American men have less income than their fathers’ generation did at the same age, according to a new analysis released today by the Economic Mobility Project, an initiative of The Pew Charitable Trusts. Comprised of a Principals’ Group of experts from The American Enterprise Institute, The Brookings Institution, The Heritage Foundation, and The Urban Institute, the project seeks to investigate the health and status of economic mobility in America.
Thursday's report, Economic Mobility: Is the American Dream Alive and Well?, was co-written by John E. Morton, managing director of Pew’s Economic Policy Initiatives and director of the Economic Mobility Project and Isabel V. Sawhill, Senior Fellow at the Brookings Institution and a Principal of the Economic Mobility Project. It includes analysis led by a research team at Brookings and outlines what economic mobility is, why it matters in today’s economy, and why it is important for policy makers to focus on mobility as part of the ongoing national economic debate.
According to the report, men who were in their thirties in 1974 had median incomes of about $40,000, while men of the same age in 2004 had median incomes of about $35,000 (adjusted for inflation). Thus, as a group, income for this generation of men is, on average, 12 percent lower than those of their fathers’ generation. While factors other than cash income also contribute to economic mobility, these data challenge the two-century-old presumption that each successive generation will be better off than the one that came before. The findings rely on new analysis of U.S. Census Bureau data.
In addition to the Principals’ Group, the project is also guided by a nonpartisan Advisory Board of nationally recognized economists, social scientists and policy experts. The initiative was launched in February and comes at a period of intense scrutiny of such issues as executive pay, the minimum wage and the quality of America’s public school system – the latter being of particular concern because education is widely agreed to be a key driver of mobility.
"The expectation that each generation will do better than their parents has become a fundamental part of what we call ‘The American Dream’, but this new analysis suggests this bedrock belief may be shifting under our feet,” said Morton. “Income is not the only factor in overall economic mobility, but it is clearly a key component and today’s data suggest that during a thirty-year period of economic expansion, a rising tide did not lift all boats.”
"In modern America, mobility is increasingly a family enterprise,” said Sawhill. “While male incomes have decreased from that of the generation that came before, family incomes have risen slightly because more women have gone to work, adding a second earner to the family.”
The broader mobility story is complex with data challenges and many important questions left to be answered. Over the next year and a half, the Economic Mobility Project and its partners will research, analyze and present data to the broader public about the status of economic mobility in the United States. Future releases will include; a comprehensive fact book containing key data and trends about mobility, featuring chapters on race, gender, immigration and cross-national comparisons; a report on the leading factors or indicators behind economic mobility; and an analysis of shifting federal investments in education and other policies that may impact mobility.
Impact of Globalization
In a related development, a report published by The Wall Street Journal on Thursday says that a decade ago, the globalization of commerce promised to be a boon to low-wage workers in developing nations. As wealthy nations shed millions of jobs making apparel, electronics, and other goods, economists predicted that low-skilled workers in Latin America and Asia would benefit because there would be greater demand for their labour -- and better wages.
In some ways, globalization delivered as promised. But there was an unexpected consequence. As trade, foreign investment and technology have spread, the gap between economic haves and have-nots has frequently widened, not only in wealthy countries like the U.S. but in poorer ones like Mexico, Argentina, India and China as well. Many economists now say that the biggest winners by far are those with the education and skills to take advantage of new opportunities, leaving many lagging far behind. Incomes of low-skilled workers may rise, but incomes of skilled workers rise a lot faster.
Globalization deserves credit for helping lift many millions out of poverty and for improving standards of living of low-wage families. In developing countries around the world, globalization -- defined as trading and participating in the global economy -- has created a vibrant middle class that has elevated the standards of living for hundreds of millions of people. That's particularly true in China, where the incomes of low-skilled workers have consistently risen. The poor in countries like Vietnam and elsewhere in Southeast Asia have also benefited greatly since those countries have opened their economies. In many developing countries around the world, life expectancies and health care have improved, as have educational opportunities.
The Journal says that because globalization is also creating more inequality, it is raising questions about how much inequality countries can bear and whether these gaps could ultimately produce a backlash that will undermine trade and investment liberalization around the world.
Following the U.S.
The Wall Street Journal says that many developing nations seem to be following in the footsteps of the U.S., where the income gap has grown sharply since the early 1970s. A 2006 study of Latin America, a region long marked by profound gaps between rich and poor, by World Bank economists Guillermo Perry and Marcelo Olarreaga found that the income divide deepened after economic liberalization in nine of the 12 countries examined.
While that could partly be explained by Latin America's slow rate of economic growth, income gaps are widening in fast-growing Asian nations as well, including Thailand and India. It's even grown in the past decade in South Korea, a country long known for an egalitarian commitment to education.
Then there's China. One of the fastest-growing economies in the world has generated significant wage gains for its rank and file. Yet income inequality is also growing because of the huge gains being posted by the upper crust. Between 1984 and 2004, China's income inequality as measured by the Gini index -- zero is perfect equality and 100 is perfect inequality -- increased to 47 from 29, according to World Bank researchers Martin Ravallion and Shaohua Chen. From 2000 to 2005, per-capita income of the bottom 10% of urban households in China rose 26% while those at the top saw gains of 133%.
The Journal says that while Mexico hasn't experienced the spectacular growth of China, wages of those at the bottom 10th percentile of urban full-time workers increased 12% between 1987, when the country first took steps toward opening its economy, and 2004. Since 2000, the percentage of Mexicans living in extreme poverty also has fallen below 20% for the first time ever in the nation's history.
US superearners take lion's share of productivity gains