America's rags-to-riches dream an illusion: study
by Alister Bull
Reuters (April 26 2006)
America may still think of itself as the land of opportunity, but the chances of living a rags-to-riches life are a lot lower than elsewhere in the world, according to a new study published on Wednesday.
The likelihood that a child born into a poor family will make it into the top five percent is just one percent, according to "Understanding Mobility in America", a study by economist Tom Hertz from American University.
By contrast, a child born rich had a 22 percent chance of being rich as an adult, he said.
"In other words, the chances of getting rich are about twenty times higher if you are born rich than if you are born in a low-income family", he told an audience at the Center for American Progress, a liberal think-tank sponsoring the work.
He also found the United States had one of the lowest levels of inter-generational mobility in the wealthy world, on a par with Britain but way behind most of Europe.
"Consider a rich and poor family in the United States and a similar pair of families in Denmark, and ask how much of the difference in the parents' incomes would be transmitted, on average, to their grandchildren", Hertz said.
"In the United States this would be 22 percent; in Denmark it would be two percent", he said.
The research was based on a panel of over 4,000 children, whose parents' income were observed in 1968, and whose income as adults was reviewed again in 1995, 1996, 1997 and 1999.
The survey did not include immigrants, who were not captured in the original data pool. Millions of immigrants work in the US many illegally, earnings much higher salaries than they could get back home.
Several other experts invited to review his work endorsed the general findings, although they were reticent about accompanying policy recommendations.
"This debunks the myth of America as the land of opportunity, but it doesn't tell us what to do to fix it", said Bhashkar Mazumder, a senior economist at the Federal Reserve Bank of Cleveland who has researched this field.
Recent studies have highlighted growing income inequality in the United States, but Americans remain highly optimistic about the odds for economic improvement in their own lifetime.
A survey for the New York Times last year found that eighty percent of those polled believed that it was possible to start out poor, work hard and become rich, compared with less than sixty percent back in 1983.
This contradiction, implying that while people think they are going to make it, the reality is very different, has been seized by critics of President Bush to pound the White House over tax cuts they say favor the rich.
Hertz examined channels transmitting income across generations and identified education as the single largest factor, explaining thirty percent of the income-correlation, in an argument to boost public access to universities.
Breaking the survey down by race spotlighted this as the next most powerful force to explain why the poor stay poor.
On average, 47 percent of poor families remain poor. But within this, 32 percent of whites stay poor while the figure for blacks is 63 percent.
It works the other way as well, with only three percent of blacks making it from the bottom quarter of the income ladder to the top quarter, versus fourteen percent of whites.
"Part of the reason mobility is so low in America is that race still makes a difference in economic life", he said.
Copyright (c) 2006 Reuters Limited. All rights reserved.
http://news.yahoo.com/s/nm/20060426/ts_nm/economy_mobility_dc_2
Bill Totten http://www.ashisuto.co.jp/english/index.html
Reuters (April 26 2006)
America may still think of itself as the land of opportunity, but the chances of living a rags-to-riches life are a lot lower than elsewhere in the world, according to a new study published on Wednesday.
The likelihood that a child born into a poor family will make it into the top five percent is just one percent, according to "Understanding Mobility in America", a study by economist Tom Hertz from American University.
By contrast, a child born rich had a 22 percent chance of being rich as an adult, he said.
"In other words, the chances of getting rich are about twenty times higher if you are born rich than if you are born in a low-income family", he told an audience at the Center for American Progress, a liberal think-tank sponsoring the work.
He also found the United States had one of the lowest levels of inter-generational mobility in the wealthy world, on a par with Britain but way behind most of Europe.
"Consider a rich and poor family in the United States and a similar pair of families in Denmark, and ask how much of the difference in the parents' incomes would be transmitted, on average, to their grandchildren", Hertz said.
"In the United States this would be 22 percent; in Denmark it would be two percent", he said.
The research was based on a panel of over 4,000 children, whose parents' income were observed in 1968, and whose income as adults was reviewed again in 1995, 1996, 1997 and 1999.
The survey did not include immigrants, who were not captured in the original data pool. Millions of immigrants work in the US many illegally, earnings much higher salaries than they could get back home.
Several other experts invited to review his work endorsed the general findings, although they were reticent about accompanying policy recommendations.
"This debunks the myth of America as the land of opportunity, but it doesn't tell us what to do to fix it", said Bhashkar Mazumder, a senior economist at the Federal Reserve Bank of Cleveland who has researched this field.
Recent studies have highlighted growing income inequality in the United States, but Americans remain highly optimistic about the odds for economic improvement in their own lifetime.
A survey for the New York Times last year found that eighty percent of those polled believed that it was possible to start out poor, work hard and become rich, compared with less than sixty percent back in 1983.
This contradiction, implying that while people think they are going to make it, the reality is very different, has been seized by critics of President Bush to pound the White House over tax cuts they say favor the rich.
Hertz examined channels transmitting income across generations and identified education as the single largest factor, explaining thirty percent of the income-correlation, in an argument to boost public access to universities.
Breaking the survey down by race spotlighted this as the next most powerful force to explain why the poor stay poor.
On average, 47 percent of poor families remain poor. But within this, 32 percent of whites stay poor while the figure for blacks is 63 percent.
It works the other way as well, with only three percent of blacks making it from the bottom quarter of the income ladder to the top quarter, versus fourteen percent of whites.
"Part of the reason mobility is so low in America is that race still makes a difference in economic life", he said.
Copyright (c) 2006 Reuters Limited. All rights reserved.
http://news.yahoo.com/s/nm/20060426/ts_nm/economy_mobility_dc_2
Bill Totten http://www.ashisuto.co.jp/english/index.html
posted by Bill Totten at
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