The Fading American Dream: Trends In Absolute Income Mobility Since 1940

One of the defining features of the “American Dream” is the idea that children have a higher standard of living than their parents (Samuel 2012). When children are asked to assess their economic progress, they frequently compare their own standard of living to that of their parents (Goldthorpe 1987, Hoschschild 2016). Such measures of absolute income mobility – the fraction of children earning or consuming more than their parents – are also often the focus of policymakers when judging the degree of economic opportunity in the U.S. (e.g., Obama 2013). 

In this paper, we assess whether the U.S. is living up to this ideal by studying two questions. First, what fraction of children earn more than their parents today? Second, how have rates of absolute mobility changed over time? Despite longstanding interest in these questions, evidence on absolute income mobility remains scarce (Halikias and Reeves 2016), largely because of the lack of large, high-quality panel datasets linking children to their parents in the U.S. 

We overcome this data problem by developing a new method of estimating rates of absolute mobility that can be implemented using existing datasets covering the 1940-84 birth cohorts. Our approach combines two inputs: marginal income distributions for parents and children and the copula of the parent and child income distribution, defined as the joint distribution of parent and child income ranks.

We estimate marginal income distributions for parents and children of the 1940-1984 birth cohorts using cross-sectional data from the decennial Census and Current Population Surveys (CPS). In our baseline analysis, we measure income in pre-tax dollars at the household level when parents and children are approximately thirty years old, adjusting for inflation using the CPI-U-RS. We then show the robustness of our results to a variety of specification choices, such as using alternative inflation adjustments, adjusting for taxes and transfers, and measuring income at later ages.

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