ECONOMIC MOBILITY: IS THE AMERICAN DREAM ALIVE AND WELL?

For more than two centuries, economic opportunity and the prospect of upward mobility have formed the bedrock upon which the American story has been anchored—inspiring people in distant lands to seek our shores and sustaining the unwavering optimism of Americans at home. From the hopes of the earliest settlers to the aspirations of today's diverse population, the American Dream unites us in a common quest for individual and national success. But new data suggest that this once solid ground may well be shifting. This raises provocative questions about the continuing ability of all Americans to move up the economic ladder and calls into question whether the American economic meritocracy is still alive and well. Recent studies suggest that thereis less economic mobility in the United States than has long been presumed. The last thirty years has seen a considerable drop-off in median household income growth compared to earlier generations. And, by some measurements, we are actually a less mobile society than many other nations, including Canada, France, Germany and most Scandinavian countries. This challenges the notion of America as the land of opportunity. Despite these potentially troubling findings, the current national economic debate remains focused too narrowly on the issue of inequality, leaving aside the more important core question of whether the foundation of opportunity—economic mobility—remains intact. As Federal Reserve chairman Ben Bernanke recently noted: Although we Americans strive to provide equality of economic opportunity, we do not guarantee equality of economic outcomes, nor should we. Indeed, without the possibility of unequal outcomes tied to differences in effort and skill, the economic incentive for productive behavior would be eliminated, and our market-based economy—which encourages productive activity primarily through the promise of financial reward—would function far less effectively.Why should Americans care about economic mobility? How should citizens and policy makers alike understand economic mobility? This report addresses these questions in the same way Americans think about their lives and imagine the future for their children: it looks at how a family's standard of living improves from one generation to the next. Further, it asks whether a rising tide of economic growth lifts all ships, whether individual effort and talent allow a particular family's boat to move ahead of others in the fleet, or whether there is some combination of both. This report also discusses the implications of new analysis showing that the strength of America's rising economic tide has not benefited significant segments of our citizenry. Gone are the days when a stable, single income was enough to launch the next generation toward growing prosperity. In modern America, upward mobility is increasingly a family enterprise. And during a time of rapidly shifting household structure, this has significant repercussions for the economic mobility prospects of millions of Americans. WHAT IS ECONOMIC MOBILITY? There are many ways to define economic mobility . For simplicity's sake, and because it best captures what people caremost about, this reportmeasures economic mobility by trends in personal or family incomes. Economic mobility also has a time dimension. One can talk about mobility over a lifetime, between generations, or over a short period such as a year or two. Unlike analyses that investigate shorter-term fluctuations or volatility in incomes, this report focuses mainly on intergenerational mobility —the extent to which children move up or down the income spectrum relative to their parents' generation. This intergenerational analysis is perhaps most in keeping with the spirit of the American Dream, in which each generation is meant to do better than the one that came before.download