The American Dream is predicated on the belief that, through hard work and perseverance, people can move up the economic ladder. Annual earnings inequality declined from 1937 until 1953 — the postwar era economic boom often referred to as “the Great Compression” — but has steadily risen ever since, with the rate of inequality significantly increasing between 1980 and 2004. Recent government analysis suggests the problem of income inequality has become acute.

A 2011 paper by the Federal Reserve Bank of Boston, “Trends in U.S. Family Income Mobility, 1969-2006,” used data from the Panel Study of Income Dynamics to analyze trends among U.S. working-aged family heads and their spouses over recent decades.

The paper’s findings include:

• Upward mobility — defined as a family moving up 10% in terms of their income — has been decreasing over the decades: 79% moved up in the 1980s, 77% in the 1990s, and the continuing trend line continues to go downward.
• The mobility of families in the bottom 20% of income has decreased from 50% to 46% over this time. While this change may seem small, even unchanged mobility leads to widening inequality of long-term incomes.
• “Data on those in the top and bottom 20% show lower absolute pre-government income mobility for the poorest Americans and higher absolute pre-government income mobility for the richest.”
• As for policy’s role, the author notes, it “appears that increasingly redistributive U.S. tax and transfer policies may have enhanced family income mobility from the 1970s into the 1980s, but then had decreasing impact as tax rates were reduced after 1981 (and intermittently thereafter). Beyond overall patterns, the data indicate that the typical individual in the poorest one-fifth of the family income distribution is less likely to move up beyond that group’s real dollar ceiling within a decade than it was 15 to 20 years earlier.”

“These facts suggest,” the paper’s author concludes, “that policy remedies for those at the bottom should aim beyond short-term help, as those who are poor at any point in time are now likely to have low long-term incomes.”

Tags: poverty, inequality, financial crisis, economy