How much more will rich kids earn as adults?

Photo courtesy: MGN

It may came as no surprise that the children of wealthy parents have greater economic prospects than kids from more humble beginnings. But a new analysis by The Pew Charitable Trust and the Russell Sage Foundation shows that these advantages are even more skewed in favor of richer families than previous research suggested.

In a related finding, the report also found that children born into lower-income households are far more likely to stay poor when they reach adulthood. Taken together, these trends confirm earlier studies that have documented the diminishing economic and social mobility in the U.S. as the nation’s wealth and income gap continue to widen.

The upshot?

“Children who are born toward the bottom of the [income] distribution aren’t getting full access to the economy,” said David Grusky, director of Stanford University’s Center on Poverty and Inequality and one of the authors of the report, in a conference call to present the findings. “That means we’re wasting their talents and that our economy isn’t exploiting all of their talents. There’s a big economic cost.”

The report, “Economic Mobility in the United States,” is also important because of its rigor. Researchers used tax return and other data to gain a more comprehensive view of how wealth is transferred from one generation to the next, and conversely, how economic disadvantages are effectively handed down.

mobilitychart.gif
Pew Charitable Trusts, Russell Sage Foundation

The research found that roughly half of parental income advantages were passed on to children. “These estimate are at the high end of previous estimates and imply that the United states is very immobile,” the report states.

As a result, the projected income for children of families in the top 10 percent by income is about 200 percent higher than the projected adult income for children born into the lowest 10 percent (see above chart). Children from well-off households can be expected to earn about 75 percent more than kids from middle-class families, according to the report.

The research also shows that the growing tendency of wealth and its perquisites to pass down from one generation to the next may also be re-enforcing long-standing income disparity between men and women, with males who are born into high-income households benefiting far more later in life in terms of their adult earning power.

Such findings jibe with other research pointing to the growing difficulty Americans climbing the socioeconomic ladder. And they represent a direct hit on the long-held view of the U.S. as a classless society, especially with the country comparing poorly with other industrialized nations on standard measures of economic mobility.

A June poll by CBS News and The New York Times found that 61 percent of Americans think only people at the top can get ahead, while just a third believed that the playing field is level. Roughly two-thirds of people think the gap between the rich and poor in the U.S. is widening.

The issue of wealth and income disparity is expected to figure prominently in debate as the 2016 Presidential race heats up. Candidates from both parties have offered policy proposals they say are aimed at reviving the middle class, reducing inequality and more generally restoring the American dream.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s