Brookings: Topics - Economic Mobility

The Metropolitan Revolution : How Cities and Metros Are Fixing Our Broken Politics and Fragile Economy

Jennifer Bradley and Bruce Katz — Mon, 17 Jun 2013 00:00:00 -0400

Brookings Institution Press 2013 300pp.

Synopsis:

A revolution is stirring in America. Across the nation cities and metropolitan areas, and the networks of pragmatic leaders who govern them, are taking on the big issues that Washington won’t, or can’t, solve. They are reshaping our economy and fixing our broken political system.

The Metropolitan Revolution is a national movement, and the book describes how it is taking root in New York City, where efforts are under way to diversify the city’s vast economy; in Portland, Oregon, which is selling the “sustainability” solutions it has perfected to other cities around the world; in Northeast Ohio, where groups are using industrial-age skills to invent new twenty-first-century materials, tools, and processes; in Houston, where a modern settlement house helps immigrants climb the employment ladder; in Miami, where innovators are forging strong ties with Brazil and other nations; in Denver and Los Angeles, where leaders are breaking political barriers and building world-class metropolises; and in Boston and Detroit, where innovation districts are hatching ideas to power these economies for the next century.

Bruce Katz and Jennifer Bradley highlight these success stories and the people behind them in order to share lessons and catalyze action. This revolution is happening, and every community in the country can benefit.

The Tour:

The Metropolitan Revolution is going on the road. Bruce Katz and Jennifer Bradley will appear with metropolitan leaders across the country to discuss the book and local innovations underway in each place. The tour will include stops in Berkeley, Chicago, Denver, Detroit, Las Vegas, New York, Philadelphia, Pittsburgh, San Francisco, Washington, DC and more.

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Praise for The Metropolitan Revolution:

“The Metropolitan Revolution upends conventional wisdom and makes the case for how our cities and metros are leading American change and progress: they are transforming our national economy, political conversation, and collective destiny from the bottom up like never before. A must-read for anyone working toward a brighter future for our cities and our nation.”
—Mayor Cory Booker

“The Metropolitan Revolution builds on twenty years of studying metropolitan areas and hundreds of thousands of miles traveling to them around the globe, and the result is an exciting guide to the new world economy - urban, networked, innovative, collaborative, and driven by human potential.”
—Secretary of Housing and Urban Development, Henry G. Cisneros

“Being mayor of Chicago is the best job I’ve ever had in public life. Katz and Bradley totally get it: the real power to change America lies in our cities and metros.”
—Mayor Rahm Emanuel

“With paralysis in Washington, public policy solutions will come from successful metropolitan regions, the clinical trials of our future. We are well into this journey, but never has it been explained with such insight and analysis until The Metropolitan Revolution.”
—Governor Jon Huntsman

“Just when ‘by the people, for the people’ seems like an anachronism, cities are giving it new meaning, fueled by twenty-first century technology. Every citizen needs to understand the metropolitan revolution. If we change cities, we change the country.”
—Jennifer Pahlka, Founder and Executive Director, Code for America

“This book captures the energy and excitement bubbling up in cities across America. This is ‘do it yourself’ urbanism of the highest order, and it is altering our landscape and our country.”
—Janette Sadik-Khan, Commissioner, New York City Department of Transportation

“Through real-world examples, The Metropolitan Revolution brings to life how America's cities and suburbs drive innovation to solve problems and seize opportunities. This book is a call to action beyond Washington, where metro leaders join together and simply get stuff done.”
—Mayor Scott Smith

“The Metropolitan Revolution is compelling reading on how our federal system is a powerful advantage in global competitiveness. This book is indispensable for business and elected leaders on realizing the economic potential of metropolitan areas for their citizens and the country.”
—Treasury Secretary, Robert E. Rubin

ABOUT THE AUTHORS

Jennifer Bradley

Bruce Katz

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The End of Nostalgia : Mexico Confronts the Challenges of Global Competition

Diana Villiers Negroponte, ed. — Fri, 14 Jun 2013 00:00:00 -0400

Brookings Institution Press 2013 160pp.

Editor Dr. Diana Villiers Negroponte recieved her JD from Georgetown University and practiced law specializing in international law and aviation matters. She played an active role with the U.S. Chamber of Commerce in Mexico during the negotiations for the North American Free Trade Agreement. She has assembled colleagues from both sides of the Rio Grande to examine the steps necessary for this proud nation to continue its momentum toward effective participation in a highly competitive world. With one foot on North America and the other in South America, it is a land in transition, from a one-party political system steeped in a colonial Spanish past toward a modern liberal democracy with open markets.

Excerpt:

In 1993, this author’s speech before an association of engineering companies in Guadalajara on the opportunities presented by the North American Free Trade Agreement (NAFTA) was greeted with significant criticism. The prospects of competitive trade implied a threat, and all the questions from the audience centered on how their businesses might survive. Twenty years later, the same companies have either gone out of business or adapted to the reality of international trade and global competition.

Metamorphosis is not easy; economic and political transformation, in particular, is hard. However, a proud trading people can find confidence in their heritage.

Today, Mexico has become a manufacturing center, with family-owned companies engaging in international trade and acquiring new technologies. Protectionist regulations are being dismantled, and young business leaders learn colloquial English, study at international business schools, and connect easily with foreigners. The young men and women whom I met over two years at a business summit held in the colonial city of Queretaro are not resigned to the new reality; instead, they seek to thrive in a competitive world. Their network is global, including colleagues encountered at school, at professional conferences, and on social media. They interact with foreigners with enthusiasm; they take on new international contracts with excitement.

But the old ways are hard to eradicate. The yearning for the predictability of government contracts, dependence on political patrons, and reliance on family ties have not disappeared. The authors of these chapters therefore agreed on the need to analyze and relate how the old Mexican system is changing. Metamorphosis is not easy; economic and political transformation, in particular, is hard. However, a proud trading people can find confidence in their heritage. Continued democratization and exposure to foreign competition is inevitable, but efforts to put the brakes on that process should not be ruled out. Therefore this volume is also about protest and conflict deep within the Mexican political economy.

* * *

The End of Nostalgia is available in both hardcover and eBook formats:

What's Inside

Piecing Together the Puzzle of Mexico’s Growth - What happened to the lusty 7% growth of the 1960s and 1970s?
Arturo Franco (Harvard University)
What might explain Mexico’s lack of competitiveness? A comprehensive review of the factors that —rigid labor markets, inadequate infrastructure and access to finance, size of the informal labor sector, high cost of energy, poor education system, and Chinese competition yields no easy answers.

