Posted on 04/26/2006 3:47:22 PM PDT by nicollo
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 20 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 U.S, 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 80 percent of those polled believed that it was possible to start out poor, work hard and become rich, compared with less than 60 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 30 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 3 percent of blacks making it from the bottom quarter of the income ladder to the top quarter, versus 14 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.
bump
My take is that perhaps the govt ends up with more of that money than the kids/grandkids. That's not ok with me if that's what it means.
susie
Yep, anyone can tell solid statistical patterns from grandparents to grandchildren by examining a FIVE year history. Sheesh.
My great-grandfather came over from Ireland at the turn of the century as a grocery clerk and wound up building America's largest grocery chain before he retired. He left ALL his money to charity. Since my father didn't inherit his father's wealth, I guess he's one of those poor folks who didn't end up rich too (he did go off and earn his own living though). Not sure how cases like that figure into the "statistics".
what I care about is opportunity. I dont believe that the US has less opportunity than europe
Inspirational (and I need all the help I can get)
Yeah, it would be hard to say. I'm better off financially than my parents (tho not rich--wait, maybe the govt would think I am!) and my husband is worse off financially than his parents, so I guess we cancel each other out! So far, one of my sons will probably not make as much money as we do, one probably will make about the same, and the other--the jury is still out! Happily we all are doing what we want to do, and aren't starving or costing the taxpayers.
susie
I don't either. I also don't think the govt should confiscate the bulk of what you make so you can't pass it on to your kids if you so choose.
susie
ping
re. Dutch and Danes... oops. Thanks
...in France, the correlation between people growing up in a rich background and staying rich is extremely high (probably at least 60%).Precisely. As bad a tax code as we have, far more than here tax law in Europe punishes wealth-gathering and rewards wealth-keeping.
Been there, done that. Didn't cut it.
True wealth is an eternal thing...make a point of not losing your gatherings upon physical death.
Look at my tagline...
Bingo! That is what I always tell my friends. The American Dream is not necessarily driving a Ferrari Enzo and owning a 250 foot super-Yacht (although that is indeed part of the American Dream), but being able to earn a good living, raise a family, and own your own home. In which case America is indeed the land of opportunity (and why many people stream here).
Now, it is possible for people with the will to power and drive to really accumulate tremendous wealth here, but such people can accumulate wealth anywhere (although the amount of wealth will vary with location, but the 'right person' will get rich anywhere ....I know).
However in the United States it is possible for nigh anyone to live the American Dream (good living/own home/etc ….not necessarily 10 Ferraris), which is not the case everywhere. For that matter I have traveled a lot, and I always tell my pals that the US is one of very few places that has a solid middleclass that is truly a middleclass (and not some lose agglomeration of ‘upper poor’ and ‘lower rich’). The existence of a true and large middleclass is one of the things that mark the United States as truly unique in the world.
Dear, the top five percent is not the rich but the ultra rich. The percentage of rich is actually 27%. 45% are middle class.
What are the chances of a child of a poor family joining the top 25%? A bit larger maybe?
The study uses a percentage as the indicator of wealth. There are more rich people in the US. The study is flawed. In 2001, that would be $162,351 per year.
http://www.osjspm.org/101_income.htm#4
Since top 5% owes 60% of wealth (wealth is different from income!) and lower 60% owes 4% of wealth, then middle class is less than 35%.
Unless you make over $162,000 per year, it would not matter what your net worth is, therefore, this study counts retired and semi-retired millionaires in the "not rich" category!
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