The Horatio Alger myth—that hard work and pluck will lift a person from dire circumstances to enviable success—is more than 150 years old, but it has staying power: Forty percent of Americans think it’s fairly common for someone to start off poor, work hard and eventually rise to the top of the economic heap.
In reality, however, only 4% of Americans travel the rags-to-riches path, according to new research from the Economic Mobility Project of the Pew Charitable Trusts. And a great many who are born into the poorest segments of the population are stuck there for life, a finding that suggests the U.S. has much to do to improve social mobility.
Forty-three percent of Americans raised in the bottom quintile of household income remain there a generation later (with income of less than $28,900 in 2009 dollars, adjusted for family size). Twenty-seven percent rise up slightly into the second quintile, 17% land in the middle of the distribution, and 9% end up in the 4th quintile.
Despite the debate over the value of a college education, a college degree remains the single biggest predictor that a person will move up the ladder. Eighty-six percent of those who jumped out of the bottom quintile had graduated from college, versus 55% of non-grads. However, only 7% of people raised at the bottom of the scale receive a college degree.
Pew used about 40 years of data from the Panel Study of Income Dynamics, a project of the University of Michigan, which has followed families from 1968 to the present. The findings echo those of a 2012 study from the Federal Reserve Bank of San Francisco, which used the same dataset and found that 44% of Americans in the bottom quintile remain there a generation later.
Unlike Pew, the Fed researchers looked at mobility for all Americans. They discovered considerable “stickiness” at both ends of the income spectrum. In other words, poor or wealthy children are most likely to stay in their respective wealth brackets as adults. There’s a great deal more fluidity in the middle, with people more likely to move both up or down the scale.
So, should we celebrate or bemoan the Pew and Fed results? It’s tricky, said Mary Daly, an economist at the San Francisco Fed.
In a birthright economy – think India’s old caste system – 100% of individuals would remain in the economic category they’re born into. In an ‘equal chance’ economy, socioeconomic status would change in a random but predictable way, with 20% of people staying where they are and 20% moving into each of the other categories (imagine a lottery machine where 100 balls pop around a tank and 20 are randomly funneled into each of five different baskets).
By contrast, the U.S. is nominally a meritocracy where talent and hard work are ostensibly rewarded. “What would a true meritocracy deliver in terms of percentages?” Daly asked. “It’s hard to know what the right benchmarks are.”
But Americans attached to the rags-to-riches myth might be disappointed to know that other countries show greater mobility among have-nots.
In Sweden, Finland, Norway, Denmark and the United Kingdom, between 25% and 30% of people stay in the bottom quintile, according to Daly, compared to the 44% in the U.S.
“This is what we call the ‘parental penalty,’ and it’s really high in the U.S.,” she said. “If you’re born in the bottom here, your likelihood of sticking in the bottom is much higher.”
Several other factors help determine whether people rise to a higher income bracket, the Pew study found.
Marriage or partnership, it turns out, is good for mobility: 84% of poor people with a spouse or other household member in the workforce rose out of the bottom quintile (versus 49% of single-earner families).
Forty-five percent of poor African-Americans experienced upward mobility, compared with 68% of poor whites. And poor people who were continuously employed had a 64% chance of moving into a different quintile, versus 34% of those who had at some point been unemployed.
The findings also underscore the importance of savings, home equity and other sources of wealth, said Diana Elliott, a Pew researcher. Americans who moved up from the bottom had at least nine times more wealth than those who were stuck — $8,892 for people with no upward mobility versus $78,005 for people who moved one rung up and $94,586 for those who made it at least to the middle.