Unlocking Mexico’s Political Gridlock - Is the Mexican legislature a "Siesta Congress?"
Arturo Franco (Harvard University)
In the last 20 years, Mexico has moved from a hegemonic party system under the PRI to a political equilibrium in which the three major political parties together account for 90 percent of the votes but none exceeds 42 percent. Since the election of a president from the PAN in 2000, no president has enjoyed a majority in congress, and coalitions must be formed to pass legislation

Energy Challenges for the Pena Nieto Administration – An examination of the serious decline in petroleum reserves in Mexico
Duncan Wood (Director of the Mexico Institute at Woodrow Wilson International Center for Scholars)
With corrupt practices, political interference and lack of accountability within PEMEX, the state owned petroleum company, opportunities for natural resources may be missed. Wood presents specific solutions to augment energy supplies and is extraordinarily optimistic about Mexico’s renewable energy potential.

Toward Regional Competitiveness Agenda: U.S.–Mexico Trade and Investments – How trade and investments are strategic drives of the U.S.-Mexico relationship
Christopher Wilson (Mexico Institute of the Woodrow Wilson International Center for Scholars)
Mexico is the United States’ second-largest export market, and the United States is Mexico’s largest export destination. However, the high growth rate between bilateral trade and investment has slowed due to the increasingly low cost of labor. Wilson posits how to spur trade and increase regional competitiveness through a Trans-Pacific Partnership.

The Priority of Education in Mexico – An examination of the quantity and quality of education in Mexico
Armando Chacon (Mexican Institute for Competitiveness)
Pena Nieto’s administration has yet to propose a budget that provides the funding needed for critical education reforms. Yet, significant value is added with respect to health, absorption of new technologies, and parenting skills for every additional year of schooling beyond sixth grade. Chacon examines and provides recommendations around improving education public policies.

Security Policy and the Crisis of Violence in Mexico - A critical assessment of current public security in Mexico
Eduardo Guerrero (Lantía Consultores)
Under Presidents Calderón and Peña Nieto, intentional homicides have diminished. But serious problems remain: the slow pace of reforming to criminal justice procedures, inadequate resources to reform the correction system, and inadequate domestic intelligence capabilities. Guerrero presents eight recommendations tailored to address the main sources and consequences of organized crime–related violence.

The Merida Initiative: A Mechanism for Bilateral Cooperation – Tracing the evolution of the Merida Initiative
Diana Villiers Negroponte (The Brookings Institution)
The Merida Initiative has evolved from a mechanism for the delivery of sophisticated, custom-made equipment to being a developer of programs that support training of law enforcement and gang prevention. Now, the Mexican government is reexamining its security policy, and U.S. priorities have also shifted. Negroponte asks if Merida has run its course, and if so, what mechanism should emerge to continue U.S. support and funding.

Mexico and the United States: Where Are We and Where Should We Be? – An expert view on the U.S.-Mexican bilateral relationship
Andres Rozental (Eminent Ambassador of Mexico)
Rozental demonstrates his deep knowledge of the U.S.-Mexican bilateral relationship, based on thirty years of negotiations with the U.S. government on maritime boundaries, nuclear proliferation, border issues, and immigration. Rozental recommends de-scrutinizing the bilateral agenda and prioritizing trade, investment, climate change, and the Trans-Pacific Partnership.

ABOUT THE EDITOR

Diana Villiers Negroponte

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Subsidizing Higher Education May Not Be Paying Off

Isabel V. Sawhill and Ron Haskins — Tue, 07 May 2013 00:00:00 -0400

A college degree has long been touted as a key component for a successful and prosperous life. But a more critical look reveals that coming in prepared and graduating is often the biggest challenge, especially for disadvantaged students. Senior fellows Isabel Sawhill and Ron Haskins discuss the findings from in the latest issue of The Future of Children journal which is devoted to post secondary education preparation as well as a new Center on Children and Families brief that examines the college return-on-investment.

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Subsidizing Higher Education May Not Be Paying Off

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Improving College Prep. for Low-Income Students

Ron Haskins and Cecilia Elena Rouse — Tue, 07 May 2013 00:00:00 -0400

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Time for Change: A New Federal Strategy to Prepare Disadvantaged Students for College

Authors

Ron Haskins
Cecilia Elena Rouse

Middle Childhood Success and Economic Mobility

J. Lawrence Aber, Kerry Searle Grannis, Stephanie Owen and Isabel V. Sawhill — Fri, 15 Feb 2013 15:17:00 -0500

Executive Summary

This study uses data from the Early Childhood Longitudinal Study, Kindergarten Class of 1998-1999 (ECLS-K) to analyze competencies that children need to master by the end of elementary school, the extent to which they are doing so, what might be done to improve their performance, and how this might affect their ultimate ability to earn a living and their chances of being middle class by middle age. Both academic skills and socio-emotional skills contribute to core competency. We measure core competence at age eleven using five outcomes: math skills, reading skills, self-regulation, behavior problems, and physical health.

62% of children have core competence by the spring of fifth grade, while 38% do not meet the benchmark on one or more of the five measures.
Though there are substantial gaps in achievement by gender, race, and socioeconomic status, differences by subgroup decrease in magnitude when we control for demographics and school readiness at age 5.
Achievement gaps by race and socioeconomic status widen over the course of elementary school; the gap between black and white children nearly doubles between kindergarten and fifth grade.

The paper concludes with a discussion of how middle childhood interventions such as a social emotional learning program or a whole school reform program like Success For All might improve short- and long-term outcomes for low-income children. Preliminary results from the Social Genome Model indicate that such programs might raise annual family income at age forty by four percent—approximately $2,400 for a family of four.

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Middle Childhood Success and Economic Mobility

Authors

J. Lawrence Aber
Kerry Searle Grannis
Stephanie Owen
Isabel V. Sawhill

What Will Rubio Say in Response to the SOTU?

Isabel V. Sawhill — Fri, 08 Feb 2013 00:00:00 -0500

I have no idea what Senator Marco Rubio (R-FL) will say on Tuesday. But here’s a good guess: opportunity matters. We need to build a strong middle class. People should be given every chance to climb the ladder of opportunity. They don’t need handouts but they do need a helping hand. And we can’t forget about the immigrants who have made this country great.

Here’s what he probably won’t say: it costs money to provide opportunity. If we want more early education programs, more health care and nutrition, better teachers in the classroom, and more Pell grants so low-income and immigrant kids can go to college, taxpayers will have to pony up. Instead, he’ll claim that his vision is consistent with a more limited and less costly government.

