that child has grown to a comparable stage in life. To calculate mobility for society as a whole, you therefore need income data over two generations for a large sample of American families. The government, alas, didn’t collect income data during the late nineteenth and early twentieth centuries, but the Census Bureau did collect data on occupations, which can serve as a rough proxy.
In a 2005 paper, Joseph Ferrie, an economics professor at Northwestern, studied census records about the occupations of fathers and sons between 1850 (the year Alger turned 18) and 1920 (21 years after Alger’s death and the year Adams turned 42). Ferrie then compared these records with father-son data from the Bureau of Labor Statistics during the second half of the twentieth century. He divided everyone into four categories: “unskilled worker,” “farmer,” “skilled or semi-skilled worker,” and “white-collar worker.” To keep both data sets consistent, he limited his inquiry to white, native-born males. Ferrie also made some technical adjustments to allow for the different occupational structures of the two eras. What he found was that the equivalent of 41 percent of farmers’ sons advanced to white-collar jobs between 1880 and 1900, compared with 32 percent between 1950 and 1973. Ferrie’s conclusion held up when he looked at all four job categories and when he compared other stretches of the late nineteenth century with other stretches of the late twentieth. Between the horse-and-buggy days and the interstate-highway era, American society had become significantly less mobile.
These findings are all the more striking because the 1950s and 1960s were a period—the last period in the United States, it turned out—when intergenerational mobility was increasing. The economy was booming, and men born during the Great Depression and World War II were enjoying opportunities that their fathers could scarcely imagine. Even so, mobility in this postwar era was no match for the mobility enjoyed by the generations of workers who lived during Alger’s lifetime and James Adams’s youth and early adulthood.
Adams wrote in The Epic of America that the dream of living “unhampered by the barriers which had slowly been erected in older civilizations” was “realized more fully in actual life [in the United States] than anywhere else.” Was this a fantasy? Probably not at the time Adams was writing. Ferrie and Jason Long, an associate professor of economics at Colby College, looked at mobility during the late nineteenth century in both the United States and Great Britain. At that time, England was still the richest industrial country in the world. But it offered nothing like the opportunities for economic advancement that were available in its former colony. In Britain, for example, 53 percent of the sons of unskilled laborers moved up to skilled and semi-skilled labor or better. In the United States, fully 81 percent did. This was an era when the loftiest rhetoric about the United States as the land of opportunity rang true.
AS RECENTLY AS 1987, economists could still be heard vouching for American mobility. In a speech that year to the American Economic Association, the University of Chicago economist Gary Becker, a future Nobel laureate, said, “In every country with data that I have seen, ... low earnings as well as high earnings are not strongly transmitted from fathers to sons.” Five years later, Gary Solon, an economist at the University of Michigan, would blow Becker’s assertion to smithereens—at least as it applied to the United States.
To measure economic mobility effectively, you need access to good longitudinal data on families and income. Until fairly recently, the pickings were slim. But, by 1992, the University of Michigan’s Panel Study of Income Dynamics (PSID), a longitudinal study of more than 9,000 families from across the United States, had reached its 24-year mark and ripened into an unmatched source for detailed information on two successive American generations. Now old enough to include data on three or four generations, the PSID is the world’s longest-running “panel survey” of nationally representative households. (A panel survey is a longitudinal study in which respondents are interviewed at regular intervals.) Most contemporary studies of mobility trends in the United States make use of PSID data.
Solon’s groundbreaking 1992 paper, which drew on this newly available data, upended our understanding of something that economists call “intergenerational income elasticity” but that I’ll call “income heritability.” It’s a measure of how determinative one generation’s relative income status—what we used to call “station in life”—will be of the next generation’s relative income status. When Becker stated in 1987 that income status wasn’t especially heritable, he was working off studies that showed income heritability to be less than 20 percent, which didn’t seem too bad. Eighty percent of your economic destiny was in your hands—or at least out of your parents’ hands.
Perhaps you’re familiar with the following lines from William Ernest Henley’s “Invictus,” an oft-quoted inspirational poem from the nineteenth century: “I am the master of my fate: I am the captain of my soul.” In 1987, it was possible for Americans to believe, with respect to income: I am the master of 80 percent of my fate: I am the captain of 80 percent of my soul. But, in 1992, when Solon recalculated income heritability based on the more-reliable PSID data, he found income heritability to be at least 40 percent “and possibly higher.” I am the master of 60 percent of my fate.
