2:22pm

Tue May 29, 2012
American Dreams: Then And Now

On The Economic Ladder, Rungs Move Further Apart

Originally published on Tue May 29, 2012 6:45 pm

America is the land of opportunity — that's the bedrock of the American dream. Many expect each generation to do better than the last.

That dream of economic mobility is alive and well for Pam Krank and her husband, Brian McGee. The two are proud owners of The Credit Department Inc., a successful business in the Minneapolis suburb of Mendota Heights.

"Mostly manufacturing companies around the world will hire us to study their customers and tell them how much ... unsecured credit they should grant to each customer," Krank explains.

"We have financial analysts ... who study financial statements and tell our clients how much credit to grant, and the risk of their customers going bankrupt," she says.

The tour Krank offers of the office is short; she and McGee recently moved much of their workflow to the cloud, reducing the need for traditional computer hardware and workspaces. While the company employs about 20 people, few are in the office on a typical day.

After shifting to the cloud, "we sent most of [our] people to work from their homes," Krank says.

The business has about $2 million in annual revenues, providing the couple with an income exceeding $200,000 a year. They're not in the top 1 percent of all earners, but they are doing quite well, according to an online calculator they used.

"I did that little Wall Street Journal thing online, and we're about 95th percentile," Krank says.

Doing Better Than Their Parents

That's much higher on the American income ladder than either of their parents. Pam, who is white, grew up a few miles away in a middle-class suburb. Her father was a maintenance man at the Armour Meat Packing plant in the old St. Paul stockyards.

Brian, who's African-American, grew up in an inner-city neighborhood on the South Side of Chicago.

"There is no comparison whatsoever. I mean, my parents were so dirt poor. They came from an even worse inner-city environment in Chicago, where my mother was raised by her great-grandmother who couldn't take care of her," McGee says.

His mother had to fend for herself, he says. "It was just totally up to her to do anything. They didn't even care if she went to school or not. And I think it really was my mother's dream ... for her kids to do better than she did with education."

Both Krank and McGee have college degrees. He has an M.B.A.

In one sense, they aren't unusual. Two-thirds of Americans earn more than their parents did, even after adjusting for inflation, according to data from the Pew Charitable Trusts. But most exceed their parents' income by only a little bit, and their progress is largely due to economic growth in general.

Less common in American is climbing to a higher rung on the income ladder than one's parents; that is, moving from the bottom to the middle class, or the upper middle class, as Krank and McGee have.

Stuck On The Bottom Rungs

While many believe it's easier to move up the economic ladder in America than anywhere else in the world, the United States simply does not do very well on that score.

"This notion that we have about ourselves, as America being somehow exceptional in terms of our opportunity, is not accurate," says Erin Currier, director of the Economic Mobility Project at the Pew Charitable Trusts. "The data show that the United States actually has less relative mobility than Western European nations and Canada."

This lack of mobility is especially true for people at the bottom of the income ladder. If you're born to low-income parents in the United States, you are significantly more likely to remain on the bottom rungs than in countries like Norway and Germany. In fact, 40 percent of Americans born in the bottom fifth don't get to the next rung.

Similarly, if one's parents are well-off, Americans are more likely to remain in the top income rungs than in those European nations.

"I think [the dream is] alive and well, generally, for people who start in the middle class and the upper-income levels. I think there is still enormous opportunity," says Stuart Butler, director of the Heritage Foundation's Center for Policy Innovation. "I think it has eroded significantly for people at the lower end of the income level. We need to absolutely deal with that."

Isabel Sawhill, director of the Center on Children and Families at the Brookings Institution, agrees that there is a crisis at the lower levels of income. But she also sees growing income inequality posing a broader threat to the American dream.

In the 28 years from 1979 to 2007, the top 1 percent of Americans saw their incomes rise 275 percent — seven times more than middle-class incomes rose, and 15 times more growth than the bottom one-fifth of Americans experienced.

And the past decade has been even more disappointing, Sawhill says.

"Even before the recent recession, incomes were not growing, on average," Sawhill says. "Then, if you add in the last few years since the recession and very weak recovery began, most people's incomes have actually declined after adjusting for inflation."

'The Dream Ended'

The Great Recession has made millions of Americans downwardly mobile — like Kevin Hill, a landscape designer from San Diego.

