Using Mobility Statistics to Describe the Condition of the American Dream

There has been a lot of talk recently about "declining mobility" in the US. Some have compared the United States to Europe, claiming that Europe has higher income or class mobility. These studies are then used to explain a "shrinking middle class" in America and support the notion that the poor in Europe have it better. Articles then quote the results of the studies and charge that America is no longer the "land of opportunity", there is no more American Dream. These articles claim that you should move to Europe if you are interested in such things, because America has rigid class hierarchies, polarized rich and poor and no middle class.

Yet all of this hype and rhetoric misses the fact that several different things, economically speaking, are being discussed here. There are many ways to measure poverty, prosperity, middle class and opportunity. Mixing metaphors does little to explain the differing models - the free-market American Dream model and the European income-equality model.

If you talk about a "shrinking middle class" how do you define middle class? How does it shrink, do people get poorer or richer? Except for recessions, of course, they do get wealthier in the US. This is obvious just looking at income trends, but people have also studied it closely:

While inequality increased in the United States between 1979 and 1989, a great majority of Americans were economically better off at the peak of the business cycle in 1989 than they had been at its earlier peak in 1979. The largest share of the increase in inequality over the 1979-to-1989 period was due to positive but unequal income gains in the middle of the income distribution, not to disproportionate losses by the middle class.


But that definition does not address income mobility well and cannot answer whether the American Dream is alive and well and how it compares with the "greater mobility" seen in Europe. Once we distinguish between the different models and the different ways to measure the outcomes, then we can ask intelligent questions about what is gained and lost by each of the two models.



First of all, let's consider the difference between the "class-mobility" that Europe strives for and the income-advancement "mobility" by which is defined the American Dream.

I will use numbers based on the Luxembourg Income Study and compare the US to Sweden. My numbers will be based on actual income quintiles of a given household in a single year, the mobility will be based on longitudinal mobility studies that track single individuals (not multiple generations) but I will include a typical parent for each.

Imagine a senior class from high school. You have the child of an immigrant who borrowed money for a suit to wear to the prom (dad makes $15500 after tax, 2nd quintile); a young cheerleader of middle class parents (dad makes $29000 - 2003 dollars - after tax, 4th quintile) and a rich kid, the son of a wealthy businessman (dad makes $200000 after tax). After high school they each go to look for work. During those first couple of years out of high school they each try to advance their careers. The son of an immigrant works for his family's restaurant ($8223 after tax, 1st quintile); the cheerleader works at the Walmart ($15410 / yr, 2nd quintile); the son of a businessman goes to Harvard and his first job pays ($21580, 3rd quintile); It is 1979.

Now, 13 years later in 1992 the three meet again for a high school reunion (they graduated in 1977, its the 15 yr reunion). Now the businessman's son is in business himself, doing quite well. He earns $60,000 after tax (top quintile). The cheerleader also advanced, she earns $35,000 after tax (4th quintile) as a mid-level executive. The child of the immigrant is also doing well; he has expanded the business and now earns $28,000 (third quintile) after tax.

Five years later in 1997 at the 20 year reunion there had been further advancement, they each had a turning point in their careers. The son of the businessman now earned $100,000 after tax. The cheerleader now earned $50,000 after tax and the son of the immigrant also earned $50,000 after tax. Although the businessman was in the top quintile, $50,000 after tax in 1997 only put the other two in the 4th quintile.

So what has happened? Is this the American dream that the middle class and immigrant's child experienced? Or is it stagnation and inequality and the decline of the middle class?

Well, it depends on your definition.


Now, in Sweden we also can watch the graduates of a high school class. The same three (dad makes $15500, dad makes $22000 and dad makes $50000 after taxes) have incomes in 1981 of $9700 after tax, $15300 after tax and $21100.

In 1995 we revisit the three. Now the son of the immigrant makes $23,000 a year after taxes; the cheerleader makes $30,000 a year after taxes and the son of the businessman makes $33,000 / yr after taxes. Is this scenario more or less mobile? It’s certainly more equal. But is there more or less American dream?

Again, it depends on how you define mobility and how you define the middle class and the American dream.


