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."

But it's relative mobility that really speaks to the health -- or lack thereof -- of the American Dream, and Isaacs' conclusions are stunning. "Contrary to American beliefs about equality of opportunity," she wrote, "a child's economic position is heavily influenced by that of his or her parents:"

• Children of middle-income parents have a near-equal likelihood of ending up in any other quintile, presenting equal promise and peril for those born to middle-class parents.
• The "rags to riches" story works in Hollywood but not on Main Street. Only 6 percent of children born to parents with family income at the very bottom move to the very top.

Isaacs categorized American families as belonging to one of four groups: the "upwardly mobile" who do better relative to their parents, those "riding the tide" -- families that earn more than their parents but remain in the same relative position on the economic ladder -- those "falling despite the tide," a small group who are earning more than their parents but who nonetheless fell into a lower position on the ladder, and those who are "downwardly mobile." The key take-away is that American families are just as likely to be downwardly mobile -- 33 percent fall into the group -- as they are to join the 34 percent who move up.

It's crucial to understand the relationship between inequality and immobility, and central to the relationship is the concept of "intergenerational assistance." That's a fancy way of saying that a person's chances to advance economically are very much impacted by whether his or her family can help with tuition payments, a down payment on a house or seed money to start a business. The wealthy don't pass on their status through inheritance alone, but by smoothing the way for their children.

In an interview last year, Dalton Conley, director of NYU's Center for Advanced Social Science Research, compared two hypothetical kids -- one from a family with some money and the other from poor parents. Both are born with the same level of intelligence, both are ambitious and both work hard in school. In a meritocracy, the two would enjoy the same opportunity to get ahead. But the fact that one might graduate from college free and clear while the other is burdened with $50,000 in debt makes a huge difference in terms of their long-term earnings prospects. That's just one of the myriad ways that parents pass their economic status to their children. Conley concluded: "When you are talking about the difference between financing their kid's college education, starting a new business, moving if they need to move for a better job opportunity -- [differences] in net worth might make the difference between upward mobility and stagnation."

As bleak as the recent findings about our ability to move up are, the picture for American families would look much worse if not for the increasing number of women in the work force. Women, while still earning less than their male counterparts, have had far greater upward mobility over the past three decades, largely because they had farther to go to get to the same place. While men's employment rates, hours worked and wages have been flat or declining during that period, all three measures have increased for women. Isaacs concluded: "Family incomes have grown slightly because the increase in women's earnings has more than offset stagnant male earnings."

The streets are paved with gold … in Denmark

Several studies released in recent years suggest that, contrary to popular opinion, Americans enjoy significantly less upward mobility than citizens of a number of other industrialized nations (some of the studies can be accessed here, here and here). German workers have 1.5 times the mobility of Americans, Canada is nearly 2.5 times more mobile and Denmark is 3 times more mobile. Norway, Finland, Sweden and France (France!) are all more mobile societies than the United States. Of the countries included in the studies, the United States ranked near the bottom; only the United Kingdom came in lower.

Blame the "neos"

Unlike inequality, which some classical economists and most conservative pundits dismiss as irrelevant, there's broad agreement across the ideological spectrum about the importance of mobility. In the United States, where we take for granted levels of inequality and poverty that would be a front-page scandal in most advanced economies, the stakes are that much higher. It's one thing living in a new gilded age when we all have a fair shot at ending up among the "haves," but it's something else altogether when a nation's wealth is concentrated at the top of a rigidly stratified society. As Dalton Conley put it, the fact that parents' wealth is the strongest predictor of where kids will end up "very manifestly displays the anti-meritocracy in America -- the reproduction of social class without the inheritance of any innate ability."

But it's the interplay of a number of factors that determines social mobility, and there's heated debate about what's caused these changes in the American economy and what their policy implications might be.