Or possibly: I am the master of 40 to 50 percent of my fate. In 2001, Bhashkar Mazumder, an economist with the Federal Reserve Bank of Chicago, recalculated income heritability matching census data to Social Security data, which allowed him to compare parent-child incomes over a greater number of years. He found that income heritability was more like 50 to 60 percent. Mazumder later recalculated Solon’s PSID-based findings applying a more sophisticated statistical model and found that income heritability was about 60 percent. Then, in a 2004 study, Mazumder approached the question from a different angle, examining the correlation in incomes among siblings, using longitudinal survey data collected by the Bureau of Labor Statistics. That put income heritability at about 50 percent. “The sibling correlation in economic outcomes and human capital are larger than the sibling correlation in a variety of other outcomes including some measures of physical attributes,” Mazumder wrote. Most strikingly, he found that income among brothers actually correlated more closely than height and weight. I am less the master of my fate than I am of my body mass index.
It’s important to remember that the mobility trend for Americans as a whole is not necessarily a trend for every U.S. subgroup. For instance, upward mobility for women has accelerated in recent decades. The trend can be hard to track in intergenerational family income data because, while a contemporary woman will likely outearn her mother, who lived at a time when society provided far fewer economic opportunities to women, she won’t likely outearn her father, who faced no gender barriers at all. At the same time, upward mobility for African Americans has lagged behind upward mobility for whites. One especially disturbing 2008 analysis by the Brookings Institution’s Julia Isaacs compared PSID income data from parents in the late ’60s with PSID income data from their children in the late ’90s. Isaacs found that only 31 percent of black children born into the middle fifth of family incomes—dead center of the middle class, where incomes (in 2006 dollars) ranged from about $49,000 to $65,000—ended up with higher incomes than their parents had, corrected for inflation. Fully 45 percent fell all the way to the bottom-income fifth (below about $40,000). By comparison, 68 percent of whites born into the middle-income fifth ended up with incomes higher than their parents had, and only 16 percent tumbled all the way to the bottom-income fifth. Where these white parents mostly saw their children become better off economically than they had been, corresponding black parents mostly saw their children become worse off.
In the United States, economic mobility is lower than it was during the late nineteenth and early twentieth centuries; it is no longer accelerating, as it was during the ’50s and ’60s; and it is either about the same or a little lower than it was in 1970. “Personally,” Brookings economist Isabel Sawhill told me in an interview last year, “I believe that it has slipped.”
MEANWHILE, mobility in the United States has fallen dramatically behind mobility in other comparably developed democracies. A 2007 study by the Organisation for Economic Cooperation and Development (OECD) combined a number of previous estimates and found income heritability to be greater in the United States than in Denmark, Australia, Norway, Finland, Canada, Sweden, Germany, Spain, and France. Italy was a little bit less mobile than the United States. The United Kingdom, which had been far less mobile than the United States during the late nineteenth century, brought up the rear, but this time it was just a bit less mobile than the United States. The OECD’s ranking was based on a somewhat conservative U.S. estimate of 47 percent income heritability; Mazumder of the Chicago Fed puts it at 50 to 60 percent, which would rank the United States either tied with the United Kingdom for last place or dead last after the United Kingdom. Thanks to a 2012 recalculation by Miles Corak, an economist at the University of Ottawa, we can now add Switzerland, Japan, New Zealand, Singapore, and Pakistan to the list of societies that are more mobile than the United States. (Italy and the United Kingdom were once again found to be less mobile than the United States, along with Chile, Brazil, Peru, and China.)
It’s especially striking that Canada should experience more intergenerational economic mobility than the United States. The two countries are, after all, similar in more ways than one can count. The most significant way they differ (at least for the purposes of this discussion) is that the United States is richer, with a per capita gross domestic product that’s 20 percent higher. Most migration between the two is from Canada to the United States, not the other way around. How can Canada be the land of greater opportunity?
The University of Ottawa’s Corak looked at this puzzle in a 2010 paper. Examining several existing mobility studies “using particularly high-quality data,” Corak found that Canada is “up to three times more mobile than the United States.” The difference arises largely from disparities at the top and bottom 10 percent of the income scale. If a father is in the bottom tenth of U.S. incomes, Corak found, his son has a 22 percent likelihood of ending up in the bottom tenth. If a father is in Canada’s bottom tenth, his son’s likelihood of ending up in the bottom tenth is 16 percent. At the other end of the income scale, if a father is in the top tenth of U.S. incomes, his son has a 26 percent chance of ending up in the top tenth. If a father is in Canada’s top-income tenth, his son’s likelihood of ending up in the top tenth is 18 percent.
