Future Earnings Maybe Not Better Than Past

Individuals in the U.S. today may not be better off in terms of income as their father's generation, a recent study suggests.

The analysis by the Economic Mobility Project – an initiative of The Pew Charitable Trusts – found that, adjusted for inflation, men who were in their thirties in 1974 had median incomes of about $40,000, while men of the same age in 2004 had median incomes of about $35,000. This means that, on average, income for this generation is 12% lower than those of their fathers’ generation.

“The expectation that each generation will do better than their parents has become a fundamental part of what we call “The American Dream’, but this new analysis suggests this bedrock belief may be shifting under our feet,” said John Morton, managing director of Pew’s Economic Policy Initiatives and director of the Economic Mobility Project. “Income is not the only factor in overall economic mobility, but it is clearly a key component and today’s data suggest that during a thirty-year period of economic expansion, a rising tide did not lift all boats,” he continued.

The study also looked at the disparity that exists between the compensation of employees and CEOs. Between 1978 and 2005, CEO pay increased from 35 times to nearly 262 times the average worker’s pay, or by 2005, the typical CEO made more in an hour than a minimum-wage worker made in a month.

By contrast, the real after-tax income levels of the poorest one-fifth of Americans rose by only 9% between 1979 and 2004, compared to that of the richest one-fifth, which leaped by 69%, and that of the top 1% by 176%.

With regard to how the U.S. compares to other nations in terms of economic mobility, Germany is 1.5 times more mobile than the U.S., Canada nearly 2.5 times more mobile, and Denmark 3 times more mobile. Only the United Kingdom has relative mobility levels on par with those of the U.S. To be sure, analyzing the relationship between parents’ and children’s incomes is but one way of defining relative mobility from one generation to the next.

The findings of the report rely on new analysis of U.S. Census Bureau data.