Traveling Minds - - Table Of Contents -

Amer­i­cans used to be able to as­sume that each gen­er­a­tion would have higher in­comes than their par­ents. A new study says those days are gone, but the “why?” be­hind this is a tough ques­tion.

In a re­cent is­sue of the jour­nal Sci­ence, pub­lished by the Amer­i­can As­so­ci­a­tion for the Ad­vance­ment of Sci­ence, the ar­ti­cle “The Fad­ing Amer­i­can Dream: Trends in Ab­so­lute In­come Mo­bil­ity Since 1940” looked at just what has hap­pened to Amer­i­can in­comes since the 1940s. The ar­ti­cle was co-au­thored by Raj Chetty of the De­part­ment of Eco­nom­ics at Stanford Uni­ver­sity, David Grusky and Max­i­m­il­ian Hell of the De­part­ment of So­ci­ol­ogy at Stanford Uni­ver­sity, Nathaniel Hen­dren of Har­vard Uni­ver­sity’s De­part­ment of Eco­nom­ics, Robert Man­d­uca of Har­vard Uni­ver­sity’s De­part­ment of So­ci­ol­ogy and Jimmy Narang of the De­part­ment of Eco­nom­ics at the Uni­ver­sity of Cal­i­for­nia, Berke­ley.

As back­ground, the writ­ers ac­cessed pub­licly-avail­able data from the U.S. Cen­sus and the Cur­rent Pop­u­la­tion Sur­vey plus fed­eral in­come tax records (with all iden­ti­fy­ing in­for­ma­tion redacted). The au­thors then looked at “ab­so­lute in­come mo­bil­ity,” which they de­fined as the frac­tion of chil­dren who are mak­ing more money than their par­ents, as re­flected by this data.

Raw Find­ings

What the re­searchers dis­cov­ered was that while 94% of chil­dren born in 1940 met that cri­te­rion, only 50% of chil­dren born in the 1980s would end up mak­ing more money than their par­ents.

An­other sig­nif­i­cant re­sult con­cerned the im­pact of how high the in­come was of one’s par­ents on ab­so­lute in­come mo­bil­ity.

Re­gard­less of how much the par­ents made, the trend of those born in the 1980s hav­ing less chance of mak­ing more money than their par­ents (com­pared to those born in the 1940s) was valid for all in­come lev­els sur­veyed. For spe­cific lev­els, how­ever, the ab­so­lute per­cent­ages with ab­so­lute in­come mo­bil­ity were very dif­fer­ent.

For those with par­ents in the top 10% of all in­come lev­els, those born in 1940 had a 94% prob­a­bil­ity of mak­ing more than their par­ents, for ex­am­ple. Those born in the 1980s of equally (top 10% in­come) wealthy par­ents still lagged be­hind their par­ents in in­come, but this time the per­cent­age with ab­so­lute in­come mo­bil­ity was 70%, as op­posed to 50% for all born in the 1980s. For those with par­ents mak­ing con­sid­er­ably less money, at the 50th per­centile of all in­come, the ab­so­lute mo­bil­ity rates dropped from 93% (still a very high num­ber) to only 45% for those born in the 1980s. The sit­u­a­tion is even more dras­tic for those with par­ents in the bot­tom 10% of all in­come lev­els. At those lev­els of parental in­come, while 88% of chil­dren born in 1940 still made more than their par­ents, only 33% of those born in the 1980s made more.

There is also a sug­ges­tion in the re­search about what those in­volved in the study saw as an anoma­lous pe­riod in the 1990s and early 2000s, when the first “dig­i­tal busi­ness bub­ble” ex­panded and then burst. The im­pli­ca­tion was if that were treated as a “lucky break” rather than a real in­di­ca­tion of earn­ings trends for this gen­er­a­tion, the real ab­so­lute in­come mo­bil­ity num­ber for those born in the 1980s might be even lower than 50%.

First Re­ac­tions

Based on this re­search, some­thing aw­ful is clearly hap­pen­ing to the Amer­i­can dream on two lev­els. The first is ab­so­lute and is hap­pen­ing re­gard­less of the in­come lev­els of the par­ents. The sec­ond shows that the wealth­ier the par­ents are, the more “able” the chil­dren of those par­ents are to make more than those par­ents, re­gard­less of the decade of birth.

At the heart of both is­sues is an as­sump­tion that Amer­i­cans have been hold­ing for many decades, at least since the end of World War II. That as­sump­tion is that as the econ­omy grows, there will be ben­e­fits for all. Those ben­e­fits – call them “shar­ing the wealth,” “trickle-down eco­nom­ics” or per­haps some other more mod­ern phrase – have for decades re­li­ably de­liv­ered in­creased fi­nan­cial se­cu­rity and ab­so­lute in­come lev­els for Amer­i­cans ev­ery­where.

