Americans have come to tolerate extreme inequality, more so than the people living in any of the other rich countries around the globe. And the American dream may be to blame. These days the children of those at the top will most likely stay at the top and the children of those at the very bottom will likely remain at the bottom. In America there is very little of what economists call “inter-generational mobility.”
For instance, if you come from a wealthy family, your opportunities for education and health care and maintaining an upper-class status are very good. If you are born into a low-income family the idea that you can climb up based on sheer talent and grit is no longer a strong possibility. According to a study by Miles Corak, a professor of economics at the University of Ottawa, more than one-quarter of sons raised by fathers in the top 10 percent remain in the top 10 percent. Half of sons raised by fathers in the bottom 10 percent remain at the bottom.
The American dream sadly doesn’t hold the same promise as it did during the '50s and '60s. And to make the situation appear even gloomier for Americans, it appears Canadians and other wealthy countries do not have this unfortunate stickiness. In Canada, there is significantly more potential for movement, up and down the income ladder.
In fact, the very beliefs that support the American dream –- that anyone, regardless of family background, can rise if they have drive and energy –- are contributing to this inequality. The poor can be viewed as not sufficiently ambitious and ultimately undeserving of any social help. As Corak explained to SmartPlanet: “If you perceive success as just being a result of talents and energies then that sort of conditions the way you look at someone who is less successful.”
SmartPlanet reached Corak to find out why Americans find themselves in this state of affairs and how the American dream has become somewhat obsolete.
SmartPlanet: You’ve said that inequality is an incentive for achievement as well as a reward for achievement, meaning that we need inequality for anyone to be “at the top,” as it were.
Miles Corak: Right. If you work hard, you’d like to reap the gains from all that energy and effort. I think because Americans have this sense of themselves encapsulated in the “American dream,” this is why over the generations, inequality has been somewhat higher in this country than in others and why the public sector plays a relatively lower redistributive role in the country.
And you've found that having successful parents is critical to one’s upward mobility.
This is what I think is important in the whole body of research that I’m in conversation with: The stickiness between a child and his/her outcomes and his or her parents' income is on average much greater in the United States than in other countries.
Meaning there is very little intergenerational mobility.
A child’s starting point and outcomes In the U.S. are two times as sticky as in Canada, and three or four times as sticky than in some European countries.
What is causing this kind of dynamic?
It’s important to recognize that that’s a statement about the average, and averages hide what’s going on underneath.
So what's going on underneath?
There is in fact a good deal of mobility, both upward and downward, in the United States for families in the broad middle-income levels. The children [of middle-class parents] could as easily rise, and they could fall.
What makes the United States different is the relatively high degree of concentration of advantage at the top, and a relatively high concentration of disadvantage at the bottom. The extremes are more extreme. Privilege is more strongly built into the top and disadvantage is something much harder to escape.
Why is that?
There are basically three drivers moving this motor of mobility. And the gears are configured differently in different countries.
First and foremost is the family, the structure of the family, the support the families give to their children, the culture and values that they pass on.
But families interact with labor markets. So the structure of the labor market also matters. The labor markets also determine how much money and time families have to invest in their kids. The more polarized the labor market, the more polarized earnings are, the more, if you will, inequality in the labor market, at any point in time, the less mobility there will be across the generations.
And the third driver?
The third very important factor is the role of public policy. Does the welfare state and the broad configuration of institutions like health care and education, buffer the families from the turbulence in the labor market and support them when they need it?
If public policy is of relatively more advantage to the disadvantaged, you’ll see more upward mobility. But you can design public policy in the structures of transfers and taxes, to be of relatively more advantage to the already advantaged. That will then reinforce these inequalities as a result.
So how are all three of the drivers playing out in the U.S.?
In the United States, families are much more polarized. There is a lot more demographic diversity. Some have very good resources and great facility to ensure the prospects of their children, and others much, much less so than elsewhere.
Also labor markets are much more polarized in the United States. Access to good jobs and good wages is more uniformly available elsewhere.
Finally in the United States, public policy does spend a lot on children and families. But it mostly impacts middle-income and upper-income families.
You have said that Canadians have more fluid prospects despite Canada having some inequality. So given what you just said, can you give us details of what Canadians are doing? How can they can have similar inequality but at the same time allow for a “Canadian Dream” to play its part?
It’s interesting. If you asked Canadians what they understood the Canadian dream to mean they would answer that question almost exactly the way American understand the American dream. There isn’t a deep, fundamental difference of what the good life means in these countries.
Yet, when you look at the outcomes, there’s less stickiness between parent and child incomes in Canada than in the Unites Sates. It’s almost twice as sticky in the United States.
So why is that?
Again, part of the reasons have to do with family. Canadian children have a higher tendency to live with both their biological parents, and they are often raised by mothers who are somewhat older and more educated. The family environment is [overall] more secure.
And the depths of poverty when it happens in Canada is not as deep as it is in the United States. The labor markets are also less polarized than in the United States as a result.
Most importantly, access to investments in human capital like healthcare, good quality early-years education, good quality primary and secondary schooling, are all more accessible in Canada. These kinds of investments are really what determine the long-run prospects for kids.
Unemployment insurance is more significant and lasts longer. Access to parental leave and policies that give families more time with their kids are more generous in Canada.
Presumably the labor market issues are affecting most countries?
Right. Globalization, technical changes, those forces are affecting all of the rich countries. They’re hitting the United States a little bit more hard and probably sooner than elsewhere, but they’re not unique to the United States. What’s different is the response to those forces -- the capacity to give insurance and respond to those shocks.
How realistic is it for the U.S. to start looking like and behaving like Canada?
In part that’s what the public policy question is about now, certainly if you listen to the speeches coming out of the White House. But the United States doesn’t have to compare itself to a Canada or any other country, it could compare itself to itself decades ago.
The G.I. Bill is an example of a policy that offered accessible, high-quality education to individuals regardless of their station in life. There was a period in the '50s and '60s when the labor market was much more secure. In part, that reflected the manufacturing base that has been slowly chipped at. But it also reflected institutions like minimum wages, and unions that offered that kind of security. And those institutions are social choices.
How can we realistically solve the bigger problem?
There’s no one magic single bullet. But there are investments that have higher returns. I think there’s a good deal of research in the economics literature, and also psychology and the neurosciences on this. The economist who is at the forefront of this is James Heckman at the University of Chicago. His work suggests that an extra dollar of investment in the early years has a much higher return than more remedial investments later on.
I think the early years and being sure that children have a good start in life is probably the most necessary thing that we should do. It’s not the only thing and it’s not sufficient, but that’s where the biggest bang for the buck is.
For instance, this discussion about full-day kindergarten for the four and five-year-olds under the presumption that this is going to take place in a sort of high-quality environment, that is probably an important investment that will have the biggest impact.