The fact is these two goals – providing opportunity and limiting costs – need not be incompatible. We can invest more in less advantaged kids and keep the cost down if we just face up to the need to reallocate resources from the affluent elderly to struggling younger families and their children. And yes, that means curbing the growth of Medicare and Social Security.

It wouldn’t surprise me if Rubio softened the Republican message while evading the hard policy questions. But getting the message right isn’t a bad start.

Authors

Isabel V. Sawhill

In Discussing the Economy, Keep It Positive

George L. Perry — Thu, 07 Feb 2013 00:00:00 -0500

There are two things I would urge the president to avoid in discussing the economy. The common thread is to keep it positive.

First, do not focus on the fact that the recovery in employment is too slow. It is, and unemployment is still much too high. During President Obama’s first term, the argument for fiscal stimulus rested on the very distressed business environment and weak job market. But today it might be more helpful for the president to stop repeating this old litany of bad news and instead contribute some optimism about how we are doing.

Let me elaborate. There is no assurance that a relatively upbeat presidential assessment would do any good. But it might. We believe leadership matters in other spheres. And economists generally believe in the importance of expectations in shaping current behavior. Since the Great Recession, business has been cautious about expanding and consumers have been restrained in their spending. Though not yet reflected in most forecasts, there are now signs of revival on both fronts. What is more, the recent revisions to the employment data indicate the job market has already been strengthening more than we had thought. So the president has good grounds for offering a brighter vision of economic prospects.

The second thing I would urge on the president is to keep class distinctions out of economic policy. For decades, the wealthy have gotten much richer while middle class incomes have stagnated. This is an important feature of our recent economic history, and it strongly suggests that any search for new revenues should, in fairness, look first to higher income groups. But the president’s agenda, which needs compromise across the political aisles, is not served if the facts of income distribution morph into class warfare in political rhetoric.

Authors

George L. Perry

Image Source: © Jim Young / Reuters

Youth Employment and Economic Transition in Tunisia

Mongi Boughzala — Tue, 29 Jan 2013 16:36:00 -0500

This paper analyzes trends in youth employment and unemployment in private sector development, with special attention to education and female employment. It uses data from a 2007 enterprise survey to study the evolution of the MSE sector and that Tunisian MSEs are suffering from similar problems faced by the private sector generally. The business environment has been plagued with corruption and many other imperfections and uncertainties, and was not conducive for substantial investment and enterprise creation. Small entrepreneurs, who are not well-connected to the old political elite, have been particularly hurt by the lack of clear rules and by rampant corruption. The paper argues for reforms of labor laws and of the financial sector in order to encourage MSEs to become formal and gain better access to credit. It also points out to huge inequalities between different regions in Tunisia (the poverty rate in the center west region is three times that in Tunis) and to a strong gender bias in the labor market (female labor market participation rate is 27 percent compared to 70 percent for males), and argues for special policies and programs to deal with them.

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Authors

Mongi Boughzala

Image Source: © Zoubeir Souissi / Reuters

A New Federal Policy Architecture to Promote Social Mobility

Richard V. Reeves — Tue, 22 Jan 2013 11:15:00 -0500

Right now in Washington, it's all fiscal cliffs and debt ceilings. But there is a slower-burn crisis taking place in the US: the quiet decline of social mobility. Harvard academic Robert Putnam has warned that we are heading towards a “mobility cliff,” with affluent kids all but guaranteed a comfortable adult life and the poorest kids likely to remain stuck on the bottom rungs. Isabel Sawhill and Ron Haskins have vividly described the lack of mobility in the U.S. The opportunity gaps start at conception, widen through K-12, and harden during the transition to adulthood. Horatio Alger is not dead, but he is pretty sick.

To say that promoting mobility is a complex task would be a wild understatement. A vast array of economic, social, cultural and individual factors are at work, to different degrees, across the entire life course – influencing an equally wide canvas of outcomes, from education to character to fertility. Promoting intergenerational mobility is not a policy agenda for the faint-hearted. There are no quick or easy solutions.

But it is wrong to be fatalistic. There are policies proven to narrow gaps. If they are applied consecutively, one brick on top of another, their effects are likely to amplified. And other nations, even those with similar levels of income inequality to the U.S. – such as Canada and Australia – have higher rates of intergenerational mobility. Improving rates of mobility is hard, but not impossible. Given the economic and social consequences of a more stratified society, we cannot simply shrug our shoulders.

A small but important first step would be to create a Federal “policy architecture” to properly track trends in mobility, and evaluate the impact of policies. The UK Government, explicitly committed to a mobility goal, has created a annual dashboard of “leading indicators” of mobility. My former boss, Deputy Prime Minister Nick Clegg, has also created an independent commission to report annually on progress towards greater social mobility.

Of course this kind of policy architecture would not promote mobility. But it would create a shared understanding of the facts, and a foundation for developing policy. Back in the 1970s, Brookings called for the creation of an independent agency within the legislative branch of government, to forecast the public finances and estimate the fiscal impact of legislation or proposed policies. The Congressional Budget Office was born. Something similar is now needed for opportunity: say a Congressional Mobility Office? So that if our politicians are able to look beyond today's cliffs and ceilings, and embrace the challenge of promoting opportunity, they'll have a better idea where to start.

Authors

Richard V. Reeves

Image Source: © Aaron Bernstein / Reuters

The Top Economic Stories of 2012

Fri, 28 Dec 2012 12:48:00 -0500

New Paradigms for Financial Regulation: Emerging Market Perspectives

Masahiro Kawai and Eswar Prasad, eds. — Thu, 27 Dec 2012 00:00:00 -0500

Brookings Institution Press 2012 300pp.

The global financial crisis has led to a sweeping reevaluation of financial market regulation and macroeconomic policies. Emerging markets need to balance the goals of financial development and broader financial inclusion with the imperative of strengthening macroeconomic and financial stability. The third in a series on emerging markets, New Paradigms for Financial Regulation develops new analytical frameworks and provides policy prescriptions for how the frameworks should be adapted to a world of more free and more volatile capital.

This volume provides an overview of the global regulatory landscape from the perspective of Asian emerging markets. The contributors discuss the many challenges ahead in developing sound and flexible financial regulatory systems for emerging market economies. The challenges are heightened by the rising integration of these economies into global trade and finance, the growing sophistication of their financial systems as globalization and emergence processes accelerate, and their potential vulnerability to instability arising from the financial markets in the advanced economies.

