Academic journal article AEI Paper & Studies

"Economic Mobility: Is the American Dream in Crisis?" Testimony before the Economic Policy Subcommittee of the Senate Committee on Banking, Housing, and Urban Affairs

Academic journal article AEI Paper & Studies

"Economic Mobility: Is the American Dream in Crisis?" Testimony before the Economic Policy Subcommittee of the Senate Committee on Banking, Housing, and Urban Affairs

Article excerpt

Chairman Cotton, Ranking Member Cortez Masto, and members of the committee: Thank you for the opportunity to testify today.

It is very encouraging to see this subcommittee take up the crucial question of economic mobility, and seek to understand it from a variety of angles and perspectives.

We Americans have always prided ourselves on the extraordinary degree of mobility this country has made possible for its citizens--the idea that, with hard work and a little luck, an immigrant or a child of poor parents can start out with nothing and end up successful and rich. We still believe this about ourselves. International comparisons of public opinion find that Americans express far greater confidence than citizens of other developed nations that hard work is rewarded and that everyone has a real chance to rise out of poverty. But by many measures, the United States actually does not stand out among advanced economies in terms of economic mobility, and has not for decades.

At some level, we surely sense this even if we do not know all the facts and figures. There is a divergence between what many Americans want to believe about our country and its promise and what we know to be true about the circumstances and pressures too many Americans now face. Americans at the bottom of the income scale do not have enough opportunities to move up, many in the middle feel stuck, younger workers are having trouble getting started, and Americans in general seem less inclined to follow after opportunities. These various challenges are all distinct, but they all describe forms of immobility.

In what follows I will offer a brief overview of the state of mobility in our economy and a few thoughts about potential policy responses.

Economic mobility is ultimately about improved living standards over time. It is therefore a measure of material progress, and of whether our economy is allowing people to better their conditions, which must after all be its primary purpose.

Mobility is notoriously difficult to measure, in no small part because even agreeing on its basic meaning is a challenge. But to keep things relatively simple for our purposes, we can begin to understand the state of economic mobility in America by breaking it down into two key components: relative mobility and absolute mobility.

Relative mobility refers to a person's economic status in relation to the nation as a whole. Economists often describe it in terms of moving up the income quintiles, and the rest of us tend to think of it in the form of rags-to-riches stories. Can someone born in poverty today rise into the middle class and beyond it? Does the child of a middle class family stand a reasonable chance of ending up wealthy? Or are people destined to end up roughly where they start?

The available evidence suggests that in terms of relative mobility we are now lagging behind Canada and much of northern Europe. Economist Markus Jantti and his team have found that over the past generation about 25 percent of Danish men who were born in the bottom 20 percent remained in that lowest quintile as adults, compared with 42 percent of American men. Some economists have questioned the methodology behind this finding and suggest mobility looks rather similar across the developed world. But no one argues that Americans are at this point uniquely mobile. At best we are on par with Europeans and Canadians.

And this is not because relative mobility has declined in America in the 21st century. Although you would not know it from some of our political debates, the data suggest that our national level of relative mobility has been remarkably stable--and remarkably low--for at least the last five decades. A child born to parents living in poverty at any point since the mid-1960s has had only about a 30 percent chance of ever making it into the middle class, and about a 5 percent chance of ending up in the highest fifth of income earners. Rags to riches stories, even rags to comfort stories, are awfully rare. …

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