Economic ladder no harder to climb today, U.S. report finds

The working poor have the same chance to move up the socioeconomic ladder today as they did 40 years ago, but the odds of that happening are still pretty low, new research out of two prestigious universities and the U.S. government shows.
In the map shown here, red areas are the ones where the bottom 20 per cent of people were the least likely to move up the socioeconomic ladder. Lighter areas (yellow, and into white) were more likely. (Equality Of Opportunity Project)

The working poor have the same chance to move up the socioeconomic ladder today as they did 40 years ago, but the odds of that happening are still pretty low, new research out of two prestigious universities and the U.S. government shows.

A study published Thursday by the National Bureau of Economic Research doesn't back up the conventional wisdom that a widening gap between rich and poor has made it harder for America's working poor to climb the economic ladder into prosperity.

The issue of income inequality has been a frequent problem for politicians from both sides to target of late. The general public has a widespread belief that there are fewer opportunities today for economic advancement through hard work and ingenuity.

1% still unreachable

The data found that only nine per cent of children born in 1986 to the poorest 20 per cent of households were likely to climb into the top 20 per cent. That ratio is remarkably consistent with the historical average — it was only 8.4 per cent for the same group in 1971.

"Absolutely, we were surprised" by the results, Harvard University economist Nathaniel Hendren said. He is one of the report's authors along with Harvard's Raj Chetty, Emmanuel Saez and Patrick Kline of the University of California, Berkeley, and Nicholas Turner of the Treasury Department.

Recent data shows the top one per cent of Americans accounted for 22.5 per cent of income earned in the United States in 2012. That is one of the highest figures since the 1920s and up from a low of 8.9 per cent in 1976, according to a database maintained by Saez.

In Canada, the data shows that Canada's richest one per cent earn 10 times what the average Canadian does.

But the data in the report suggests despite how much richer the ultra-rich are getting, that's not impacting the ability of the poor to move up any more than it always has.

Location matters

The research did find, however, that someone's odds of escaping poverty by moving from the bottom quintile to the top improve greatly depending on what part of the country they're from. As the map above shows, those born in the southeastern part of the country are less likely to move up the ladder. People from the midwest are much more likely to.

A child born into the poorest 20 per cent of families in San Jose, Calif., has better than a 12.9 per cent chance of getting into the top 20 per cent, the research shows. That's almost three times better than the odds of that happening to a person from Atlanta, where the percentage drops to 4.5 per cent.

Among large cities, San Francisco, Seattle, Pittsburgh, Boston and New York all have higher than average levels of economic mobility. By contrast cities such as Detroit, Atlanta, Charlotte and Cleveland have among the lowest.

The findings are open to different interpretations: They could suggest that government programs to help the poor have made little headway in increasing economic opportunity. Or they could suggest that economic advancement would have become harder without such programs.

"My concern is that there may be less mobility in the future," former White House economic adviser Alan Krueger said by email. The cost of a college education, for instance, is increasingly difficult for low- and middle-income families to afford.

Hendren emphasizes that it's still harder to move from poverty to affluence in the United States than in most other wealthy countries. In a 2012 study of 22 countries, economist Miles Corak of the University of Ottawa found that the United States ranked 15th for social mobility among wealthy countries. Only Italy and the Britain ranked lower.

"In some sense, how could it have gotten worse?" Hendren said. "It's not like we're losing the American Dream. We never really had it."

With files from The Associated Press


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