As the United States economy returns to a healthier state, one generation in particular is lagging behind in returning to pre-recession levels of wealth: millennials.
Young people in their 20s and 30s have taken a greater hit from the recession than any other age group, bringing into question whether the American dream of upward mobility is obtainable for them.
It’s a familiar topic for Washington University professor Mark Rank, lead author of “Chasing the American Dream: Understanding What Shapes Our Fortunes.” As professor of social welfare at the Brown School of Social Work, Rank has been studying poverty and inequality for decades.
According to Rank, the American dream is alive, but it is more difficult to obtain than it used to be. In the course of his research, he has found that people define the American dream as three things: being able to pursue your passion, have economic security and being optimistic about the future.
“So the question is, are those [dreams] alive,” said Rank. “The answer is, yes, for a number of people it is, but it’s becoming more difficult over the last 40 years, especially for younger people.”
In 2013, the Federal Reserve Bank of St. Louis founded the Center for Household Financial Stability to research ways to bolster economic security. Tomorrow, the Center is holding a symposium to discuss whether the American dream is at risk.
“Some people say it is always tough for young people; that’s true. But this time it is a little bit different. It’s a little bit harder,” said Bill Emmons, the Center’s senior economic advisor. “The housing market was so volatile and it drew in many, many young people. And they were the ones most exposed and got hit the hardest.”
Moving Out of Poverty
“What’s happening is that the rungs on the economic ladder are getting further and further apart. There are debates about whether economic mobility has increased or gotten worse or stayed the same. The best research says it’s about the same but the problem is because of inequality, the rungs are further [apart] on the ladder. So it takes more to get to the top,” said Ray Bashara, director of the Center.
If you picture upward mobility as an escalator, he explained, the escalator is moving but it is more difficult for individuals to change where they stand on it.
One explanation for the increased difficulty in finding a better paying job is “the cascading effect,” said Emmons.
“We have more people going to college … and that is a good thing, but the opportunities aren’t growing as fast, even at the college-educated level. So an unusually large number of people with college degrees are in jobs that don’t require a college degree. And since they then push aside some of the people with high school degrees, they then in turn are pushing [aside] people in jobs that wouldn’t even require a high school education,” Emmons said. “It’s still the case that a college degree does raise your earnings relative to those without, but it’s really a matter of college grads are staying level and people with less than college education are being pushed down.”
The Impact of Geography and Race
According to the St. Louis Fed, demographics have a big impact on the likelihood an individual will move up the economic ladder.
“To accumulate a substantial amount of wealth, it is very unusual if you’re not white or Asian with a college degree,” said Emmons.
Upward mobility also varies by region, said Bashara. If you live in San Jose, you have a 13 percent chance of moving from poverty to the middle class, or from the middle class to the echelons of the wealthy. But if you live in St. Louis you only have a five percent chance of moving up the income scale.
Strategies to Build Economic Security
For methods to improve economic standing, Bashara pointed to the research of Harvard economist Raj Chetty and the PEW Research Center . A key point in both studies was the importance of family support, as well as access to good schools.
The St. Louis Fed is trying to get the word out that obtaining financial stability is about more than how much money you earn, however. It’s also about how much you owe and how much you own.
As for the role of the government, Bashara says the government is already in the business of the American dream.
“We (the U.S. government) spend basically $750 billion a year … to help largely better off people acquire more wealth, mostly through tax deductions for homes, for businesses, for retirement accounts. In the meanwhile, the supports lower income families receive are largely about staying in place,” said Bashara. “So you have a maintenance budget for lower income people and a mobility budget for better off people. And I think the challenge for policymakers is to extend that mobility budget down the economic ladder.”
Neil Howe's keynote address during the St. Louis Fed's Research Symposium “The Balance Sheets of Younger Americans: Is the American Dream at Risk?” will be streamed live on Thursday, May 8 at 1:00 p.m.