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Striking new research on inequality: ‘Whatever you thought, it’s worse’

Social mobility, the amount that a typical American moves up or down the economic ladder from where their parents and grandparents stood, has became a major focus of political discussion, academic research and popular outrage in the years since the global financial crisis. While Americans have traditionally seen their country as a place where anyone can make through hard work and a stroke of luck, data collected in the past decade have shown otherwise.

Compared with many European countries, for example, few Americans end up with an income or educational level that is substantially different than their parents. Research by economists from Harvard and Berkeley found that fewer than 10 percent of people in the bottom fifth of the wealth distribution will make it into the top fifth. Things weren't much better for the middle class: Only about 20 percent of people in the middle fifth would rise into the top fifth over the course of their lives.

Now, new research suggests that social mobility in America may be even more limited than researchers have realized. In a new paper, Joseph Ferrie of Northwestern University, Catherine Massey of the University of Michigan and Jonathan Rothbaum of the U.S. Census Bureau draw on a newly constructed dataset about American families reaching back to 1910. Unlike past studies, which have mainly compared parents and children, the new work adds data on grandparents and great-grandparents to show just how fixed the fortunes of many Americans have become.

In the past, researchers have overestimated the amount of social mobility in American society because they had a limited amount of data to study, Ferrie and his colleagues argue. Much scholarly work has been done examining how inequality has persisted between parents and children since the 1960s and beyond, but researchers have lacked data on previous generations.

That limited historical insight is a problem, says Ferrie, because families can see one-generation fluctuations in education and income. For example, suppose you have a banker whose son decided to become a poet, surrendering a huge income in favor of a more fulfilling career. But the poet’s daughter decides to go back to the family business and become a banker.

If you just looked at the poet and his daughter, you might think that economic mobility is alive and well in America -- she probably makes a lot more money than her father does. But actually, the daughter might be drawing on much older, preexisting family resources – such as financial resources, personal connections, or knowledge about how Wall Street works from her grandfather – that make it easier for her to become a banker than it is for the average kid.

Looking across multiple generations gives researchers a better idea of the real state of inequality, “because there can be these one-generation blips that obscure the total amount of generational mobility,” says Ferrie.

The new calculations suggest that these one-generation blips have obscured a lot. Adding in data about past generations, Ferrie and his colleagues find that conventional measures of immobility, which just look at parents and children, have underestimated mobility by 20 percent compared to looking at three generations or more.

For example, Ferrie and his colleagues cite five previous studies that found that the correlation in educational attainment between a parent and a child is generally around .4 to .6. This basically means that, if my parent has one more year of schooling than your parent, I will automatically end up with 4/10 to 6/10 of an extra year of school than you have, all else equal. In other words, the amount of education you and I receive is highly determined by the achievements of our parents.

The new research, which takes account of grandparents, suggests that the correlation in education across generations is 20 percent higher than previously thought -- it is actually between .5 and .7. If my parent has an extra year of schooling compared to your parent, I will end up with roughly an extra half to 7/10 of a year of school than you have, all else equal. And that means that, measured by educational attainment, social inequality is more likely to persist over time than previous estimates of educational correlations between just parents and children had implied.

The study focuses specifically on how the educational attainment of families changes over time, which the researchers use as a proxy for economic mobility. That lack of mobility should be especially worrying for Americans, said Ferrie.

If the U.S. were to be a fairly unequal place but also have a lot of social mobility, that might be less worrying for economists, ethicists and others, Ferrie said. That would imply that America has a sharp divide between the rich and poor, but that the people at the bottom of the economic ladder could work their way up through luck or hard work. In fact, that has been a popular view of how the U.S. works ever since Horatio Alger published his rags-to-riches stories in the mid-19th Century.

Unfortunately, evidence now abounds that this idyllic version of America -- a place where men and women can attain their highest potential regardless of the circumstances of their birth -- is not one that many Americans experience.

“Any measure of mobility we have is too high,” says Ferrie. “Whatever you thought, it’s worse.”

Ferrie cautions that their research does not yet provide clues as to why this is occurring. It could be that grandparents and parents are passing on financial resources, or intangible resources like information and values. Or it could be something else entirely. The researchers are continuing to study the topic, and they expect to have more data soon on why these trends might occur. Eventually, they aim to link six generations of data together, to create family lines that stretch from 2013 all the way back to 1850.

Their findings could have big implications for how the government addresses poverty. If exposure to a good role model is enough to lift educational outcomes in children, that would have very different implications for public policy than if inequality stems from deeper, more intractable reasons. Regardless, the new research suggests those policy solutions are more needed than ever.

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