The contributors provide guidance about pitfalls to be avoided, general principles that should guide the creation of sound regulatory systems, and valuable analytic perspectives about how to continue to broaden the financial sector and innovate while still maintaining financial and macroeconomic stability.

Specific topics covered by the volume include:

Implications of global regulatory changes for emerging markets, with particular emphasis on Asian emerging markets
Effective design of regulatory and policy frameworks to promote financial system development and stability
Monetary policy frameworks to enhance financial stability and international policy coordination
Principles for a sound global regulatory architecture

This is the third in a series of books edited by Kawai and Prasad—copublished with the Asian Development Bank Institute—on international financial regulation and reform in the wake of global crisis, focusing on emerging markets. The first two books in the series are Asian Perspectives on Financial Sector Reforms and Regulation and Financial Market Regulation and Reforms in Emerging Markets.

ABOUT THE EDITORS

Masahiro Kawai

Masahiro Kawai is dean of the Asian Development Bank Institute and a former chief economist for the World Bank’s East Asia and the Pacific region.

Eswar Prasad

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The Exaggerated Death of the Middle Class

Ron Haskins and Scott Winship — Tue, 11 Dec 2012 00:00:00 -0500

Mark Twain, upon reading his obituary in the New York Journal, famously quipped that the reports of his death were greatly exaggerated. The same could be said today of reports from the scholarly world, the media and even the White House about the shrinking of the middle class. Here’s why.

The most easily obtained income figures are not the most appropriate ones for assessing changes in living standards; those are also the figures that are often used to reach unwarranted conclusions about “middle class decline.” For example, analysts and pundits often rely on data that do not include all sources of income. Consider data on comprehensive income assembled by Cornell University economist Richard Burkhauser and his colleagues for the period between 1979—the year it supposedly all went wrong for working Americans—and 2007, before the Great Recession.

When Burkhauser looked at market income as reported to the Internal Revenue Service (IRS), the basis for the top 1 percent inequality figures that inspired Occupy Wall Street, he found that incomes for the bottom 60 percent of tax filers stagnated or declined over the nearly three-decade period. Incomes in the middle fifth of tax returns grew by only 2 percent on average, and those in the bottom fifth declined by 33 percent.

Things appeared somewhat better when Burkhauser looked at the definition of income favored by the Census Bureau which, unlike IRS figures, includes government cash payments from programs like Social Security and welfare, and looks at households rather than tax returns.

Still, the income of the middle fifth only rose by 15 percent over the entire three decades, much less than 1 percent per year. The Census Bureau reports that from 2000 to 2010, the income of the middle fifth actually fell by 8 percent. With numbers like these, it’s understandable why so many people think the American middle class is under threat and in decline.

But there are three reasons why even the Census Bureau figures are deceiving. The size of U.S. households, which has been declining, is not taken into account. The figures ignore the net impact on income of government taxes and non-cash transfers like food stamps and health insurance, which benefit the poor and middle class much more than richer households, and the value of health insurance provided by employers is also left out.

Burkhauser and his colleagues show that if these factors are taken into account, the incomes of the bottom fifth of households actually increased by 26 percent, rather than declining by 33 percent. Those of the middle fifth increased by 37 percent, rather than by only 2 percent. There is no disappearing middle class in these data; nor can household income, even at the bottom, be characterized as stagnant, let alone declining. Even after 2000, estimates from the Congressional Budget Office (CBO) show the bottom 60 percent of households got 10 percent richer by 2009, the most recent year available.

Making sense of income trends

Aside from the brighter picture presented by the Burkhauser and CBO analyses, there is a more complicated trend emerging in the United States. Four factors, both inside and outside the market, explain those trends.

The first market factor affecting middle-class income is a longtime trend of low literacy and math achievement in U.S. schools, which partially explains why conventional analyses of income show stagnation and decline. Young Americans entering the job market need skills valuable in a modern economy if they expect to earn a decent wage. Education and technical training are key to acquiring these skills. Yet the achievement test scores of children in literacy and math have been stagnant for more than two decades and are consistently far down the list in international comparisons.

It is true that African American and Hispanic students have closed part of the gap between themselves and Caucasian and Asian students; but the gap between students from economically advantaged families and students from disadvantaged ones has widened substantially—by 30 to 40 percent over the past 25 years.¹

In a nation committed to educational equality and economic mobility, the income gap in achievement test scores is deeply problematic. Far from increasing educational equality as an important route to boosting economic opportunity, the American educational system reinforces the advantages that students from middle-class families bring with them to the classroom. Thus, the nation has two education problems that are limiting the income of workers at both the bottom and middle of the distribution: the average student is not learning enough, compared with students from other nations, and students from poor families are falling further and further behind.

It is difficult to see how students with a poor quality of education will be able to support a family comfortably in our technologically advanced economy if they rely exclusively on their earnings.

The second market factor is the increasing share of our economy devoted to health care. According to the Kaiser Foundation, employer-sponsored health insurance premiums for families increased 113 percent between 2001 and 2011. Most economists would say that this money comes directly out of worker wages. In other words, if it weren’t for the remarkable increase in the cost of health care, workers’ wages would be higher. When the portion of market compensation received in the form of health insurance is ignored in conventional analyses, income gains over time are understated.

Turning to non-market factors, marriage and childbearing increasingly distinguish the haves and have-nots.

Families have fewer children, and more U.S. adults are living alone today than in the past. As a result, households on average are better off since there are fewer mouths to feed, regardless of income. At the same time, single parenthood has grown more common, thereby increasing inequality between the poor and the middle class. Female-headed families are more than four times as likely to be in poverty, and children from these families are more likely to have trouble in school as compared with children in married-couple families. The increasing tendency of similarly educated men and women to marry each other also contributes to rising inequality.

The most important non-market factor is the net impact of government taxes and transfer payments on household income. The budget of the U.S. government for 2012 is $3.6 trillion. About 65 percent of that amount is spent on transfer payments to individuals. The biggest transfer payments are: $770 billion for Social Security, $560 billion for Medicare, $262 billion for Medicaid, and nearly $100 billion for nutrition programs. In addition to these federal expenditures, state governments also spend tens of billions of dollars on programs for low-income households. Almost all of the over $1 trillion in state and federal spending on means-tested programs (those that provide benefits only to people below some income cutoff) goes to low-income households.

Thus, taking into account the progressive nature of Social Security and Medicare benefits, the effect of government expenditures is to greatly increase household income at the bottom and reduce economic inequality.

Similarly, federal taxation—and to a lesser extent state taxation—is progressive. Americans in the bottom 40 percent of the income distribution pay negative federal income taxes because the Earned Income Tax Credit and the Child Tax Credit actually pay cash to millions of low-income families with children.

