The American Dream is alive and well -- just not on U.S. soil.
Seeking to assess if the Horatio Alger, "rags to riches" narrative behind that defining metaphor remains viable, researchers measured the odds of a child born to parents in the bottom 20 percent of income earners reaching the top fifth. They then contrasted the chances of climbing the ladder in the U.S. to that in other developed countries.
In the U.S., those odds came to 7.5 percent. In the U.K., which like its Transatlantic cousin scores low on measures of income equality, people had a 9 percent chance of moving from the bottom income quintile to the top segment. In Canada it was 13.5 percent.
"One way I think about it is your chances of achieving the American dream are almost two times higher, in a sense, if you're growing up in Canada rather than the United States," said Raj Chetty, a co-author of the research and an economics professor at Harvard University, at a recent gathering at the Brookings Institution, a Washington think tank.
Although the rate of upward mobility in Canada may also appear relatively modest, Chetty notes that statistically the top quintile of earners in any country may not exceed 20 percent.
"In a society where your parents' income plays no role at all [in moving up], you'd end up with 20 percent of people moving from the bottom fifth to the top fifth. So these are actually quite large differences in rates of social mobility across areas," said Chetty, elaborating on the findings of two studies released in May that consider the costs of widening economic inequality in the U.S.
In the course of their research, Chetty and his colleagues calculated social mobility for every rural and metropolitan area in the U.S., looking at 10 million children born between 1980 and 1982 and assessing their odds of moving from the bottom fifth (see map below).
A related study examined data on 5,000 families in five large U.S. cities with children of varying ages, who were given vouchers as part of a 'Moving to Opportunity' experiment to help them move from impoverished to mixed-income neighborhoods.
The researchers found a "striking difference" for children up to 13 whose families moved from the Martin Luther King Jr. Towers housing project in New York City's Harlem neighborhood, for instance, to Wakefield, a working- and middle-class section in the Bronx, just 10 miles north.
The studies concluded that children benefited proportionately for each year spent in a better environment, with those moving to low-poverty areas when they were 12 and under earning about 30 percent more than those who remained in poverty-stricken areas. They were also 27 percent more likely to attend college and 30 percent less likely to be single parents, Chetty said.
The takeaway? It is the places themselves, rather than the types of families who inhabit them, that is chiefly responsible for changing the outcome for kids. The more segregated a community is, whether by race or income, the lower the rate of mobility. Places with a smaller middle class also have less positive outcomes.
A third factor is family stability, with areas that have a higher percentage of single parents leading to lower mobility. "This is not just literally about whether your own parents are married, but the community," he said.
But there seem to be diminishing returns depending on people's age when leaving the poorest neighborhood for a more financially stable area. In contrast to younger children, teenagers and adults who relocated did not see a rise in their incomes.
That underscores the importance of improving social environments for kids of all ages, Chetty said, noting the public focus on enhancing educational and other opportunities for pre-kindgergarten children. "Every year seems to matter," he said. "One shouldn't just focus on earliest years and then just give up."
For policy makers, the findings suggests two approaches to boosting mobility, the economist said: helping people move to better areas and investing in places with lower opportunity.
The first approach could involve giving the poor incentives to move to wealthier neighborhoods using low-income housing vouchers. That may not be as difficult or costly as it might seem given the U.S. already spends about $45 billion a year on affordable housing, Chetty said. The government would ultimately save money, since the increase in tax revenue from kids earning more would more than offset the costs, he argued.