What Ever Happened To Upward Mobility?

Why the U.S. has become the land of less opportunity--and what we can do to revive the American Dream

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Joakim Eskildsen for TIME

Lesley Perez, 24, is a New York City kindergarten teacher and earns just $23,000 a year. To save money, she lives with her parents. She is $35,000 in debt from college loans.

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The obvious question is, What happened? The answers, like social mobility itself, are nuanced and complex. You can argue about what kind of mobility really matters. Many conservatives, for example, would be inclined to focus on absolute mobility, which means the extent to which people are better off than their parents were at the same age. That's a measure that focuses mostly on how much economic growth has occurred, and by that measure, the U.S. does fine. Two-thirds of 40-year-old Americans live in households with larger incomes, adjusted for inflation, than their parents had at the same age (though the gains are smaller than they were in the previous generation).

But just as we don't feel grateful to have indoor plumbing or multichannel digital cable television, we don't necessarily feel grateful that we earn more than our parents did. That's because we don't peg ourselves to our parents; we peg ourselves to the Joneses. Behavioral economics tells us that our sense of well-being is tied not to the past but to how we are doing compared with our peers. Relative mobility matters. By that standard, we aren't doing very well at all. Having the right parents increases your chances of ending up middle to upper middle class by a factor of three or four. It's very different in many other countries, including Canada, Australia, the Nordic nations and, to a lesser extent, Germany and France. While 42% of American men with fathers in the bottom fifth of the earning curve remain there, only a quarter of Danes and Swedes and only 30% of Britons do.

Yet it's important to understand that when you compare Europe and America, you are comparing very different societies. High-growth Nordic nations with good social safety nets, which have the greatest leads in social mobility over the U.S., are small and homogeneous. On average, only about 7% of their populations are ethnic minorities (who are often poorer and thus less mobile than the overall population), compared with 28% in the U.S. Even bigger nations like Germany don't have to deal with populations as socially and economically diverse as America's.

Still, Europe does more to encourage equality. That's a key point because high inequality--meaning a large gap between the richest and poorest in society--has a strong correlation to lower mobility. As Sawhill puts it, "When the rungs on the ladder are further apart, it's harder to climb up them." Indeed, in order to understand why social mobility in the U.S. is falling, it's important to understand why inequality is rising, now reaching levels not seen since the Gilded Age.

There are many reasons for the huge and growing wealth divide in our country. The rise of the money culture and bank deregulation in the 1980s and '90s certainly contributed to it. As the financial sector grew in relation to the rest of the economy (it's now at historic highs of about 8%), a winner-take-all economy emerged. Wall Street was less about creating new businesses--entrepreneurship has stalled as finance has become a bigger industry--but it did help set a new pay band for top talent. In the 1970s, corporate chiefs earned about 40 times as much as their lowest-paid worker (still closer to the norm in many parts of Europe). Now they earn more than 400 times as much.

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