Three trends help explain why it's so much harder to get ahead in America today than it was for previous generations of working people, and why it's apparently easier to get ahead in more socially oriented countries: differences in education, the decline in union membership and loss of good manufacturing jobs and, more generally, a relatively weaker social safety net. Roughly speaking, the decrease in relative mobility from generation to generation correlates with the rise of "backlash" conservatism, the advent of Reaganomics and the series of massive changes in industrial relations and other policies that people loosely refer to as the "era of globalization."

The United States is the only advanced country in which the federal government is not directly involved in higher education. That's played a role in the dramatic increase in the average costs of a college education since the post-World War II era. In 1957, for example, a full-time student at the University of Minnesota paid $111 per year in tuition, which, in today's dollars, is about $750. During the 2005-2006 school year, in-state tuition at the University of Minnesota was $8,040. As education writer Naomi Rockler-Gladen noted, that's an inflation-adjusted increase of 1,000 percent since 1957. At almost $10,000 in average costs (in 2002), a public university education in America is a lot more difficult to finance than it was a generation ago. That impacts mobility; a college degree is a ladder -- one of the classic methods by which hard work and intelligence could be translated into economic success.

Sawhill looked at the relationship between education and mobility (PDF) and concluded that "at virtually every level, education in America tends to perpetuate rather than compensate for existing inequalities." She pointed to three reasons for that.

First, we have a relatively weak K-12 system. "American students perform poorly on international assessments," she wrote. "Colleges are forced to provide remedial work to a large share of entering freshmen, and employers complain about workers' basic skills." A society with a weak education system will, by definition, be one in which the advantages of class and family background loom large.

Second, the U.S. education system is largely funded through state and local property taxes, which means that the quality of a kid's education depends on the wealth of the community in which he or she grows up. This, too, helps replicate parents' economic status in their kids.

Finally, Sawhill notes, in the United States, unlike other advanced economies, "access both to a quality preschool experience and to higher education continues to depend quite directly on family resources."

The decline in organized labor and solid, good-paying manufacturing jobs is another factor. Those jobs once represented a ladder; their role in moving past generations into the middle class is an American archetype: The paper boy's son finishes high school and gets an apprenticeship that leads to a solid job in a union shop that allows him to send his son or daughter to college, where they become a doctor or a lawyer. That particular ladder is disappearing.

There's also an inverse relationship between how robust a country's social safety net is and the degree to which working families face the prospect of downward mobility. For example, research comparing countries that have generous unemployment benefits with those -- like the United States -- which offer stingier programs show a clear trend: Offering displaced workers better benefits (a) extends the period of unemployment (which tends to be the focus of most conservatives) and (b) means that when working people do re-enter the work force, they do so at a higher average wage. A similar dynamic has been demonstrated in terms of healthcare: People with access to paid sick leave and other health benefits switch jobs less frequently than those who don't and have longer average tenure and higher earnings.

In all of these areas, the United States has undergone what Jacob Hacker calls the "great risk shift." Hacker describes how the American "framework of security has unraveled, leaving Americans newly exposed to the harshest risks of our turbulent economy: losing a good job, losing healthcare, losing retirement savings, losing a home -- in short, losing a stable, financial footing." All of these things offer unique opportunities to fall out of the middle class -- opportunities for downward mobility that simply don't exist for the Canadian or French worker, who can rely on a progressive state to help preserve his or her income level when those kinds of disasters arise.

Ultimately, the take-away from the decline in American upward mobility is one that progressives have been saying for years: The existence of a middle class is not a natural phenomenon. It was built through real progressive policies like the GI education bill, which gave tens of millions of Americans (including my grandfather) access to free college tuition and low-cost loans to start businesses or buy homes. It was created by providing quality public education, mandating minimum wages and guaranteeing working people the right to organize.

After spending three decades unraveling those kinds of protections -- all have been subjected to death "by a thousand small cuts" over the past 30 years -- we're no longer a mobile society. No longer is it the case that the accident of one's birth doesn't dictate one's life chances in America, and that's a wholly predictable result of the rise of the conservative backlash.