A crowning irony is that, even though Canada is demonstrably more economically mobile than the United States, Americans are less likely to believe that their chance of financial success depends on their parents’ incomes (42 percent) than are Canadians (57 percent), according to a 2009 poll sponsored by the Pew Charitable Trusts. Indeed, when a survey of 27 nations conducted from 1998 to 2001 asked participants whether they believed that “people are rewarded for intelligence and skill,” the country with the highest proportion answering in the affirmative was the United States (69 percent), compared with a median among all other countries of about 40 percent. Similarly, more than 60 percent of Americans agreed that “people get rewarded for their effort,” compared with an international median of less than 40 percent. When participants were asked whether coming from a wealthy family was “essential” or “very important” to getting ahead, the percentage of American affirmatives was much lower than the international median: 19 percent versus 28 percent.
Perhaps there is a benefit to lacking a realistic understanding about your odds of improving your relative position in society. It is, James Fallows argues in his 1989 book, More Like Us: Making America Great Again, a major driver of the U.S. economy. Paraphrasing the Harvard psychologist David McClelland’s 1961 book, The Achieving Society, Fallows writes that a society in which “people routinely overestimated their chances for success,” in which entrepreneurs “launched ventures that by rational standards were likely to fail,” was a society that, collectively and over the long term, would invent more, innovate more, and succeed more. Society benefits when people don’t know “their place.”
A more jaundiced view of America’s obdurate belief that we are all masters of our fate is expressed in Barbara Ehrenreich’s 2009 book, Bright-Sided: How the Relentless Promotion of Positive Thinking Has Undermined America. What if you don’t achieve your most unrealistic goals, as most of us won’t? “[A]lways,” Ehrenreich writes, “in a hissed undertone, there is the darker message that if you don’t have all that you want, if you feel sick, discouraged, or defeated, you have only yourself to blame.” The American reluctance to regard disappointing outcomes as anything other than failed personal agency, Ehrenreich argues, is not only painful to the spirit; it is also an obstacle to constructive forms of collective action, such as forming a labor union or organizing a political movement.
WHY HAS mobility slowed down or stagnated in the United States? There’s no real academic consensus on this point, but the lingering suspicion is that it’s linked to the trend toward growing income inequality that began in the late ’70s and continues to this day. During the American industrial revolution, growing income inequality was indeed the price the United States paid for growing economic mobility. In the present era, though, income inequality may be choking off opportunity. The oft-repeated metaphor is that as the ladder’s rungs grow farther apart, the ladder becomes more difficult to climb.
The principal advocates for this viewpoint are Corak and Alan Krueger, a Princeton labor economist who is currently chairman of President Obama’s Council of Economic Advisers. For a January 12 speech on income inequality delivered at the Center for American Progress, Krueger took a scatter diagram from a 2011 paper by Corak and plugged in more recent data from the OECD. Corak’s diagram plotted income heritability against inequality (as measured by its most common yardstick, the Gini coefficient) and found that the two tended to increase together. Krueger’s diagram showed an even tighter fit. Krueger called it the “Great Gatsby Curve.” “Countries that had more inequality across households,” Krueger said in his speech, “also had more persistence in income from one generation to the next.” More income inequality, Krueger concluded, leads to less income mobility.
Projecting from the Great Gatsby Curve—and assuming, perhaps rashly, that present trends will continue—Krueger calculated that, by the time today’s children grow up, income heritability will have grown from 47 percent to 56 percent. “In other words,” he explained, “the persistence in the advantages and disadvantages of income passed from parents to the children is predicted to rise by about a quarter for the next generation as a result of the rise in inequality that the U.S. has seen in the last twenty-five years. It is hard to look at these figures and not be concerned that rising inequality is jeopardizing our tradition of equality of opportunity.”
Krueger’s speech drew some criticism on technical grounds from Scott Winship, a Brookings scholar who’s an expert on mobility trends. Other economists drawn into the subsequent online debate (including Corak) favored Krueger’s side of the argument, but it may be some time before the question is settled. For now, what we can say is that income inequality in the United States can no longer be justified by America’s greater mobility, because we’ve stopped winning that race. Indeed, rising income inequality may be the very thing that’s causing upward mobility to slow down.
Timothy Noah is a senior editor at The New Republic and the author of the forthcoming book The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It (Bloomsbury), from which this article is adapted. This article appeared in the March 1, 2012 issue of the magazine.