Income can be measured in a variety of ways. One of them is by dividing the population into quintiles. The top fifth is the 20% of people who have the highest income; while the lowest fifth is the bottom 20%. But each method of calculating income has strengths and weaknesses. “Income” is different from “consumption,” and the latter is a more accurate measure of a person’s experienced standard of living.
Remaining in a quintile, rather than rising to the next fifth, doesn’t translate into stagnation, because all quintiles enjoy improving standards of living.
The result is social mobility: The United States is a place where people can rise. In a January 2023 article, co-authors Phil Gramm and John Early explain:
Measured by inflation-adjusted household income, 93% of children who grew up the bottom income quintile were better off than their parents. Of children in the middle three-fifths, 86% grew up to live in families with higher incomes than their parents. Even among those in the top income quintile, 70% were better off.This upward mobility across all income classifications was possible because of the growth of the American economy. Over the 35 years of the study, real median family income rose by 89%. This American cornucopia was spread across the entire income distribution — with the exception of the prime work-age adults in the bottom quintile who dropped out of the workforce as government transfer payments exploded beginning in the mid-1960s. They benefited from the growth in transfer payments.
Together with John Ekelund, the two authors of this article wrote a book explaining in greater detail their findings: that most Americans experience material improvement during their lives.
Mathematics and economics can explain some of this: as the overall standard of living rises, individuals find that their circumstances improve not only because their income has increased, but also because features of daily life like microwaves and smartphones have become assumed to be part of even the most humble life.
Without accounting for this overall income growth, three independent research efforts have measured relative mobility — the extent to which children reared in families in one income quintile stayed in the same income quintile, rose to a higher quintile, or fell to a lower quintile. The first, an extension of the Pew Charitable Trusts study cited above, looked at parental income from 1967-71, when the children were younger than 18, and 2000-08 when the children were 32 to 58.The second study, by Raj Chetty of Harvard, looked at parental income from 1996-2000, when children were 15 to 20, and adult children’s income in 2011-12, when the children were in their early 30s. The final study, by Michael Strain of the American Enterprise Institute, compared the income of children who were in their 40s in 2013-17 with that of their parents in their 40s.
Another bit of calculation explains America’s ability to lift people out of poverty: it’s important to distinguish between ‘earned income’ and ‘total consumption’ — as various goods and services are provided by the government, an individual doesn’t need a paycheck to obtain them.
Many states now offer free classes at community colleges: something for which people formerly had to pay. Likewise, senior citizens can receive various services for free, or for a reduced price, like bus fares, healthcare services, or access to physical exercise facilities.
Phil Gramm and John Early continue:
The findings of these three studies covering the past half-century were extraordinarily similar.
Several factors can hide the statistical improvement which people in the U.S. are enjoying: The changing and rising definitions of ‘poverty’ and the distinction between ‘earned income’ and ‘total consumption’ conceal the fact that, even for an individual who remains in quintile into which she or he was born, the standard of living rises significantly over a lifetime.
The share of adult children who grow up to live in a household in the same income quintile as their parents is surprisingly small. The chart shows that for the middle three quintiles, only 22.6% to 24.4% of children remain in their parents’ quintile — barely more than the 20% that would result if income quintiles were assigned at random. On average, 39% of those children as adults rose to a higher quintile.
The result of these opportunities is that the majority of Americans experience an increase in the standard of living during their lives, and enjoy a higher standard of living than their parents did.
Of children reared in the top quintile, 62% fell to one of the lower quintiles, including more than 9% to the bottom quintile. A significant number of the children reared in the top quintile who stayed in the top quintile as adults had incomes far greater than their parents, but statistically they could not rise out of the top quintile.With few advantages and often trapped in failing public schools, 63% of children who grew up in bottom quintile families rose to a higher quintile, 6.1% rising all the way to the top quintile.
To be sure, social mobility includes the opportunity to move down as well as up. Children born into the very highest levels of income can, and sometimes do, end up with a lower standard of living than their parents. The children of multi-billionaires may well end up with fewer billions than their parents.
Downward mobility can be the result of deliberate choice: the child of a successful lawyer may simply want to be the curator of a museum, an instructor at a college, or a teacher. Downward mobility can also be the result of bad choices, or of unforeseeable tragic accidents.
These studies measure relative mobility by comparing the children’s income quintile then and now. Relative mobility is a zero-sum game — by definition, 20% of households are in the lowest quintile and only 20% in the highest — but income growth isn’t. The vast majority of adult children had higher real incomes than their parents. To rise out of the bottom quintile, children’s inflation-adjusted income had to increase by more than the growth of the income ceiling for the bottom quintile during the years between generations — 35% in Mr. Strain’s study. Children reared in any other quintile had to see their real income as adults rise on average by roughly 50% above their parents’ income simply to avoid falling into a lower quintile than their parents. The climb to a higher quintile is steeper still.Fortunately, data from the Strain study can be used to measure mobility in a way that takes into account the extraordinary income growth in America between the parents’ generation and the adult children’s generation. When the income of the children is compared with the inflation-adjusted income of their parents using the real income quintiles of their childhood in 1982-86 rather than the income quintiles of 2013-17, measured mobility is dramatically greater. Only 28% of children reared in the bottom quintile had adult incomes that would put them in the bottom childhood quintile, and 26% rose all the way to the childhood top quintile, which required a minimum income of only $111,416 (in 2016 dollars) for a family of four in 1982-86. A family of four with that income in 2013-17 would have been in the middle quintile based on 2013-17 income distribution.
During the 35 years of the study, adult children who worked rode up the American economic escalator as average incomes rose dramatically. Those who climbed as the escalator rose moved up faster. Those who stood still or stumbled down rose more slowly, and those who stayed off the escalator by not working missed the ride. The mobility studies shown in the chart capture the effect of climbing, stumbling and choosing not to ride, but they miss the escalator effect, which came from the growth of the American economy. Many of today’s middle-income adults have a real standard of living that would have put them in the top quintile in their parents’ era.
This incredible income mobility is measured only over one generation. Parents struggle and sacrifice to provide their children with education and opportunities they themselves lacked. Millions of parents have lived out their dreams through the achievements of their children, generation after generation. As a result, America’s real mobility is most visible over multiple generations.
“The American Dream is of individual upward mobility,” Phil Gramm and John Early conclude: “Upward mobility is alive and well in America,” and “the vast majority of adults have higher income than their parents did.”
A younger person who immigrates into the United States, or a young person born in the United States, has exceptionally good opportunities to rise socially and economically.
