Odds plunge that children will earn more than parents
Experts say jobs and economic growth eclipsed by income inequity
Rising income inequity has eroded the ability for American children to grow up to earn more than their parents, according to groundbreaking new research from a superstar team of economists that carries deep implications for President-elect Donald Trump’s policy agenda.
The research from a team of economists led by Stanford’s Raj Chetty, and also including researchers from Harvard and the University of California, estimates that only half the children born in the 1980s grew up to earn more than their parents did, after adjusting for inflation. That’s a drop from 92 percent of children born in 1940.
The fall-off is particularly steep among children born in the middle class.
“If we simply care about absolute mobility,” Chetty said, “these results show, you have to care about inequality.”
Previously, Chetty’s team has studied a different measure of mobility: the ability of children to move up or down America’s income ladder as they grow up, when compared with other Americans. The new research attempts, for the first time, to quantify so-called “absolute mobility,” which people often associate with the American Dream: the odds of a child earning more as an adult than his or her parents earned at the same age.
The economists say rising concentration of income among the richest Americans explains 70 percent of what has been a steady decline in absolute mobility from the baby boom generation to millennials, while a slowdown in economic growth explains just 30 percent.
Absolute mobility “is something that was a feature of the American economy for kids born around 1940, that baby-boomer generation,” said Nathaniel Hendren, a Harvard economist who is one of the authors of the study. “As we look forward, there’s just been a dramatic decline in that measure” — which, he said, runs parallel to a decadeslong stagnation in earnings for typical American workers, even as earnings for the very rich have soared.
“If you don’t have that kind of widespread economic growth across the income distribution, it’s tough to grow up and earn more than your parents,” Hendren said. For policymakers, “This is a distinct reason to focus on inequality.”
That finding suggests Trump’s tax-cut plans would do little to improve economic mobility for struggling blue-collar families, even if they help accelerate growth, because analysts predict the cuts would benefit high earners disproportionately. Put another way: Trump has promised his cuts would help workers by supercharging growth, but the new research suggests past growth has done little to boost the absolute mobility of middle-class Americans.