Hill, who is African-American, grew up in a middle-class family in Texas, Arkansas and Detroit. Both his parents worked, and both were college graduates.

Hill, 44, decided not to get a college degree. Instead, after working for a while at a big Boston bank, he quit and ultimately moved to California. There, he developed a thriving landscape business during the housing boom. In his best year, he made $125,000.

But then, things fell apart.

"The dream ended in 2007," Hill says. "I mean it did — it really did."

That year, the housing bubble burst and Hill's clients evaporated. He lost his own home, too, a bedrock of his American dream.

"Part of the American dream is homeownership," Hill says. "If have a home, you have the equity, you can start a business. You can do lots of things. You can better your life."

Hill estimates he made just $25,000 in 2011.

Hill's experience illustrates another troubling statistic. Nearly 40 percent of African-American men whose parents make it into the middle class slide back down the income ladder in the next generation. One factor is that those families have fewer financial assets.

Hill's family couldn't help him hang on to his home, for instance.

"I'm still lost. I'm still just kind of — I don't have control of my life. Because the opportunities aren't there," Hill says. "How do you dream, when there's no opportunity for you to dream?"

Hill is not alone in feeling disillusioned. A 2011 Gallup poll found that only 44 percent of Americans believe that the next generation will have a better life than their parents. Of course, those views are colored by the financial crisis and Great Recession. Opportunity should increase as the economy mends over the next few years.

But the Brookings Institution's Sawhill says she's worried that with inequality continuing to grow, moving up will be more difficult.

"If the rungs on the ladder are getting further apart — which they are, with growing income inequality — then it may become a lot harder to climb that ladder," Sawhill says.

That's because the foundations of the dream — decent incomes, a good education and stable family structure — will be harder to come by for those on the middle and bottom rungs of the ladder, Sawhill says. That, she fears, could reduce mobility further and set the stage for a more rigid class structure in America.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MELISSA BLOCK, HOST:

I'm Melissa Block. And we begin this hour with the American dream. We're launching a new series today to explore the basic premise of that dream, that America is the land of opportunity. We're raised to believe that each generation can and will do better than the last, and that it's easier to move up the economic ladder here than anywhere else in the world. But is that really true?

Here's NPR economics correspondent John Ydstie with a few answers.

JOHN YDSTIE, BYLINE: There's no doubt the American dream of economic mobility is alive and well for Pam Krank and her husband, Brian McGee. They're proud owners of a successful business. Pam is giving us a tour of their new office in Mendota Heights, a suburb of Minneapolis.

PAM KRANK: It'll be a very quick tour, because last year, at the end of the year when we went to moving all our technology to the cloud, we sent most of the people to work from their homes.

YDSTIE: As Pam Krank puts is, their business, The Credit Department, Inc., works with companies that want to get paid by their customers on time, every time, in full.

KRANK: So, mostly, manufacturing companies around the world will hire us to study their customers.

YDSTIE: The company employs about 20 people, but only two are working in the office today.

KRANK: We have financial analysts - like our Jason, who is right here - who study financial statements and tell our clients how much credit to grant.

YDSTIE: The business has about $2 million in revenues annually and provides Pam Krank and her husband with an income exceeding $200,000 a year. They're not one percenters, but they're doing quite well, thank you.

KRANK: I did that little Wall Street Journal thing online, and we're about 95th percentile.

YDSTIE: And that's much higher on the income ladder than either of their parents. Pam, who's white, grew up a few miles from here in a middle class suburb. Her father was a maintenance man at the Armour meat packing plant in the old stockyards in St. Paul. Brian, who's African-American, grew up in an inner-city neighborhood on the South Side of Chicago.

BRIAN MCGEE: I mean, there is no comparison whatsoever. I mean, my parents were so dirt poor. They came from a even worse inner-city environment in Chicago, where my mother was raised by her great-grandmother who couldn't take care of her, and it was just totally up to her to do anything. So they didn't even care if she went to school or not. And I think it really was my mother's dream for her kids to do better than she did with education.

YDSTIE: And no surprise, education is the key to moving up the income ladder in America. Both Pam and Brian have college degrees. Brian has an MBA. In one sense, Pam and Brian aren't unusual. Two-thirds of Americans earn more than their parents did, even after adjusting for inflation, according to data from the Pew Charitable Trusts. But most exceed their parents' income by only a little bit, and their progress is largely due to economic growth in general.

