The American Dream Is Alive and Well ... in Finland!

Fewer than 1 percent of Americans are millionaires, but almost one in three believe they'll end up among that group at some point.

The belief that our chance of moving up the economic ladder is limited only by our innate abilities and our appetite for hard work is almost universal in the United States. When you define the "American Dream" as the ability of working-class families to afford a decent life -- to put their kids through school, have access to quality healthcare and a secure retirement -- most will tell you it simply doesn't exist anymore. In stark contrast, when you define it according to mobility, the picture is radically different; according to a study of public opinion in 25 rich countries, Americans are almost twice as likely to believe that "people get rewarded for intelligence and skill" than working people in other advanced economies (PDF). At the same time, fewer than one in five say that coming from a wealthy family is "essential" or "very important" to getting ahead -- significantly lower than the 25-country average.

It's impossible to overstate the impact that has on our policy debates. Americans are less than half as likely as people in other advanced economies to believe that it's "the responsibility of government to reduce differences in income." Working Americans are parties to a unique social contract: They give up much of the economic security that citizens of other wealthy countries take for granted in exchange for a more "dynamic," meritorious economy that offers opportunity that's limited only by their own desire to get ahead. Of course, it's never explicitly stated, and most of us don't know about the deal, but it's reinforced all the time in our economic discourse.

But new research suggests the United States' much-ballyhooed upward mobility is a myth, and one that's slipping further from reality with each new generation. On average, younger Americans are not doing better than their parents did, it's harder to move up the economic ladder in the United States than it is in a number of other wealthy countries, and a person in today's work force is as likely to experience downward mobility as he or she is to move up.

Moreover, the single greatest predictor of how much an American will earn is how much their parents make. In short, the United States, contrary to popular belief, is not a true meritocracy, and the American worker is getting a bum deal, the worst of both worlds. Not only is a significant portion of the middle class hanging on by the narrowest of threads, not only do fewer working people have secure retirements to look forward to, not only are nearly one in seven Americans uninsured, but working people also enjoy less opportunity to pull themselves up by their bootstraps than those in a number of other advanced economies.

Moving on up?

Researchers look at two kinds of economic mobility: "absolute mobility," which is the degree to which one generation does better than the one before it, and "relative mobility," or how easy it is to move up in society through smarts, talent, hard work, etc.

New research by Julia Isaacs, a fellow with the Economic Mobility Project, looked at both measures using a unique set of data that allowed her to directly compare how people were doing in the late 1990s and early 2000s with the incomes of their parents in the late 1960s.

Isaacs, using family income data, found that the current generation as a whole is doing better than the previous generation -- that's absolute mobility -- but that the nation's income is distributed much less evenly than it was a generation ago.

And family incomes tend to obscure the degree of overall mobility, because much of the past three decades' growth in household income was a result of more women joining the workforce. When the Brookings Institution's Isabel Sawhill and John Morton looked at four generations of income data for men alone (PDF), they came up with a very different picture. When they compared men aged 30-39 in 1994 with their fathers at the same point in their careers, they found that median incomes had increased by just 0.2 percent annually during the past three decades. But, they noted, "the story changes for a younger cohort." Men in their thirties in 2004 had a median income that was, on average, 12 percent less than that of their fathers' generation at the same age. The scholars concluded: "The up-escalator that has historically ensured that each generation would do better than the last may not be working very well."