We must beware dangers of denying our children the path to a better life

Sometimes a single number just stops you in your tracks. Here’s one that stopped me. Children born into the highest-income 1 per cent of households in the United States are more than 50 times as likely to get into top universities such as Harvard than are children from the poorer half of households. To put that another way, there are more students in Harvard from the top 1 per cent than from the whole of the lower-earning half of American households. That top 1 per cent have household incomes of more than half a million dollars a year.

As Raj Chetty and his co-authors responsible for these numbers rather mildly put it: “These findings challenge the perception that colleges foster interaction between children from diverse socioeconomic backgrounds.” The fact is that colleges in the US are segregated by income in much the same way as local neighbourhoods are segregated. That’s to say they are very highly segregated, indeed.

That is only one small part of the story of the extraordinarily low levels of social mobility in the US. Contrary to popular mythology, social mobility there is lower than in most other advanced western economies. The dissonance between the American dream and the American reality could hardly be starker.

Maybe those are the kinds of fact that played a role in the events leading up to President Trump’s inauguration last week. Maybe. But lack of social mobility is hardly new. Many countries have a better record than the US, but everywhere you look the sons and daughters of the privileged do better in life than the children of the rest. We may prize the idea of equality of opportunity, but failure to achieve it is hardly novel.

There has been something else going on, though, that is new. One part of the American dream may be the increasingly forlorn hope that anyone can make it to the top, irrespective of background. Perhaps even more important to that dream, though, is that even if they don’t make it to Harvard, my children should at least do as well or better in life than me. That doesn’t require any social mobility at all. All it requires is that incomes rise over time. Professor Chetty and colleagues have also looked at this, at what they call absolute income mobility. About 90 per cent of those born in the 1940s were better off than their parents. That is to say their incomes at age 30 were higher than their parents’ incomes had been at the same age.

That’s not much of a hurdle. Even the most feeble earnings growth ought to deliver that for most people. Yet, of those born in the 1980s, half had incomes at age 30 no higher than the incomes of their parents. Half of the parents of those now in their 30s have seen their children fail to achieve the living standards they themselves achieved. An economy that fails to deliver this most basic of human desires, that one can set one’s children on a path to a better life, is an economy that is failing.

For whom were these falls the steepest? For the middle class; for those born in states such as Illinois and Michigan in the industrial Midwest; and for boys. Near enough all boys born in 1940 went on to earn more than their fathers. Only 41 per cent of boys born in 1984 were earning more at age 30 than their fathers had done at the same age.

This happened not because national income stopped rising. It happened because nearly all the growth in income was captured by the rich. Had the same growth that actually occurred been distributed as it had been for the previous generation, 80 per cent of those born in the 1980s would now be better off than their parents. Instead, that top 1 per cent, on more than half a million dollars a year, captured a very high fraction of all the gains made.

Decades of stagnant incomes for a large part of the population is not, happily, something that we have yet experienced in the UK. Earnings continued to rise right across the distribution and at all ages through the 1980s, 1990s and 2000s, a period when there was virtually no earnings growth for many in the US. We in the UK mostly got at least some crumbs from the growing economic cake. In the US, the rich ate the lot.

On the other hand, the UK is little more socially mobile than the US. It is difficult to make direct comparisons — America is light years ahead of us in terms of data access — but we do know that our top universities and professions remain much more open to the wealthy than to the rest. Forty per cent of students at Oxford and Cambridge continue to be drawn from the 6 per cent or so of pupils who attend private school. It remains the case that very few children from poor families make it into our top universities. The professions are drawn almost exclusively from the relatively privileged classes. Only 4 per cent of doctors, for example, are from a working-class background.

But, again, there’s nothing very new there. What is new is that after decades of reasonably steady increase, earnings growth has come to a juddering halt. Earnings have barely shifted in a decade. That will mean that absolute income mobility will also start to come to an end. We are not quite there yet, but it won’t take many more years of stagnant and falling earnings before a majority start to see their children earning less than they did. That will not make for a happy electorate.

This article was first published by The Times and is reproduced here in full with permission.

Paul Johnson is director of the Institute for Fiscal Studies. Follow him on @PJTheEconomist