What's less common is climbing to a higher rung on the income ladder the way Pam and Brian have, moving up from the bottom to the middle class, or the upper-middle class. This might surprise you, but America doesn't do so very well on that score.

ERIN CURRIER: This notion that we have about ourselves, as America being somehow exceptional in terms of our opportunity, is not accurate.

YDSTIE: That's Erin Currier, director of the Economic Mobility Project at the Pew Charitable Trusts.

CURRIER: The data show that the United States actually has less relative mobility than Western European nations and Canada.

YDSTIE: This is especially true for people at the bottom of the income ladder. If you're born to low-income parents in America, you are significantly more likely to remain on the bottom rungs than in countries like Norway or Germany. In fact, 40 percent of Americans born in the bottom fifth don't get to the next rung. And if their parents are well-off, Americans are more likely to remain on the top rungs than in those European nations.

Stuart Butler of the Heritage Foundation describes the state of the American dream of economic opportunity this way.

STUART BUTLER: I think it's alive and well, generally, for people who start in the middle class and the upper-income levels. I think there's still enormous opportunity. I think it has eroded significantly for people at the lower end of the income level. We need to absolutely deal with that.

YDSTIE: Isabel Sawhill, a scholar at the Brookings Institution, agrees that there's a crisis at the lower levels. But she also sees a broader threat to the American Dream from growing income inequality, and she points to these troubling statistics: In the 28 years from 1979 to 2007, the top one percent of Americans saw their incomes rise 275 percent. That's seven times more than middle class incomes rose, and 15 times more income growth than the bottom fifth of Americans experienced. And the last decade has been even more disappointing, says Sawhill.

ISABEL SAWHILL: Even before the recent recession, incomes were not growing, on average. And then if you add in the last few years since the recession and very weak recovery began, most people's incomes have actually declined after adjusting for inflation.

YDSTIE: The Great Recession has made millions of Americans downwardly mobile, and one of them is Kevin Hill, a landscape designer from San Diego.

KEVIN HILL: Well, we're in a front yard, and the front yard, it has a gingko - male gingko tree is the centerpiece of the yard.

YDSTIE: Hill, who's 44 years old, takes great pride in this garden he designed.

HILL: Right now, the rosemary's blooming. The African daisies are blooming. The Salvia's are blooming.

YDSTIE: Hill, who is African-American, grew up in a middle-class family in Texas, Arkansas and Detroit. Both parents worked. Both were college graduates. Hill decided not to get a college degree. Instead, after working a while for a big Boston bank, he quit and ultimately moved to California. There, he developed a thriving landscape business during the housing boom. In his best year, he made $125,000. But then, things fell apart.

HILL: The dream ended 2007. I mean, it did. It really did.

YDSTIE: That's when the housing bubble burst and Hill's clients evaporated. He lost his own home, too, a bedrock of his dream.

HILL: Part of the American dream is homeownership. And if have a home, you have the equity, you can start a business. You can do lots of things. You can better your life.

YDSTIE: Hill estimates that last year, he made just $25,000. And here's another troubling statistic. Nearly 40 percent of African-American men whose parents make it into the middle class slide back down the income ladder in the next generation, partly because those families have fewer financial assets. Hill's family couldn't help him hang onto his home, for instance.

HILL: I'm still lost. I'm still just kind of - I don't have control of my life, because the opportunities aren't there, you know. How do you dream when there's no opportunity for you to dream?

YDSTIE: Kevin Hill is not alone. A 2011 Gallup poll found that only 44 percent of Americans believe that the next generation will have a better life than their parents. Of course, these views are colored by the financial crisis and Great Recession. Opportunity should increase as the economy mends over the next few years.

But Isabel Sawhill says she's worried that with inequality continuing to grow, moving up will be more difficult.

SAWHILL: If the rungs on the ladder are getting further apart - which they are, with growing income inequality - then it may become a lot harder to climb that ladder.

YDSTIE: That's because the foundations of the dream - decent incomes, a good education and stable family structure - will be harder to come by for those on the middle and bottom rungs of the ladder. Sawhill says that could reduce mobility further and set the stage for a more rigid class structure in America. John Ydstie, NPR News, Washington.

BLOCK: We want to know what the American dream means to you, so surprise us with words and with pictures. Just go to npr.org/dreams. Transcript provided by NPR, Copyright NPR.

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