The fading American dream

A team of researchers at Stanford University, led by an economist named Raj Chetty, took advantage of newly accessible data from the Internal Revenue Service and studied the ebb and flow of American wealth and income across the generations.

They concluded that 90 percent of children born in 1940 went on to earn more than their parents, but only 50 percent of children born in the 1980s did so.

That’s not because the U.S. economy stopped growing, although growth did slow, they wrote.   It is because more and more gains were captured by the ultra-rich.


Update 2/23/2020

The historic American dream was the promise that an honest, hard-working person could reasonably expect to have a better material life than their parents did, and that their children, if honest and hard-working, could expect to do better than they did.

This dream was close enough to reality to make the USA a magnet for immigration, and to make socialists despair of converting American workers to their way of thinking.  But around the last quarter of the 20th century, things began to change.

This is the latest version of a chart that I’ve published many times before.  It shows that American wage-earners once shared in the nation’s gains in productivity, and that they no longer do.  It explains why typical members of the generation born in 1980 generation has only a 50 percent chance of doing better than their parents, while the odds for the 1940 generation were 90 percent.

What are the odds for the generation of Americans born in 2020?  Unless the nation’s direction changes, not good.


The Fading American Dream by May Wong for Stanford Policy Research.

The Fading American Dream: Trends in Absolute Income Mobility Since 1940 by Raj Chetty, Maximillian Hell, Nathaniel Hendren, Robert Manduca and Jimmy Narang for Opportunity Insight (2016)

The Fading American Dream: Trends in Absolute Income Mobility Since 1940 by Raj Chetty, Maximillian Hell, Nathaniel Hendren, Robert Manduca and Jimmy Narang for the National Bureau of Economic Research (2016)

What one minimum wage chart tells us about the labor market by Jeff Spross for The Week.  [Added 2/23/2020]

The Productivity-Pay Gap by the Economic Policy Institute.  [Added 2/23/2020]

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4 Responses to “The fading American dream”

  1. whungerford Says:

    The first chart looks bad because the vertical scale starts at 50 percent. If half of us earn more than our parents and half less, that is expected. The Great Depression certainly affected the data strongly in 1940, and less so long after.


    • philebersole Says:

      A 50/50 split would be expected in an economy without economic growth, but the U.S. economy is growing.

      The generation born in 1940 experienced a widely-shared economic prosperity in which the rising tide did indeed lift all boats.

      The tide continued to rise, although at a slower rate, but the tide only lifted the yachts – or so Raj Chetty argued, based on his analysis of the data.


      • whungerford Says:

        Economic growth would suggest more than a 50/50 split. But what measure of economic growth? As Phil noted, GDP growth is not reflected in household income which is up about $8,000 in constant dollars in twenty years. This would suggest a split of something like 60/40 based on the current distribution of income. It would be interesting to know if future generations will be even worse off than their parents, about the same, or if the trend will reverse.


      • philebersole Says:

        There is nothing in the nature of things that would prevent even moderate economic growth from being widely shared.

        “Constant dollars” is a problematic phrase—as indicated in the previous post with its update.


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