The “American Dream” – Children’s prospects of earning more than their parents have fallen from 90% to 50% over the past half century

Children’s prospects of achieving the “American Dream” of earning more than their parents have fallen from 90% to 50% over the past half century. This decline has occurred throughout the parental income distribution, for children from both low and high income families, as shown in the chart below.

Most of the decline is due to the more unequal distribution of economic growth in recent decades rather than the slowdown in GDP growth. Increasing economic growth rates to the higher levels experienced in mid-century America would increase the fraction of children earning more than their parents to 62%. Spreading the existing growth more broadly across the income distribution would raise the level to 80%.

The differences in upward mobility across areas are caused by differences in childhood environment. Every year of exposure to a better environment improves a child’s chances of success, based on an experimental study of housing voucher recipients and a study of five million families who moved across areas…

Chosen excerpts by Job Market Monitor  The Equality of Opportunity Project