As we saw, in the US example the immigrant moved two quintiles in 15 years, the middle class girl moved two quintiles in 15 years and the son of a businessman also moved two quintiles in 15 years. Then after another five years the immigrant had moved another quintile while the other two remained in the 4th quintile. This is fairly typical of mobility in the US.

But most studies would not call the first move a two-quintile move for any of them. They would compare the income of the students in 1992 against each other. In other words, they would say that the immigrant's child was still in the bottom quintile because compared against his classmates (or rather, incomes of all persons of his age group) he is earning among the least, so he is in the bottom quintile for that group. The cheerleader remains in the 2nd quintile and the businessman remains in the third quintile - as there are still many others in their age group earning well above $60,000 after taxes. According to these studies we have seen 0% mobility.

In 1997 we may finally see the immigrant kid as having moved up to the 2nd or 3rd quintile compared with his group while the cheerleader remains there and the businessman is now in quintile 4 compared with his age group - still not a lot of mobility according to that definition.

What about in Sweden?

The top quintile in Sweden in 1992 had a median of $28,000 after taxes. Although the dollar move is lower, we see a quintile move from the bottom to the top for the immigrant's kid, from the 2nd quintile to the top for the cheerleader and from the 3rd quintile to the top for the businessman's child. Using the 2nd definition, we have to extrapolate a little bit but we can see perhaps a move from the bottom to probably the middle quintile for the immigrant's kid, from the 2nd quintile to the 4th quintile for the cheerleader and a move from the middle also to the 4th quintile for the businessman's kid, likely. Its a lot more movement than the 0% seen in the US, isn't it? Now if the cheerleader gets a raise and the businessman has an off year, in 1997 we might see some real “social mobility.” In that year we might find that immigrant has reached the fourth quintile for the age group, the cheerleader has the top spot, and the businessman must see what its like to be only middle class.

It is interesting how the dollar move is so much smaller and the absolute income of all three is lower in Sweden yet mobility is calculated as being so much greater. "Class mobility" as defined to be your standard of living compared to that of your classmates may indeed be greater in Sweden: because inequality is so low there is a higher probability that you will earn equal to or slightly better than a classmate who started out ahead of you. But you both will earn less that your equivalent in the US - because flattening wages to make them equal also makes them lower than you find in the free market.


So where does this leave us?

If you define the American Dream, as it used to be defined, as the ability to start from nothing and make a great life for yourself, then I think the evidence indicates that it still exists - in fact, its more alive than ever. If you define it as the class mobility then you must define class mobility, but you may find a different answer to whether the American Dream is "what it once was". If you define "class mobility" as moving from a lower class in society to a higher class, compared against the classes of your own country, we equal the other nations in this respect. If you define it against just your classmates - those you began competing against - then indeed we may have lower mobility.

Is it fair that you start out below them and you end up below them? Well, that may depend on why. Is it because you have no chance? I don't think so. We have very low unemployment - and the unemployed are not even tracked in mobility studies (so that in some countries 10-15% of youths are not even counted as the others find relative mobility). This means that people do have a chance at least to get a job and better their situation. Some people may feel stuck in low-end jobs because they have less education - so that even if they improve their incomes, they hit a glass ceiling. But do they really? If they did then we would see very few people that start out poor ever making it into society's top quintile. Yet an individual starting out in the bottom quintile is actually more likely after 15 years to end up in the top quintile of society than the bottom. Still, their classmates may be not just in the top quintile but much higher in that top quintile - like the top 5% of society. So, is there a glass ceiling up there - so that nobody from the bottom quintile can ever make it into the top 5%? Well, we must expect fewer - only 5% can make it, regardless of background. We know that some do make it there from the bottom as we hear about them in anecdotes - the total number? Well, the total number that make it to the US top 5% ($100,000 after taxes) that come from our bottom quintile may be low or realtively low, but how does it compare with the total number that make it to the US top 5% that started out in Sweden? The top 5% in the US would be a top 0.1% in Sweden, most likely, considering their income distribution (the top 1% make $58,000 after taxes). And to make it to the Sweden top 5% ($43,000 after taxes) for an American would be pretty easy no matter where you started out...

So it all depends on how you look at it and what question you are asking.

I would argue that the American Dream is alive and well and that the poor in the US have a better - not a worse - chance of becoming rich here than in Europe.