IRS data on incomes incorporate only the small fraction of transfer income that is taxable. Census data includes all cash transfer payments but leaves out non-cash transfers—among which Medicaid and Medicare benefits are the most important—and taxes.

The bottom line is that market income has grown, and government programs have greatly increased the well-being of low-income and middle-class households. The middle class is not shrinking or becoming impoverished. Rather, changes in workers’ skills and employers’ demand for them, along with changes in families’ size and makeup, have caused the incomes of the well-off to climb much faster than the incomes of most Americans.

Rising inequality can occur even as everyone experiences improvement in living standards.

Even so, unless the nation’s education system improves, especially for children from poor families, millions of working Americans will continue to rely on government transfer payments. This signals a real problem. Millions of individuals and families at the bottom and in the middle of the income distribution are dependent on government to enjoy a decent or rising standard of living. While the U.S. middle class may not be shrinking, the trends outlined above make clear why this is no reason for complacency. Today’s form of widespread dependency on government benefits has helped stem a decline in income, but far better would be to have more people earning all or nearly all their income through work. Getting there, though, will require deeper reforms in the structure of the U.S. education system.

1 Sean F. Reardon, Wither Opportunity? Rising Inequality and the Uncertain Life Chances of Low-Income Children (New York: Russel Sage Foundation Press, 2001).

Authors

Publication: Americas Quarterly

Image Source: © Norbert von der Groeben / Reuters

A Poverty and Opportunity Agenda: What’s in Store for the Next Four Years

Wed, 05 Dec 2012 09:00:00 -0500

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December 5, 2012
9:00 AM - 11:30 AM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

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Following an election in which President Obama scored a large victory in the Electoral College, Democrats increased their majority in the Senate, and Republicans maintained control of the House, intense pressure remains – particularly from Republicans – to reduce spending on safety net programs as a means of addressing the nation’s deficit. In addition, tax increases on higher income families will likely be part of the mix.

On December 5, the Center on Children and Families at Brookings and Spotlight on Poverty and Opportunity held an event to examine the impact of the election on programs affecting the poor and contributing to opportunity for economic advancement. How has the election affected threats to enact major cuts in anti-poverty programs like Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and the Earned Income Tax Credit (EITC)?

To answer this and related questions, we heard from two major political figures within the Democratic Party and the Republican Party as well as a panel of experts with extensive experience in previous administrations.

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Rising Inequality in America and Around the World

Tue, 27 Nov 2012 15:30:00 -0500

Event Information

November 27, 2012
3:30 PM - 5:00 PM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Income inequality has been on the rise in the United States since the late 1970s— a trend that is also surfacing in many other countries around the world. Even among those who view inequality neutrally— or even positively— for economic growth, most agree that some of the features that accompany it, such as reduced opportunity and low social mobility, increased prevalence of poverty, and stagnation of the middle class, are undesirable.

On November 27, the Brookings Institution in cooperation with the Carnegie Endowment for International Peace and Oxfam America hosted a discussion on the implications of rising U.S. and global inequality. The discussion will examine the facts and trends underlying increasing inequality, and explore what kinds of policies are desirable for addressing inequality. Panelists included: Uri Dadush of the Carnegie Endowment for International Peace, co-author of Inequality in America: Facts, Trends, and International Perspectives (Brookings Press, 2012); Chrystia Freeland of Thomson Reuters, author of Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (Penguin Press, 2012); Branko Milanovic, author of The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality (Basic Books, 2010); and Ray Offenheiser, president of Oxfam America. Vice President Kemal Derviş, director of Global Economy and Development at Brookings and a co-author of Inequality in America, moderated the discussion. The panelists discussed findings and observations from their respective books on inequality as well as those of other recent books on the topic by Joseph Stiglitz and Francois Bourguignon.

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Rising Inequality in America and Around the World

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Rocky Times: New Perspectives on Financial Stability

Yasuyuki Fuchita, Richard J. Herring and Robert E. Litan, eds. — Thu, 15 Nov 2012 00:00:00 -0500

Brookings Institution Press 2012 160pp.

Since the financial crisis of 2008, the global financial system still is experiencing malaise caused by high rates of unemployment; a lingering, unresolved supply of foreclosed properties; the deepening European debt crisis; and fear of a recurrence of the bank turmoil that brought about the Great Recession. All of these factors have led to stagnant economic growth worldwide.

In Rocky Times, editors Yasuyuki Fuchita, Richard J. Herring, and Robert E. Litan bring together experts from academia and the banking sector to analyze the difficult issues surrounding troubled large financial institutions in an environment of economic uncertainty and growing public anger. Continuing the format of the previous Brookings-Nomura collaborations, Rocky Times focuses largely on developments within the United States and Japan but looks at those in other nations as well.

This volume examines two broad areas: the Japanese approach to regulating financial institutions and promoting financial stability and the U.S. approach in light of the Dodd-Frank Act. Specific chapters include Regulating the Shadow Banking System, Convertible Debt Requirement, Advanced Economies.

Contributors: Gavin Bingham (Systemic Policy Partnership, London), Charles W. Calomiris (Columbia Business School), Douglas J. Elliott (Brookings Institution), Richard J. Herring (Brookings Institution), Kei Kodachi (Nomura Institute of Capital Markets Research), and Morgan Ricks (Vanderbilt Law School).

ABOUT THE EDITORS

Yasuyuki Fuchita

Yasuyuki Fuchita is an executive fellow at the Nomura Institute of Capital Markets Research in Tokyo.

Richard J. Herring

Richard J. Herring is the Jacob Safra Professor of International Banking and professor of finance at the Wharton School, University of Pennsylvania, where he is also codirector of the Wharton Financial Institutions Center.

Robert E. Litan

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What "Lost Decade"? On the Supposed Decline of the American Middle Class

Scott Winship — Mon, 01 Oct 2012 00:00:00 -0400

Editor's note: An earlier version of this essay appears in the October 1, 2012 issue of National Review.

Pop quiz: Which of the following is true? (a) Over the past 40 years, the middle class has shrunk; (b) Over the past 40 years, the middle class has grown poorer; (c) The middle class just suffered through a “lost decade”; (d) All of the above.

You could be forgiven for answering (d), given the angst-producing state of discourse on the economy, but the truth is that none of these claims about middle-class decline are supported by the best evidence. A recent report by the Pew Research Center (PRC), “The Lost Decade of the Middle Class,” is the latest entry in the doom-and-gloom genre, but like other analyses before it the report badly misrepresents the economic standing of the middle class. Pew generally does very good work, and I am a fan particularly of its Economic Mobility Project, the research portfolio of which I managed for three years. But “declinist” analyses are both wrong and insidious, and since PRC’s work is especially influential, its errors deserve a careful examination.

