New research on absolute income mobility shows gloomy trend

  • From Xhulia Likaj
  • Reading duration 2 min

In a landscape where the “American Dream” is often synonymous with the idea of each generation achieving a higher standard of living than the last, a new study brings concerning insights about the state of economic progression. Robert Manduca, a faculty associate at the Stone Center for Inequality Dynamics, along with a team of researchers, uncovers a steady decline in absolute income mobility in the United States, an alarming trend that may not be unique to America.

Manduca's study, “Measuring Absolute Income Mobility: Lessons from North America and Europe,” published in the American Economic Journal: Applied Economics, indicates that the financial benchmark set by parents is increasingly becoming a peak rather than a stepping stone for the subsequent generation. Utilizing data that compares inflation-adjusted earnings across generations, the study reveals that only half of the 30-year-olds in the United States out-earn their parents at the same age—a stark contrast to historical data.

The issue isn't confined to the United States. Canada and Finland also demonstrate similar patterns, with roughly 55% of the current generation outpacing their parents' earnings. Contrastingly, countries like the Netherlands, Norway, and somewhat in the United Kingdom and Sweden, the decline in upward mobility is less pronounced, suggesting various factors at play.

These findings were made possible by leveraging new methods that allowed the team to analyze both parents and children at multiple career stages, with age 30 as the baseline. However, some measurements extended to age 50 to account for macroeconomic changes, like recessions, which significantly impact income mobility.

This research provides a multi-faceted view of economic success, thanks to advancements in approximation methods. These new techniques enable a comparison of large-scale data without the need for direct access to the comprehensive data sets previously required, hence widening the scope for future studies on absolute income mobility. Showing a clear trend, this research is a critical resource for whoever is striving to understand and address the complex dynamics of intergenerational economic growth—or its stagnation.