That as­sump­tion, for as long as it has ex­isted, was as­sumed to be al­most ab­so­lute. Part of the rea­son for this was that, thanks to the G.I. Bill and other fac­tors, start­ing with the baby boom gen­er­a­tion, more peo­ple than ever were seek­ing and get­ting col­lege and even post­grad­u­ate de­grees. Ad­vances in fields such as health care, en­gi­neer­ing and man­u­fac­tur­ing were also creat­ing types of jobs in large enough num­bers that the so-called “knowl­edge in­dus­tries” were ex­plod­ing in both num­bers and the amount of pay be­ing of­fered. The econ­omy re­sponded, with the money earned by those in th­ese new jobs driv­ing de­mand in many in­dus­tries while also help­ing sup­port the cre­ation of en­tirely new kinds of jobs than in the past.

But some­thing changed, and the once “golden goose” of the Amer­i­can eco­nomic en­gine seemed to have stopped lay­ing the same kinds of eggs. That was also de­spite the wealth at the top con­tin­u­ing to reach higher num­bers than ever be­fore.

The Im­pact of Re­dis­tri­bu­tion of Wealth

One ma­jor part of the de­cline, ac­cord­ing to what the re­searchers in this anal­y­sis sug­gested, was how wealth had moved from be­ing more uni­formly dis­trib­uted to one where the top 10% are richer – as a per­cent­age of the whole – than ever be­fore.

As an ex­am­ple of how this works, the an­a­lysts be­hind the pa­per cre­ated a com­plex fi­nan­cial model link­ing to­gether GDP es­ti­mates and eco­nomic pro­jec­tions, in­come lev­els, in­vest­ment and other fac­tors. They did so both to test the ac­cu­racy of their high-level con­clu­sions un­der var­i­ous sce­nar­ios and to make some pre­dic­tions.

Us­ing that model, a first an­a­lyt­i­cal ex­per­i­ment looked at what hap­pens to the ab­so­lute mo­bil­ity in­dex if all lev­els of the par­ents in the stud­ies could en­joy a broadly-shared rate of eco­nomic growth. In one such cal­cu­la­tion, which the writ­ers called the “more broadly shared growth sce­nario,” they as­sume the in­comes of those born in 1980 “would have had in 2010 if the GDP in 2010 were al­lo­cated across house­holds in the same pro­por­tions as in 1970.”

With that higher-growth anal­y­sis, the av­er­age ab­so­lute mo­bil­ity rate goes up to 62% ver­sus the orig­i­nal 50% num­ber. That is bet­ter but still rep­re­sents a steep de­cline ver­sus the 90%+ ab­so­lute mo­bil­ity rates the chil­dren born of par­ents in 1940 had.

A sec­ond anal­y­sis the re­searchers looked at, given real in­come level dis­tri­bu­tions in the United States, was to find out how much the GDP would have to grow over­all to in­crease ab­so­lute mo­bil­ity to at least 80% ver­sus to­day’s 50%. What they found was that this “would re­quire sus­tained real per-fam­ily growth greater than 5% per year (or real GDP growth above 6.4%), well above the his­tor­i­cal ex­pe­ri­ence of the United States dur­ing the Sec­ond World War.”

So, bar­ring some mir­a­cle to drive the econ­omy to higher lev­els – lev­els that are highly un­likely – it is clear that the re­dis­tri­bu­tion of wealth is a ma­jor fac­tor for what has hap­pened to ab­so­lute in­come mo­bil­ity. Con­tribut­ing Fac­tors to the Re­dis­tri­bu­tion of Wealth

For those at­tempt­ing to un­der­stand why this re­dis­tri­bu­tion of wealth is oc­cur­ring, one of the com­mon com­plaints is a lack of jobs.

The blame be­hind that com­plaint comes in many forms. Some say man­u­fac­tur­ing jobs have been “shipped

over­seas” over the past decades, ef­fec­tively elim­i­nat­ing many of the higher-value jobs that used to be present in North Amer­ica back in the mid-20th cen­tury. Some blame the rise of au­to­ma­tion, which is prob­a­bly closer to the truth in many in­dus­tries, es­pe­cially in pre­vi­ously high-paid fields such as auto pro­duc­tion. Th­ese and other rea­sons do have some truth.

But the re­al­ity, ac­cord­ing to economists such as Paul Krugman and com­pa­nies like Man­pow­er­group, who sur­vey coun­tries and the world to help plan their own man­power-needs plan­ning, is that there are in fact many jobs avail­able that end up not be­ing filled at all. The rea­son is sim­ple: a lack of avail­able tal­ent.