The PRC report is cheerily subtitled “Fewer, Poorer, Gloomier.” Let’s take those claims up one by one.

PRC argues that the middle class has been shrinking over the near and the long term. The near-term claim relies in part on comparing the class designations Americans chose for themselves in surveys from early 2008 and again this past July. The share of Americans self-identifying as “middle class” declined from 53 percent to 49 percent over the four years.

It isn’t clear why we should care whether the middle class, so defined, shrinks. It could shrink despite an increase in the number of people who choose “middle class” rather than “lower middle class” or “lower class” if the number who choose “upper middle class” or “upper class” grows even more. What is important is whether the share choosing “lower middle class” or “lower class” grows.

PRC reports that it has done so, rising from 25 percent in 2008 to 32 percent this past July. Other pollsters asked this self-identification question in 1976, 1984, 1987, and 2004, and like PRC in 2008 they all found the lower-than-middle share to be between 24 percent and 27 percent. The question has been asked six times since 2010 (five times by PRC), and the share ranged from 29 percent to 40 percent in those surveys. The venerable General Social Survey has asked people to self-identify as lower, working, middle, or upper class since 1972, and it also found that the share of Americans self-identifying as lower than middle class was relatively high in 2008 and 2010, although the 2008 percentage (53) was lower than the one in 1972, and the 2010 percentage (55) was lower than the one in 1982. The share fell between 1996 and 2004, with the 2004 percentage (48) matching the General Social Survey’s 1989 low.

In short, historical data suggest that the Great Recession has increased the share of the population that considers itself lower than middle class but offers no evidence of a long-term increase or even a steady rise over the “lost decade.” The same conclusion holds if we stick to the narrow question of whether the middle class has shrunk.

The PRC’s second set of analyses, purporting to show that the middle class has shrunk over the long run, are based on the Census Bureau’s Current Population Survey. PRC defines “middle income” in relation to the median income (the income of the household smack in the middle). A household is middle income, according to PRC, if its income is at least two-thirds of, but no more than twice, the median. By this definition, and adjusting incomes for inflation and differences in household size, middle-income households fell steadily from 61 percent of the total in 1970 to 51 percent in 2010.

When Alan Krueger, chairman of the White House Council of Economic Advisors, presented similar figures in January, he too asserted that the middle class had shrunk, claiming a decline from 50 percent to 42 percent between 1970 and 2010. But, as I argued in these pages (“The President’s Depressing Statistics,” February 6), the reason the middle class “shrank” was almost entirely that Americans grew richer over time. There was no statistically discernible increase in the share of Americans poorer than middle class.

The PRC study, by contrast, did find an increase in the number of households below the middle-income boundary. In 1970, 25 percent of adults were lower income, compared with 29 percent in 2010. This finding was not particularly robust, however, when I replicated it. When I compared 1969 to 2007 — business-cycle peaks, both — the increase in the poorer-than-middle-class share was just three percentage points, and when I excluded Hispanics from the 2007 data (to control for the large influx of immigrants from Mexico over the period) the increase was just one point — not statistically meaningful. Nor is it clear that choosing different but still plausible boundaries for the middle class — say, half to 1.5 times the median, which is the definition that Krueger used — would result in the same conclusions. (PRC appears to have chosen its definition because it matches the share of adults who self-identified as middle class in July.)

But the biggest shortcoming of the PRC analysis is that, like the Krueger figures that preceded it, it conceives the middle class in relative terms: meaning that, as Americans become wealthier, the price of admission to the middle class increases over and above the increase in the cost of living. If inflation-adjusted median household income rises by 20 percent, then the entry point to the middle class does too. In the PRC study, it took $9,500 more in income — after adjusting for increases in the cost of living — for a family of three to make it into the middle-income group in 2010 than it did in 1970. In 100 years, Americans will likely be much richer than they are today. Yet the share of the population calling itself middle class will probably remain large, because people will define themselves relative to their peers. If the share of Americans who consider themselves lower or lower middle class ends up somewhat higher than it is today but everyone is much better off in absolute terms, will that be a problem?

It is possible to defend PRC’s definition of the middle class by noting that relative status matters to people — one wants to “keep up with the Joneses.” Economist Robert Frank has catalogued studies showing that people’s happiness depends not just on their absolute level of material well-being but also on their standing compared with others. But it is far from clear that relative inequality matters as much to people as their absolute level of income, and in any case PRC makes no effort to defend its definition.

The definition had the odd consequence that “middle-income” adults became scarcer, and “lower-income” adults more prevalent, even though the median income within each group rose by around 30 percent over the 40-year study period. When I reran the PRC analyses but kept the lower boundary of the middle class at its inflation-adjusted 1970 level, I found that the share of adults poorer than “middle income” declined from 25 percent in 1970 to 18 percent in 2007. That is, even as the fraction of American households making less than two-thirds of the current-year median held steady or rose, the share making less than two-thirds of the 1970 median fell significantly.

So much for “fewer.” Is the middle class “poorer”? The PRC report uses the Current Population Survey to examine trends in median income. By viewing the past 60 years as a collection of six decades, PRC is able to describe the 2000s as a “lost decade.” According to PRC, from 2000 to 2010, incomes fell among rich and poor alike for the first time since World War II. Median income in 2010 was at its 1997 level. Over a longer period, the report finds that income growth was strongest in the 1950s and 1960s, with the 1990s looking better than the 1970s and 1980s, and the Aughts bringing up the rear. There are three problems with these analyses.

First, the bulk of the evidence suggests that our measures of inflation overstate growth in the cost of living, which means that real-income growth is understated.

Second, the Current Population Survey (CPS) understates median-income growth relative to data sources that measure income more comprehensively. In the PRC analyses, median household income rose 22 percent from 1979 to 2007 (business-cycle peaks), but the CPS figures do not take into account non-cash transfers such as food stamps, Medicaid, and Medicare; employer-provided health insurance; or changes in taxes. Congressional Budget Office estimates, which remedy those omissions and use a different cost-of-living index, find a 46 percent increase in the median over the same period. That’s right: The typical household in 2007 was half-again richer than the typical household in 1979.

