The end of the 'American Dream' for Millennials?

Blame income inequality

It's becoming increasingly difficult for Millennials to earn more than their parents did at the same age, a goal generally considered to reflect the so-called "American Dream," according to new research

Economists and sociologists from Stanford University, Harvard University, and the University of California, Berkeley collaborated to determine the strength of the American Dream, defined in this case as the ability for people to earn more than their parents did at a similar age.

Using tax and U.S. Census data adjusted for inflation, the researchers compared the income of 30-year-olds beginning in 1970 with the earnings of their parents at a similar age. In 1970, 92% of thirty-year-olds out-earned their parents at a similar age, but that number declined to 51% in 2014. Similarly, the percentage of young adults who out-earned their parents fell from 1970 to 1992, then took a dive again in 2002. 

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The report does not hypothesize about specific reasons why Millennials' incomes are failing to catch up with their parents', but researchers say the findings point to slowing economic growth and the widening income gap between higher-income and lower-income Americans.

"Wages have stagnated in the middle class," says lead study author Raj Chetty of Stanford. "When you're in that situation, it becomes very hard for children to do better than their parents."

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But incomes are plateauing across the board, and even upper middle-class Americans are feeling the pinch. Their chances of out-earning their parents saw the sharpest decline among all groups born between 1940 and 1980.

"Both rich and poor kids are sharing this loss of absolute mobility," says study co-author Nathaniel Hendren, an assistant professor at Harvard.

Reversing the trend won't be easy, but Chetty and Hendren recommend certain actions to reduce income inequality such as:

  • Improving education from an early age;
  • Boosting payments to working low-income people through earned-income tax credits; and
  • Helping low-income families move to areas where they can achieve economic mobility

(Etehad/Kitroeff, Los Angeles Times, 12/8; Davis, Wall Street Journal, 12/8).

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