April 26, 2006

America’s rags-to-riches dream an illusion: study

By Alister Bull

WASHINGTON (Reuters) - America may still think of itself as
the land of opportunity, but the chances of living a
rags-to-riches life are a lot lower than elsewhere in the
world, according to a new study published on Wednesday.

The likelihood that a child born into a poor family will
make it into the top five percent is just one percent,
according to "Understanding Mobility in America," a study by
economist Tom Hertz from American University.

By contrast, a child born rich had a 22 percent chance of
being rich as an adult, he said.

"In other words, the chances of getting rich are about 20
times higher if you are born rich than if you are born in a
low-income family," he told an audience at the Center for
American Progress, a liberal think-tank sponsoring the work.

He also found the United States had one of the lowest
levels of inter-generational mobility in the wealthy world, on
a par with Britain but way behind most of Europe.

"Consider a rich and poor family in the United States and a
similar pair of families in Denmark, and ask how much of the
difference in the parents' incomes would be transmitted, on
average, to their grandchildren," Hertz said.

"In the United States this would be 22 percent; in Denmark
it would be two percent," he said.

The research was based on a panel of over 4,000 children,
whose parents' income were observed in 1968, and whose income
as adults was reviewed again in 1995, 1996, 1997 and 1999.

The survey did not include immigrants, who were not
captured in the original data pool. Millions of immigrants work
in the U.S, many illegally, earnings much higher salaries than
they could get back home.

Several other experts invited to review his work endorsed
the general findings, although they were reticent about
accompanying policy recommendations.

"This debunks the myth of America as the land of
opportunity, but it doesn't tell us what to do to fix it," said
Bhashkar Mazumder, a senior economist at the Federal Reserve
Bank of Cleveland who has researched this field.

Recent studies have highlighted growing income inequality
in the United States, but Americans remain highly optimistic
about the odds for economic improvement in their own lifetime.

A survey for the New York Times last year found that 80
percent of those polled believed that it was possible to start
out poor, work hard and become rich, compared with less than 60
percent back in 1983.

This contradiction, implying that while people think they
are going to make it, the reality is very different, has been
seized by critics of President Bush to pound the White House
over tax cuts they say favor the rich.

Hertz examined channels transmitting income across
generations and identified education as the single largest
factor, explaining 30 percent of the income-correlation, in an
argument to boost public access to universities.

Breaking the survey down by race spotlighted this as the
next most powerful force to explain why the poor stay poor.

On average, 47 percent of poor families remain poor. But
within this, 32 percent of whites stay poor while the figure
for blacks is 63 percent.

It works the other way as well, with only 3 percent of
blacks making it from the bottom quarter of the income ladder
to the top quarter, versus 14 percent of whites.

"Part of the reason mobility is so low in America is that
race still makes a difference in economic life," he said.