The third problem with the PRC analyses is the assumption that decades are appropriate periods by which to assess economic conditions. When rigorous economists consider income trends, they compare years that represent similar points in the business cycle: They do not compare a recession year to a boom year, for instance. As it turns out, the 1950s, 1960s, 1970s, 1980s, and 1990s can be roughly represented by comparing business-cycle peaks in 1948, 1960, 1969, 1979, 1989, and 2000. Looking at trends between 2000 and 2010, on the other hand, compares a boom year with a bust year; the proper comparison would be of 2000 and 2007.

Viewed this way, peak to peak, and using Congressional Budget Office (CBO) income figures, the 2000–07 period saw faster annual median-income growth than the 1990s (1989–2000) or the 1980s (1979–89). CBO data do not go back farther than 1979, but census data show that the 1970s (1969–79) had slower household-income growth than the 1980s — so the period from 2000 to 2007 actually featured the fastest income growth since the 1960s. The Aughts were not a lost decade when measured this way. Rather, a period of solid gains was followed by a crash. And even so, the CBO figures indicate that median income was 12 percent higher in 2009 than in 2000. Figures for 2010 are unavailable, but if they track the 2009-to-2010 trend in the CPS, the decade will show an increase of 10 percent in median income rather than the 7 percent decline PRC reports. So the middle class did not get “poorer.”

To all of this, PRC researchers might suggest I’m asking people to believe me (to believe the CBO, actually) over their own lying eyes. After all, PRC’s survey respondents overwhelmingly agreed that “compared with ten years ago” it is harder for “middle-class people to maintain their standard of living.” Fully 85 percent endorsed the view that 2002 was better than 2012 in this regard. We have arrived at “gloomier.”

Historical patterns show, however, that this widespread view does not reflect an objectively correct assessment of post–Great Recession American life so much as a persistently too-negative guess at how badly others are doing. In early 2008 — prior to the financial crisis — 79 percent of those surveyed by PRC believed that things had gotten tougher since 2003. So the damage done by the Great Recession has little to do with the consensus that things are getting tougher for Americans; they were gloomy barely into it, well before the crisis. And before concluding that the strong majority taking a dim view was objectively correct in early 2008, consider that 65 percent of respondents to an NBC/Wall Street Journal poll in 1986 said things had gotten tougher for the middle class over the preceding five years. That belief was almost surely not true, since the economy had double-dipped into a deep recession in 1981. The implication of these polls is that there is a general tendency for strong majorities of respondents to endorse the view that things are getting tougher, whether or not they actually are.

These figures, which PRC includes toward the back of its report, do suggest that the extent of economic pessimism increased between 1986 and 2008. But other polling evidence contradicts that conclusion. For more than 20 years, surveys have asked whether it has grown harder or easier over the past generation to attain “the American Dream.” According to polls by the Roper Center for Public Opinion Research, six in ten Americans thought it had grown harder in 1990, as did six in ten Americans in 1995. A 2010 Xavier University poll using a slightly different version of the question found this belief to be held by . . . six in ten. A Xavier poll a year later, in 2011, saw the figure jump to seven in ten. That result was comparable, however, to what Roper found in 1992, another year in which the nation was recovering from recession.

More important, longstanding majority belief that it is getting harder to keep up should be considered along with another longstanding result of opinion polling on the economy: When asked about their own economic circumstances, Americans give much more optimistic responses than they do when asked about Americans in general. People’s impressions of how others are doing are more pessimistic than what they say about their own lives.

As an example, when I was at Pew, the Economic Mobility Project sponsored a poll independently of PRC in early 2009 asking about a host of mobility-related topics. We found that 73 percent of Americans rated “economic conditions in this country today” as “poor.” In contrast, just 25 percent rated their “personal economic situation today” as “poor” when given the same response options. Three in four people said they were “very much” or “somewhat” in control of their personal economic situation, but only 43 percent thought the same about “people in this country.” Three in five parents thought their children would have a higher standard of living than they had, but just two in five non-parents thought the same would be true of “kids today.”

This sort of result is pervasive in public-opinion research related to the economy. People feel good about their own situation but guess incorrectly that others must feel bad about theirs. Indeed, this “I’m okay, they’re not” syndrome — a phenomenon identified by the writer David Whitman — extends to non-economic matters as well. Parents like their kids’ schools but think schools in general are awful; voters like their representatives but think Congress is the pits.

PRC emphasizes that 42 percent of the middle class say they are “less financially secure” than ten years ago. Forty-two percent is obviously a large minority, but on the other hand this figure doesn’t tell us how many people feel significantly less secure. I feel less secure than ten years ago, and I have some anxiety as a relatively new parent with a wife who is due to graduate into the labor force soon. But I can’t say that economic anxiety is anything like a central feature of my day-to-day existence.

The same is likely to be true of many other people who feel less secure than they did in 2002. Don’t take my word for it: According to PRC’s poll, 80 percent of self-identified middle-class adults are “pretty” or “very” happy with their life, as are 77 percent of all adults. Only 37 percent of middle-class adults “frequently” experience stress (much of it presumably related to non-economic issues), and only 42 percent of all adults. That is basically the same as in 1994, 2001, and 2002. Seventy-two percent of the middle class and 64 percent of all adults are “somewhat” or “very” satisfied with their personal financial situation. The corresponding satisfaction levels for respondents’ “present housing situation” are 90 percent for the middle class and 86 percent for everyone. In 1996, 87 percent of adults were that satisfied. “Gloomier?” Sure — but we are barely clear of the worst recession in 70 years. “Gloomy?” Hard to see it.

Indeed, perhaps the biggest rejoinder to the PRC report’s “fewer, poorer, gloomier” conclusion is its own finding that, despite the Great Recession and molasses recovery, 57 percent of all adults say their living standards exceed those of their parents at the same age, while just 17 percent say they are worse off. The conventional wisdom is that they shouldn’t trust their lying eyes, and it’s true that in the aggregate the respondents’ assessment does not match the facts. In actuality, as Pew’s Economic Mobility Project has shown using 40 years of data on actual parents and children, 84 percent of today’s adults are better off than their parents were at the same age.

Note: this version corrects a mistake in the original article, in which the author mistakenly attributes to PRC the claim that the middle class has grown poorer over the past 40 years. The author apologizes for the error.