Ac­cord­ing to Man­pow­er­group’s lat­est (2016/2017) sur­vey of job needs across the world, for ex­am­ple, 46% of U.S. em­ploy­ers re­port dif­fi­cul­ties in fill­ing jobs. And to dis­pel any thoughts that per­haps the coun­try is far dif­fer­ent than ev­ery­where else, the global av­er­age for this fig­ure is 40% for all 43 coun­tries and 42,300 em­ploy­ers that Man­pow­er­group con­tacted in this 11th an­nual Tal­ent Short­age Sur­vey.

Some might won­der if those un­filled jobs are ones that pay poorly or are oth­er­wise un­de­sir­able. It is a nice story – and one that some politi­cians would love to grab onto for cam­paign pur­poses – but the facts do not back it up. In fact, as listed in the same sur­vey, the top 10 cat­e­gories of jobs that em­ploy­ers re­port hav­ing prob­lems fill­ing in the Amer­i­cas are

skilled trades tech­ni­cians sales rep­re­sen­ta­tives pro­duc­tion op­er­a­tors/ma­chine op­er­a­tors

sec­re­taries, per­sonal as­sis­tants, re­cep­tion­ists, ad­min­is­tra­tive as­sis­tants and of­fice sup­port staff


man­age­ment/ex­ec­u­tive (man­age­ment/ cor­po­rate)

ac­count­ing and fi­nance staff driv­ers IT per­son­nel With few ex­cep­tions, most of th­ese rep­re­sent solid, good-pay­ing jobs. It is true that some of them may suf­fer from a real lack of tal­ent in each ge­o­graph­i­cal area and oth­ers may re­quire train­ing that is scarce. But for the most part th­ese are jobs that should be able to be filled – at least far more sub­stan­tially than they are now. When the jobs are not filled, not only do the in­di­vid­u­als who could have earned the in­come from those jobs suf­fer but the com­pa­nies do too, be­cause with­out the peo­ple, they are of­ten un­able to take on the new work or bid for the avail­able op­por­tu­ni­ties out there for their prod­ucts or ser­vices as well.

So, de­spite the pub­lic out­cry on the is­sue and even though if many of th­ese jobs were filled it is un­clear ex­actly what would hap­pen to ab­so­lute in­come mo­bil­ity, there is clearly a more com­plex story than peo­ple not hav­ing ac­cess to good jobs.

One ma­jor fac­tor op­er­at­ing be­hind the scenes in all of this is the con­tin­u­ing rapid de­cline in ba­sic skills that younger Amer­i­cans have.

Lack of Ba­sic Skills

In a re­port pub­lished two years ago by Ed­u­ca­tional Test­ing Ser­vice, the test­ing com­pany many of us re­mem­ber from our child­hood, data col­lected by the Pro­gramme for the In­ter­na­tional As­sess­ment of Adult Com­pe­ten­cies (PIAAC) was re­viewed. It specif­i­cally looked at and com­pared Amer­i­can mil­len­ni­als (those at the time be­tween the ages of 16 and 34) with oth­ers of the same age across the world. What it found was dev­as­tat­ing – that more than half of that group lacks ba­sic pro­fi­ciency when it comes to mak­ing use of ba­sic read­ing and math skills in the work­place.

In a re­view of this re­port, pub­lished by The At­lantic on Fe­bru­ary 17, 2015 (“The Skills Gap: Amer­ica’s Young Work­ers Are Lag­ging Be­hind” by Mikhail Zin­shteyn), the de­tailed re­sults are quite damn­ing. When the study looked at lit­er­acy skills, the U.S. mil­len­ni­als group scored only 274 out of 500 to­tal points avail­able, com­pared to an av­er­age of all par­tic­i­pat­ing coun­tries of 282. A full 50% of all U.S. mil­len­ni­als mea­sured at “be­low the thresh­old that in­di­cates pro­fi­ciency in lit­er­acy.” And on nu­mer­acy, the term now of­ten used to de­scribe ba­sic skills and knowl­edge of math­e­mat­i­cal/fi­nan­cial prob­lem solv­ing, the U.S. mil­len­ni­als’ score was 255 out of a sim­i­lar 500-point scale. That group was tied with Spain and Italy for dead last on the list, and a full

one-third of mil­len­ni­als missed the cut­off point for min­i­mum ba­sic skill re­quire­ments in nu­mer­acy. The same re­port also closed with the com­ment that th­ese lit­er­acy and nu­mer­acy skills have de­clined sub­stan­tially when com­pared to the same val­ues an­a­lyzed just two decades ear­lier.

