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The American Dream Is Dead: Here’s Where It Went

The U.S. ranks among the lowest of developed countries for upward mobility, despite clinging to the mythology of Horatio Alger.

The American Dream Is Dead: Here’s Where It Went
[Illustration: Mike McQuade for Fast Company] [Illustration: Mike McQuade for Fast Company]

Look at a list of rags-to-riches billionaires, from Oprah to Starbucks CEO Howard Schultz, from immigrant investor George Soros to Jay-Z, and you’ll see a common thread. They all, by definition, made it. Hence, their classic American stories are self-fulfilling tales that allow them to package stories about their hustle and hard-won riches as an example to others.

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While such biographies are inspiring, and are frequently touted in business self-help advice, they don’t represent the stories of most Americans. They are hold-overs of an era past. In reality, the U.S. ranks among the lowest of all developed countries in terms of the potential for upward mobility, despite clinging to the mythology of Horatio Alger. The Declaration of Independence may promise us all the pursuit of happiness, but if you’re born poor, you’re probably going to stay poor. Or, as Malcolm Gladwell puts it, “nowadays, we don’t learn from poverty, we escape from poverty.”

In the U.S., someone born in the lowest economic bracket has about a 8% chance of making it to the top. That actually isn’t a new phenomenon; a study last year found that the odds of making it have been just as low for about half a century. In the late 1800s, it might have been true that a penniless immigrant moving to the U.S. from, say, England, would have had better chances in the New World. But upward mobility in America has been declining since the 1920s.

In Denmark, the odds of making it are now about twice as high as the U.S. Of course, Denmark is a much smaller and very different country. “You’re never going to turn the United States into Denmark,” says Miles Corak, a visiting professor of economics at Harvard University who studies intergenerational mobility.

But the same differences show up in places like Canada, which is more similar to the U.S. in other ways. Take the most basic metric–the adult salaries of parents’ versus their children’s. “It’s a rough indicator of how sticky your earnings are to your parents’ earnings,” says Corak. “According to that measure, the U.S. is half as mobile as Canada.”

For middle class Canadians and Americans, the differences aren’t so extreme. But they show up much more looking at the wealthiest and poorest. “There’s more of an intergenerational cycle of poverty in the U.S.,” Corak says. “And then at the other extreme, if you’re born into a relatively well-to-do family at the top–let’s say the top 10%–you’re more likely to stay in the top in the U.S. than in Canada.”

Why is the U.S. less mobile? “I don’t think we really know with any great definitiveness what are the reasons of cross-country differences,” says Bhash Mazumder, a senior economist at the Federal Reserve Bank of Chicago. “That’s sort of an active area of debate.”

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Still, there are correlations between mobility and certain factors, like the resources kids have at the beginning of life. Even in utero, kids with low-income mothers are already at a disadvantage and likely to earn less when they grow up. As those children grow up and go to school, the differences get bigger.

“We kind of bake the cake for inequality later in life,” Mazumder says. “Your income is more tightly associated with your parents, and that’s a function of the what parents invested in you as a kid, due to their circumstances.” In other words, inequality for parents translates directly to inequality for their kids.

Going to school doesn’t really help level the playing field, probably because the differences between schools are also so great in the United States. When Corak tracked students from the age of four or five through the beginning of high school, the situation for disadvantaged children didn’t improve. One reason, says Mazumder, is that many U.S. schools are financed by local property taxes, so richer neighborhoods have better schools. In other countries, school funding is more evenly distributed. And if they do make it to college, poorer kids have a higher dropout rate. In the words of economist Paul Krugman, dumb rich kids are more likely to graduate college than smart poor kids.

But even if children were able to get more equal educations, there might still be a problem, because there’s so much variation in salaries between the available jobs. The U.S. has the fourth-highest income inequality among the world’s developed (OECD) countries–only Chile, Mexico, and Turkey rank higher. In terms of wealth inequality, it is the fourth highest in the entire world (trailing Russia, the Ukraine, and Lebanon). In the past, researchers thought that mobility wasn’t necessarily tied to overall inequality, but now they think it might be (a famous chart fittingly called the “Gatsby Cuve” shows the correlation in countries around the world.).

“We used to think we might have a lot of inequality in the U.S.–but so what, because we have a lot of mobility,” says Janet Gornick, director of the Luxembourg Income Study, who studies inequality and poverty. “This showed that not only is inequality high in the U.S., but mobility is relatively low.”

In Denmark, which ranks as having the most upward mobility in the world, there’s also much less inequality. Someone working full-time at McDonald’s in Copenhagen can make $45,000 a year, thanks to fast food worker unions; a typical garbage collector can make $80,000, also thanks to unions. In the U.S., the richest 20% make eight times more than the poorest 20%. In Denmark, the gap is half that.

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Still, the link between inequality and mobility can be fuzzy. A massive research project at Harvard University, called the Equality of Opportunity project, found that upward mobility hasn’t changed much over the last few decades, even though the gap between rich and poor keeps getting bigger. So while differences in income may be a factor, it’s not the only thing at play.

Countries with more progressive policies–systems for taxes or education or health care or anything else that are designed to help the disadvantaged–also end up having more mobility.

For those three major reasons–an unequal start in life, unequal salaries, and fewer progressive policies–the U.S. seems to trail others in mobility. “In all these cases the U.S. leans toward more polarizing outcomes that imply that your start in life is going to echo, importantly, where you end up as an adult,” Corak says.

But even within the U.S., some cities have more upward mobility than others. “I think there’s just as much variation within the U.S. as between other countries,” says Ben Scuderi, a postdoctoral researcher at Harvard’s massive research project. In a few cities, like San Jose or Salt Lake City, poor kids are just as likely to succeed as they are in Denmark. But in other places, like Atlanta or Milwaukee, mobility is lower than any other developed country that has been studied.

It isn’t clear yet why some American cities are so different. The researchers found correlations between things like shorter commute times and less segregation and more economic mobility, but that wasn’t universally true. The Harvard data is open to the public, and the researchers hope that others will dive into it to better understand why some cities are more mobile.

In the meantime, experts believe that if the U.S. wants to become closer to the land of opportunity that it imagines itself to be, something must change. The answer won’t be found in any bootstrapping self-help book, either.

About the author

Adele Peters is a staff writer at Fast Company who focuses on solutions to some of the world's largest problems, from climate change to homelessness. Previously, she worked with GOOD, BioLite, and the Sustainable Products and Solutions program at UC Berkeley.

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