Authors

Scott Winship

Publication: National Review

Pathways to the Middle Class: Balancing Personal and Public Responsibilities

Isabel V. Sawhill, Scott Winship and Kerry Searle Grannis — Thu, 20 Sep 2012 10:16:00 -0400

INTRODUCTION

The defining narrative of the United States of America is that of a nation where everyone has an opportunity to achieve a better life. Americans believe that everyone should have the opportunity to succeed through talent, creativity, intelligence, and hard work, regardless of the circumstances of their birth. Our leaders share this support for opportunity. In a speech last fall, President Obama said that Americans should make sure that “everyone in America gets a fair shot at success.” Mitt Romney has repeatedly spoken about an opportunity society, where people can “engage in hard work, and pursue the passion of their ideas and dreams. If they succeed, they merit the rewards they are able to enjoy.”

Americans have an unusually strong belief in meritocracy. In other nations, circumstances at birth, family connections, and luck are considered more important factors in economic success than they are in the U.S. This meritocratic philosophy is one reason why Americans have had relatively little objection to high levels of inequality—as long as those at the bottom have a fair chance to work their way up the ladder. Similarly, Americans are more comfortable with the idea of increasing opportunities for success than with reducing inequality. When the American public is asked questions about the importance of tackling each, a far higher proportion is in favor of doing something about ensuring that more people have a shot at climbing the economic ladder than is in favor of reducing poverty or inequality.

One way of thinking about opportunity is in terms of generational improvement in living standards. Among today’s middle-aged Americans, four in five households have higher incomes than their parents had at the same age, and three in five men have higher earnings than their fathers. The extent to which this will be true for today’s children remains to be seen. More importantly, if everyone grows richer over time, but the economic fates of Americans are bound up in their family origins, then in an important sense opportunities are still limited. If a poor child has little reason to believe she can “grow up to be whatever she wants,” it may be of little comfort to her that she will likely make more than her similarly constrained parents. A better-off security guard may still have wanted to be a lawyer.

The reality is that economic success in America is not purely meritocratic. We don’t have as much equality of opportunity as we’d like to believe, and we have less mobility than some other developed countries. Although cross-national comparisons are not always reliable, the available data suggest that the U.S. compares unfavorably to Canada, the Nordic countries, and some other advanced countries. A recent study shows the U.S. ranking 27th out of 31 developed countries in measures of equal opportunity.

People do move up and down the ladder, both over their careers and between generations, but it helps if you have the right parents. Children born into middle-income families have a roughly equal chance of moving up or down once they become adults, but those born into rich or poor families have a high probability of remaining rich or poor as adults. The chance that a child born into a family in the top income quintile will end up in one of the top three quintiles by the time they are in their forties is 82 percent, while the chance for a child born into a family in the bottom quintile is only 30 percent. In short, a rich child in the U.S. is more than twice as likely as a poor child to end up in the middle class or above.

Why do some children do so much better than others? And what will it take to create more opportunity? The remainder of this paper addresses these two questions.

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Pathways to the Middle Class: Balancing Personal and Public Responsibilities

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Isabel V. Sawhill
Scott Winship
Kerry Searle Grannis

Pathways to the Middle Class: Balancing Personal and Public Responsibilities

Thu, 20 Sep 2012 10:00:00 -0400

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September 20, 2012
10:00 AM - 12:00 PM EDT

Saul/Zilkha Rooms
Brookings Institution
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Washington, DC 20036

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Debate focusing on the American Dream has been ubiquitous of late, with some arguing that effort and talent are the primary causes of success and others arguing that government can help open greater opportunities for those with modest beginnings. But who actually achieves the dream and joins the middle class? How much are children's chances of achieving success affected by the circumstances of their birth, by race and gender, and by how well they do at each life stage from birth to age 40? And how can we help more children navigate the path to a successful adulthood?

On September 20, the Social Genome Project at Brookings presented new research on how many of today's children are likely to succeed, who they are, how success at one stage affects success in subsequent stages of life, and what might help keep more children on track. Keynote speaker Sen. Michael Bennet of Colorado and a panel of experts reacted to these findings.

You can follow the conversation on this event on Twitter using the hashtag #PathToSuccess.

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Finding a Balance between Personal and Government Responsibility: It’s not Just about Paying Taxes

Isabel V. Sawhill — Tue, 18 Sep 2012 14:42:00 -0400

The media is full of commentary about Mitt Romney’s suggestion that people who do not pay income taxes are lacking in personal responsibility.

My view is that personal responsibility matters. In fact, Governor Romney has cited more than once a Brookings study (done with my colleague Ron Haskins). The study shows that if you do just three things: stay in school at least through high school, don’t have a child until you’re married and over 21, and work full-time, your chances of being poor are only 2 percent and your chances of joining the middle class are 74 percent.

We should expect and encourage this kind of behavior. It is necessary but it is not sufficient. The larger society, including government, has a role to play as well. Are children born to irresponsible parents to blame for their lack of opportunity? Are adults who can’t find a job during a recession at fault? Are the seriously disabled or the frail elderly supposed to fend for themselves?

There was a lot of talk at both the Republican and the Democratic conventions about the American Dream. The difference was that Republicans celebrated the Horatio Algers among us – the Mark Rubios who have pulled themselves up from modest beginnings. Democrats also lauded the upwardly mobile but with a recognition that a Pell Grant to go to a community college or free access to contraceptive services can make a difference.

In the end, neither party was very specific. New research being released by Brookings this week shows that 61 percent of today’s children and young adults can be expected to be middle class by middle age (an income of about $68,000 for a family of four in 2011). But there are large gaps by race, by gender, and by one’s circumstances at birth. A child born into the top income fifth is almost twice as likely to be middle class by middle age as one born into the bottom fifth. Girls do better than boys throughout childhood only to find their prospects diminished when they become adults. African Americans are behind on all indicators of success from an early age and never catch up to whites. Only a third of them can expect to be middle class by middle age.

On the other hand, our data indicate that poor children who stay on track throughout childhood are almost as likely as their more fortunate peers to achieve the Dream. The problem is that too few do. They are much less likely to be school ready at age 5, to achieve important academic and social competencies by age 11, to graduate from high school with good grades and without being convicted of a crime or having a baby as a teen. Would more of these children be successful if they studied hard and stayed out of trouble? Should some parents be doing more to help with homework, teach values, and monitor their children’s activities? Undoubtedly yes. But the evidence also suggests that if we provided more of these children a high quality preschool experience, put better teachers in the classroom, provided more (and more accessible) college aid to well-qualified students from low-income families and more technical training, some of these gaps could be reduced or even eliminated.

The gaps in opportunity are getting larger. Not only is income inequality increasing but so are inequalities in marriage rates, in educational achievements, and in who goes to college. A nation in which these opportunity-enhancing behaviors are, more than ever, associated with the random chance that a child will be born to privileged parents is not a healthy society.

Authors

Isabel V. Sawhill