Blame what­ever one wishes, whether it be bad pub­lic ed­u­ca­tional pro­grams, where ba­sic lit­er­acy and nu­mer­acy are taught; a lack of will­ing­ness to learn; fam­i­lies not re­in­forc­ing lit­er­acy and nu­mer­acy in the home; and some de­clines re­lated to mod­ern tech­nol­ogy re­plac­ing the needs for such skills. But the re­sult is the same: Amer­i­cans are get­ting dumber in the core ar­eas they need to take on even the most ba­sic jobs.

No won­der so many jobs re­ported in the Man­pow­er­group sur­vey re­main un­filled.

The Need to Pivot and Learn New Skills

An­other area that af­fects the in­abil­ity for to­day’s work­ers to get jobs is sim­ply the pace by which the old jobs de­cline in value and new ones sur­face.

Dur­ing the mid-20th cen­tury, the skills one learned in vo­ca­tional school and/or col­lege and post­grad­u­ate work would of­ten stay equally valu­able over time. Those days, like those of the ab­so­lute in­come mo­bil­ity as­sump­tion, are over.

Ex­pe­ri­ence in the work­place, project man­age­ment, so­cial skills and the need for ba­sic nu­mer­acy and lit­er­acy still mat­ter over time, of course. Now more than ever, how­ever, there is a need for con­stant ca­reer rein­ven­tion, for­mal and in­for­mal re­train­ing as needs change and the abil­ity to adapt to the chang­ing busi­ness en­vi­ron­ment. Many of the most high-pay­ing jobs to­day did not even ex­ist as re­cently as 10 to 15 years ago.

One im­por­tant skill that is rarely taught in school that would help with this is what some re­fer to as “learn­ing how to learn.” Pub­lic and pri­vate school class­rooms, vo­ca­tional and oth­er­wise, of­fer and for­mal­ize var­i­ous ways of teach­ing to help one learn new things. But what is miss­ing for many is how to take on learn­ing for one­self.

The sad truth of this im­por­tant kind of train­ing is that, while it does ex­ist in some pri­vate school cur­ricu­lums, pub­lic schools sim­ply have no time for things like this, which are seen as ed­u­ca­tional lux­u­ries. And yet “learn­ing how to learn” may be one of the most im­por­tant skills any of us should know and prac­tice, all the time.

What It Means

From a raw eco­nomic per­spec­tive, with the 1980s gen­er­a­tion mak­ing less money, that means – un­der the old law of sup­ply and de­mand – that the con­cen­tra­tion of buy­ing power will out of ne­ces­sity shift to those mak­ing the most money pe­riod. It also has an over­all re­sult, though the num­bers are still to kick in fully, of hav­ing a de­fla­tion ef­fect on the econ­omy.

The United States and cap­i­tal­ism more gen­er­ally have, for much of their days, de­pended on a cy­cle of con­sump­tion and the use of credit to drive mar­kets for ev­ery­thing from con­sumer prod­ucts to things like cars, ap­pli­ances and real es­tate. With less money over­all for the chil­dren of par­ents with in­comes at the mid­dle to lower lev­els, those chil­dren will have a smaller per­cent­age of their in­come avail­able for lit­tle more than just ne­ces­si­ties. That could mean even fewer jobs for those em­ployed in pro­duc­ing dis­cre­tionary items as the econ­omy shifts fo­cus to ac­com­mo­date the eco­nomic changes. It also means less buy­ing over­all.

Stalling or re­vers­ing that process will take a lot of heavy lift­ing by gov­ern­ments, pri­vate in­dus­try, ed­u­ca­tional in­sti­tu­tions and the pub­lic at large. As the Man­pow­er­group sur­vey shows, there are jobs out there wait­ing to be filled but with­out proper skilled ap­pli­cants avail­able to fill them. There will need to be stop­gap pro­grams to help build part of nec­es­sary skills for work­ers that are avail­able but not yet ready. There will also need to be longer-term, more vi­sion­ary pro­grams to help trans­form the next gen­er­a­tion of youth so that they are on a bet­ter track than are, ap­par­ently, the mil­len­ni­als.

Mean­while, how­ever, as the cur­rent chil­dren of poorer par­ents are be­com­ing poorer still, the wealthy and chil­dren of the wealthy are get­ting richer by the minute. Some­thing, too, must be done about that in­come wage gap be­fore it is too late. That is some­thing that must start with or­ga­nized pub­lic out­cry, fol­lowed by some rad­i­cal leg­isla­tive ac­tion and a gen­er­a­tion of new busi­ness pro­to­types to lead the Amer­i­can – and global – econ­omy into a brighter fu­ture.

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