The United States has been overtaken by Australia as a land of opportunity where it doesn’t matter who your parents are, says a new report.
Economic mobility from one generation to the next is higher Down Under than it is in the USA, says a detailed analysis of intergenerational incomes by a team of Australian math, finance, and economics professors.
“We find Australia is more mobile than the USA, regardless of which approach is used,” they write in the latest issue of Australia’s Economic Record, a journal published by the Economic Society of Australia. The study, Direct Measures of Intergenerational Income Mobility for Australia, was conducted by math professor Chelsea Murray and economics professor Silvia Mendolia of the University of Wollongong, finance professor Robert Graham Clark of the Australian National University in Canberra, and economics professor Peter Siminski of the University of Technology in Sydney.
The report will make disturbing or alarming reading for Americans who see the U.S. as a land of pioneers and entrepreneurs, where anyone can “pull themselves up by their own bootstraps” to achieve the American Dream. (To some the American Dream means making something out of nothing, to others, it’s about home ownership, and to some, it’s simply achieving financial security.)
Instead, the U.S. is, shockingly, somewhere between 28% and 53% less economically mobile than Australia, depending on the measures used. It’s one thing to suspect that opportunity is not what it should be: It’s another to be given proof that another country is apparently doing it better.
Researchers compared the economic situation of children with those of their parents, based on two big nationwide household surveys: Australia’s Household, Income and Labour Dynamics or HILDA survey, which has been conducted by the University of Melbourne, Australia since 2001, and the University of Michigan’s Panel Survey of Income Dynamics, which has been running since 1968.
To put a number on “economic mobility,” they compared the relative incomes of parents and their children using a number of different measures, including gross income, disposable income, and income relative to the rest of the population — in other words, how likely you are to end up in, say, the 20th percentile by income if your parents were in the 20th percentile for their generation. The measures all ranged from 0 to 1. A reading of zero would mean a country where there is absolutely no correlation between parents’ economic outcomes and their children’s: The children of the poor are just as likely to end up wealthy as the children of the rich. A country with a reading of one is essentially feudal: You end up in exactly in the same situation as your parents — no exceptions.
Bottom line? On the broadest measures, the U.S. came out somewhere between 0.31 and 0.38, which means, roughly, that we are about two-thirds of the way from feudalism to perfect opportunity. Australia, by contrast, is somewhere between 0.22 and 0.28. The researchers suggest two factors may be holding back U.S. mobility: Growing economic inequality, and the rising importance of college degrees. Inequality means you have to travel further to move meaningfully up the scale. Meanwhile degrees are now so central to professional careers that those who don’t go to college are locked out of many, maybe most, means of advancement.
This isn’t the first study to argue that America’s status as the pre-eminent “land of opportunity” may be overstated. Many political analysts argue that frustration around a lack of opportunity played a part in Donald Trump’s surprise election victory.
All economic and social studies such as this come with a caveat. They are subject to measurement errors and assumptions, and involve a certain degree of guesswork.
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Brett Arends is a MarketWatch columnist. Follow him on Twitter @BrettArends.
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