Rising inequality has crushed the dream of upward mobility

A child born in 1940 had an extremely good chance of growing up to earn more money than his parents did. Due to regression to the mean, children of the very, very wealthy were somewhat less likely to out-earn their parents (if your dad is Jeff Bezos, it’s hard to beat that no matter how many advantages you have in life). But from the bottom of the income distribution all the way up to the 95th percentile or so, families were extremely likely to experience upward mobility.

For kids born in 1980, that’s much less true. The very most disadvantaged kids are, fortunately, pretty likely to grow up to be somewhat less disadvantaged than their parents. But for people born into the broad middle 60 percent or so of the income distribution, experiencing upward mobility relative to your parents has become a crapshoot.

That’s the story of this chart from a team of researchers led by Raj Chetty who document America’s declining absolute mobility over the decades.

Now, to be fair, kids born in 1940 had parents who probably entered the workforce during the Great Depression. And they had the good fortune to be leaving high school in the middle of a period of very rapid overall economic growth. Growth since 1980 has been slower than growth was in the 1950s and ’60s, and those of us born in the early ’80s had parents who grew up in comfortable postwar circumstances.

But economic growth turns out to have less to do with this than one might think. Here’s another chart:

The dashed pink lines represent the kind of mobility we would have seen if kids born in 1980 had grown up with GDP growth that was as rapid as the GDP growth experienced by kids born in 1940. As you can see, this increases mobility quite a bit. But it still leaves an enormous gap with the actual mobility experienced by kids born in 1940.

The dashed green line, by contrast, holds GDP growth constant but asks what things would look like if inequality had remained at 1940 levels. This turns out to make a huge difference, especially for the middle 60 percent of the income distribution.

Which is to say that if you want to return to the kind of broadly shared increase in living standards that the United States was known for in the postwar decades, you really do need to return to a more egalitarian income distribution. Just focusing on growth per se won’t get the job done.

Even though it’s pretty easy to agree that faster growth would be desirable, it’s not entirely clear how it can be achieved on a sustained basis. Indeed, some people, like my colleague Tim Lee, think that a big boost in growth is essentially impossible for a country like the United States that is already pretty affluent on the whole.

More equality, by contrast, is pretty clearly achievable from a technical standpoint through different tax and regulatory structures. Making those changes in the context of a political system that, instead, seems poised to enact a large regressive tax cut is another matter. But the story of this chart is that upward mobility can be restored, even without bringing back the unusually rapid growth of the postwar decades.