A generally agreed upon “fact” of the US economy is the trade off between economic security and economic mobility. American workers may be less secure than in other countries, but that is the price we pay for greater economic mobility.
Wrong, says a new report by the Economic Mobility Project. As the Wall Street Journal put it starkly — Not Your Father’s Pay: Why Wages Today Are Weaker:
American men in their 30s today are worse off than their fathers’ generation, a reversal from just a decade ago, when sons generally were better off than their fathers, a new study finds.
The project press release elaborates:
According to the report, men who were in their thirties in 1974 had median incomes of about $40,000, while men of the same age in 2004 had median incomes of about $35,000 (adjusted for inflation). Thus, as a group, income for this generation of men is, on average, 12 percent lower than those of their fathers’ generation. While factors other than cash income also contribute to economic mobility, these data challenge the two-century-old presumption that each successive generation will be better off than the one that came before. The findings rely on new analysis of U.S. Census Bureau data.
What about flexibility and mobility. The WSJ notes:
The study suggests that absolute mobility — the rate at which an entire generation’s lot improves relative to previous generations — has declined. But within a particular generation, individuals can still get ahead if relative mobility, the rate at which the rich and poor trade places, remains high. Poor fathers may have rich sons, and vice versa.
As the study describes:
To illustrate the importance of relative mobility, consider three hypothetical societies with identical distributions
of wealthy, poor, and middle-class citizens:
The meritocratic society. Those who work the hardest and have the greatest talent, regardless of
class, gender, race, or other characteristics, have the highest income.
The “fortune cookie” society. Where one ends up bears no relation to talent or energy, and is purely
a matter of luck.
The class-stratified society. Family background is all-important — children end up in the same relative
position as their parents. Mobility between classes is little to nonexistent.
Given a choice between the three, most people would choose to live in a meritocracy, which is, by its
nature, fairer and more just.
However, the report states::
Data on relative mobility suggest that people in the United States have experienced less relative mobility than is commonly believed. . . .
There is little available evidence that the United States has more relative mobility than other advanced nations. If anything, the data seem to suggest the opposite. Using the relationship between parents’ and children’s incomes as an indicator of relative mobility, data show that a number of countries, including Denmark, Norway, Finland, Canada, Sweden, Germany, and France have more relative mobility than does the United States (see Figure 3).
The report offers little guidance as to why this is occurring. According to the WSJ,
Ms. Sawhill said several factors could explain the divergence: a growing share of income going to the highest-paid workers, or to profits; an increased share of labor compensation going toward benefits such as health care; or a decline in the number of wage earners in the typical family.
Let me offer one of my own reasons — the changing nature of work. In part, the I-Cubed Economy is a social network economy. How well you do depends on whom you know as well as what you know and how hard you can work. Those with a broader social network of higher income/wealth connections will do better. And in part, the changing nature of work has disrupted the traditional employment and career ladders (see for example Stephen A. Herzenberg, John A. Alic, and Howard Wial, New Rules for a New Economy,: Employment and Opportunity in Postindustrial America (Twentieth Century Fund, Cornell University Press, 1998). I hope the project will look into these factors more closely.
The report goes conclude with a warning and a sobering thought:
One thing is clear. A society with little or no absolute mobility is one in which for every winner there is a loser. It’s a zero sum game. And a society with little or no relative mobility is one in which class, family background or inherited wealth loom large. Equal opportunity is a mirage. Recalling the three hypothetical societies, it is easy to envision why, for these reasons, high levels of both absolute and relative mobility are desirable. Society should strive for both. But rates of growth in mature economies are often slower than they are in societies that are still developing, and this fact makes a focus on relative mobility of increasing importance.
. . .
While belief in this American Dream remains a unifying tie for an increasingly diverse populace, it is showing signs of wear, with both public perceptions and concrete data suggesting that the nation is a less mobile society than once believed. This is not good: the inherent promise of America is undermined if economic status is, or is seen as, merely a game of chance, with some having the good fortune to live in the best of times and some the bad luck to live in the worst of times. That is not the America heralded in lore and experienced in reality by millions of our predecessors.
The Economic Mobility Project promises more analysis and discussion as to how to reverse this disturbing trend. But we will need concrete action at the end of that analysis. Let’s see if our political system is willing to take that next step – whatever it may turn out to be.