Thursday, March 16, 2017

The Fading of the American Dream

The 2016 election cycle proved one thing; tens of millions of Americans were only too happy to cast aside "business as usual in Washington" for an unknown and unproven quantity, Donald Trump.  A recent posting on this blog shows us who these disenchanted Americans are and and how their well-being had a significant impact on the ultimate result of the latest presidential election.

In this posting, I want to look at a study done by the Equality of Opportunity Project on upwards mobility in America which is defined as the chance that children will reach the top 20 percent of income distribution given parents who have incomes in the bottom 20 percent.  Here is a map which shows the geography of upward mobility for 741 metro and rural areas (aka commuting zones) with darker colours representing a lower chance of upward mobility:

Note that children in the south and east central parts of the United States have a much lower chance of actually grasping the American Dream than those living in the northeast, central and western parts of the nation.  As you can see on this map, there is a relatively interesting correlation between the regions with lowered future economic prospects and the outcome for in the 2016 presidential election:

A study by Raj Chetty and Nathaniel Hendren at Harvard University looks at the impacts of neighbourhoods on intergenerational economic mobility and evaluated the casual effect of the 100 largest commuting zones in the United States on a child's chances of success.  Here is a listing of the 10 commuting zones which have the largest positive casual effect on household income in adulthood:

To help you understand the causal effect, if a child grew up in Seattle rather than an average commuting zone, he or she would make and average of 11.6 percent more at age 26 (9.1 percent more for boys, 14.2 percent more for girls).  For instance, if the average level of household income at age 26 is $26,000, those who grew up in Seattle would earn an additional 12 percent or $3120.

Here is a listing of the 10 commuting zones which have the largest negative causal effect on household income in adulthood:

The authors note that there are five reasons why certain commuting zones have higher levels of upward mobility:

1.) less segregation by income and race.

2.) lower levels of income inequality.

3.) higher quality public schools.

4.) lower rates of violent crime.

5.) larger share of two-parent households.

Interestingly, the authors also found that, on a nationwide basis, there is a weak correlation between the cost of renting and higher levels of upward mobility except in large metropolitan areas with higher levels of segregation and urban sprawl where commuting zones with better prospects for upward mobility are much more expensive.

This study shows us that, while the American Dream of upward mobility is not dead, in many parts of the United States it is on life support.  The fraction of children that earn more than their parents has fallen from over 90 percent among children born in the 1940s to fifty percent in children born in the 1980s.  The authors' conclusion:

"We conclude that absolute mobility has declined sharply in America over the past half century primarily because of the growth in inequality. If one wants to revive the “American Dream” of high rates of absolute mobility, one must have an interest in growth that is shared more broadly across the income distribution."

If there is one thing that the 2016 election cycle taught us its that the growing economic inequality in the United States can have significant electoral repercussions.

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