Bad economy shakes American myths

Americans have always believed that their country is unique in providing the opportunity to get ahead. But rising unemployment and financial turmoil are puncturing that self-image. The reality of this “land of opportunity” is considerably more complex than the myths would suggest:

Americans enjoy more economic opportunity than other people.

1. Actually, some other advanced economies offer more opportunity than ours does. Recent research shows that in the Nordic countries and in the United Kingdom, children born into a lower-income family have a greater chance than those in the U.S. of forming a substantially higher-income family by the time they’re adults.

If you are born into a middle-class family here, you have a roughly even chance of moving up or down the ladder by the time you are an adult. But the story for low-income Americans is quite different; going from rags to riches in a generation is rare. Instead, if you are born poor, you are likely to stay that way. Only 35 percent of children in a family in the bottom fifth of the income scale will achieve middle-class status or better by the time they are adults; in contrast, 76 percent of children from the top fifth will be middle-class or higher as adults.

The U.S. is exceptional, however, in the opportunity it offers to immigrants, who tend to do comparatively well here. And even if their pay is initially low by American standards, their children advance quite rapidly.

In the U.S., each generation does better than the past one.

2 .As a result of economic growth, each generation can usually count on having a higher income, in inflation-adjusted dollars, than the previous one. For example, men born in the 1960s were earning more in the 1990s than their fathers’ generation did at a similar age, and their families’ incomes were higher as well. But that kind of steady progress appears to have stalled. Today, men in their 30s earn 12 percent less than the previous generation did at the same age.

The main reason today’s families have modestly higher overall incomes than prior generations is simple: More members of the household are working. Women have joined the labor force in a big way, and their earnings have increased as well. But with so many families now having two earners, continued progress along this path will be difficult unless wages for both men and women rise more quickly.

Immigrant workers and the offshoring of jobs drive poverty and inequality in the United States.

3. Although immigration and trade often are blamed, a more important reason for our lack of progress against poverty and our growing inequality is a dramatic change in American family life. Almost 30 percent of children now live in single-parent families, up from 12 percent in 1968. Since poverty rates in single-parent households are roughly five times as high as in two-parent households, this shift has helped keep the poverty rate up; it climbed to 13.2 percent last year. If we had the same fraction of single-parent families today as we had in 1970, the child poverty rate probably would be about 30 percent lower than it is today.

Among women under age 30, more than half of all births now occur outside marriage, driving up poverty.

We also have seen a growing tendency among well-educated men and women to marry each other, exacerbating income disparities. If we add to these family changes the fact that wages for low-skilled workers have stagnated or declined in recent decades, we can explain most of the increase in poverty and much of the increase in the income gap.

If we want to increase opportunities for children, we should give their families more income.

4. Of course money is a factor in upward mobility, but it isn’t the only one. Our research shows that if you want to avoid poverty and join the middle class, you need to complete high school (at a minimum), work full time and marry before you have children. If you do all three, your chances of being poor fall from 12 percent to 2 percent, and your chances of joining the middle class or above rise from 56 to 74 percent.

Many American families need supplements to their incomes in the form of food stamps, affordable housing and welfare payments. But such aid should not be given unconditionally. First, the public is concerned that unconditional assistance will end up supporting those who are not trying to help themselves. Second, new research in economics and psychology has shown that individuals frequently behave in ways that undermine their long-term welfare and can benefit from a government nudge.

Third, policies with strings attached have had considerable success. The 1996 welfare reform law, which required most adult recipients to get jobs, dramatically increased employment and lowered overall child poverty. In a recession, everyone can’t work. But social policies will be more successful if they encourage people to do things that bring longer-term success.

We can fund new programs to boost opportunity by cutting waste and abuse in the federal budget.