The surprising rise of downward mobility

WASHINGTON – It’s an axiom among many Americans that each future generation will live better than its predecessor. New technologies, greater efficiencies and a can-do spirit will reward us with higher living standards. There might be periodic stumbles, but the long-term trajectory is up. And the people most guaranteed to enjoy this bountiful future are the children of today’s upper-middle class. They have all the advantages: attentive parents, good schools, a college education and job-market connections.

That’s the conventional wisdom. Ditch it.

If you are an upper-middle class parent, as I am, you must have noticed that the real world isn’t playing according to script. Among many young Americans, there is downward mobility. The children aren’t achieving what they – and their parents – expected. Even when they have (and many have), the gains could be eroded in the future. The trajectory is not inevitably up. Parents worry about their children’s fate.

Partly, this reflects the memory of the 2007-09 Great Recession and its huge job losses. But it’s more than that. Compared to their elders, many younger Americans are doing worse. Despite today’s strong economy, they’re falling behind.

We know this from an important study by Raj Chetty and fellow economists from Stanford, Harvard and the University of California-Berkeley. By merging various databases – which had been stripped of names and identities – they could measure the pre-tax family earnings of children and parents when they were both about 30 years old.

What they reported is fascinating. About 90 percent of children born in 1940 ultimately exceeded their parents’ incomes. That is, almost everybody. This makes sense; the babies born in 1940 were affected by both the 1930s’ Great Depression, which reduced incomes, and the post-World War II economic boom, which raised incomes. However, for children born in 1970, only 61 percent earned more than their parents, and for those born in 1980, only 50 percent did.

That’s a sea change. It suggests that we’re already at the point where many in the present and next generations of younger Americans won’t live as well as their predecessors. If current trends continue, that certainly will be true.

You can see the consequences among millennials, those born from 1981 to 1996. Their squeezed incomes have forced them to rearrange their lives. They’re marrying later, buying homes later, having children later and – to save money – living longer with their parents. What’s also surprising is that the biggest losers seem to be the children of the middle and upper-middle classes, precisely those who are supposedly most protected against adverse changes, according to a new study by Brookings Institution scholars Richard Reeves and Katherine Guyot.

“For many people, (economic success) does consist of doing better than your parents did,” they write. “This seems to have become steadily harder to achieve for those born into middle-class families in particular from 1950 onward.”

Their explanation is simple. Those in middle and upper-middle classes have more to lose than, say, the poor. The incomes of the poor can’t drop much lower; with small gains, they can pass their parents.

The result: the higher the parents’ incomes, the less likely that their children will match it. This is even true for the richest 1 percent of families, says economist Aparna Mathur of the American Enterprise Institute. The children born in 1980 in the richest 1 percent have only a 1 percent chance of themselves being in the top 1 percent, she says. Of course, this hardly means they’re impoverished. It just means they have less income than their parents. The same lesson applies to the middle and upper-middle classes.

Just what has caused the slowdown in incomes is a tangled tale with the usual suspects: poor schools that produce poor workers; income inequality that stifles consumption spending; weak housing construction; inadequate innovation; over-regulation. With so many confusing sources, it’s hard to design a program that will automatically reverse existing trends, though President Donald Trump says he’s trying.

It’s also true, as Mathur notes, that the data need to be qualified. Some incomes are underreported because they exclude fringe benefits (employer-paid health insurance) or in-kind government benefits (food stamps, Medicaid). Taxes are ignored. Age 30 may be too young for generational comparisons. Income figures haven’t been adjusted for shrinking family size. There may be other causes of delayed marriage.

Still, the broad trends seem reliable. The paradox is apparent. Today’s strong economy notwithstanding, there’s an underlying worry about the future.

Economic anxiety is increasingly an equal-opportunity affliction. No one can escape it. The poor worry about staying poor. The lower-middle class worries about paying bills or losing jobs. Now upper-middle class parents have joined the crowd, because their own well-being is often judged by how well their children are doing.

That is the stubborn source of their angst.