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The Decline of Upward Mobility in One Chart

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3 years ago

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Decline Upward Mobility

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The Decline Of Upward Mobility In One Chart

For decades, a majority of Americans have been able to climb the economic ladder by earning higher incomes than their parents. These improving conditions are known as upward mobility, and form an important part of the American Dream.

However, each consecutive generation is finding it harder to make this ascent. In this graphic, we illustrate the decline in upward mobility over five decades using data from Opportunity Insights.

Understanding The Chart

This graphic plots the probability that a 30-year-old American has to outearn their parents (vertical axis) depending on their parent’s income percentile (horizontal axis). The 1st percentile represents America’s lowest earners, while the 99th percentile the richest.

As we move from left to right on the chart, the portion of people who outearn their parents takes a steep decline. This suggests that people born into upper class families are less likely to outearn their parents, regardless of generation.

The key takeaway, though, is that the starting point of this downward trend has shifted to the left. In other words, fewer people in the lower- and middle-classes are climbing the economic ladder.

Decade BornChance of Outearning Parents (Bottom Percentile)Chance of Outearning Parents (50th Percentile)Chance of Outearning Parents (Top Income Percentile) 
194095%93%41%
195090%81%15%
196086%62%7%
197090%59%16%
198079%45%8%

Declines can be seen across the board, but those growing up in the middle-class (50th percentile) have taken the largest hit. Within this bracket, individuals born in 1980 have only a 45% chance of outearning their parents at age 30, compared to 93% for those born in 1940.

Stagnating Wage Growth a Culprit

One factor behind America’s deteriorating upward mobility is the sluggish pace at which wages have grown. For example, the average hourly wage in 1964, when converted to 2018 dollars, is $20.27. Compare this to $22.65, the average hourly wage in 2018. That represents a mere 11.7% increase over a span of 54 years.

However, this may not be as bad as it sounds. While the prices of some goods and services have risen over time, others have actually become more affordable. Since January 1998, for example, the prices of electronic goods such as TVs and cellphones have actually decreased. In this way, individuals today are more prosperous than previous generations.

This benefit is likely outweighed by relative increases in other services, though. Whereas inflation since January 1998 totaled 58.8%, the costs of health and education services increased by more than 160% over the same time frame.

Income Distribution

While wages have been stagnant as a whole, it doesn’t paint the full picture. Another factor to consider is America’s changing income distribution.

Income Class1970 Share of U.S. Aggregate Income2018 Share of U.S. Aggregate Income
Upper 28%48%
Middle62%43%
Lower 10%9%

Source: Pew Research Center

Like the data on upward mobility, the middle class takes the largest hit here, with its share of U.S. aggregate income falling by 19 percentage points. Over the same time frame, the upper class was able to increase its share of total income by 20 percentage points.

Is It All Bad News?

Americans are less likely to earn more than their parents, but this doesn’t mean that upward mobility has completely disappeared—it’s just becoming less accessible. Below, we illustrate the changes in size for different income classes from 1967 to 2016.

The upper middle class has grown significantly, from 6% of the population in 1967 to 33% in 2016. At the same time, the middle class shrank from 47% to 36% and the lower middle class shrank from 31% to 16%.

The data suggests that some middle class Americans are still managing to pull themselves up into the next income bracket—it’s just not an effect that was as broad-based as it’s been in the past.

Does The American Dream Still Exist?

The American Dream is the belief that upward mobility is attainable for everyone through their own actions. This implies that growth will be continuous and widespread, two factors that have seemingly deteriorated in recent decades.

Researchers believe there are numerous complex reasons behind America’s stagnating wages. A decline in union membership, for example, could be eroding employees’ collective bargaining power. Other factors such as technological change may also apply downwards pressure on the wages of less educated workers.

Income inequality, on the other hand, is clearly shown by the data. We can also refer to the Gini-coefficient, a statistical measure of economic inequality. It ranges between 0 and 1, with 0 representing perfect equality and 1 representing perfect inequality (one person holds all the income). The U.S. currently has a Gini-coefficient of 0.434, the highest of any G7 country.

Long story short, the American Dream is still alive—it’s just becoming harder to come by.

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Economy

Mapped: The State of Economic Freedom in 2023

How free are people to control their own labor, property, and finances? This map reveals the state of economic freedom globally.

Published

2 days ago

on

June 6, 2023

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economic freedom

Mapped: The State of Economic Freedom in 2023

The concept of economic freedom serves as a vital framework for evaluating the extent to which individuals and businesses have the freedom to make economic decisions. In countries with low economic freedom, governments exert coercion and constraints on liberties, restricting choice for individuals and businesses, which can ultimately hinder prosperity.

The map above uses the annual Index of Economic Freedom from the Heritage Foundation to showcase the level of economic freedom in every country worldwide on a scale of 0-100, looking at factors like property rights, tax burdens, labor freedom, and so on.

The ranking categorizing scores of 80+ as free economies, 70-79.9 as mostly free, 60-69.9 as moderately free, 50-59.9 as mostly unfree, and 0-49.9 as repressed.

Measuring Economic Freedom

This ranking uses four broad categories with three key indicators each, both qualitative and quantitative, to measure economic freedom.

  1. Rule of law: property rights, judicial effectiveness, government integrity
  2. Size of government: tax burdens, fiscal health, government spending
  3. Regulatory efficiency: labor freedom, monetary freedom, business freedom
  4. Open markets: financial freedom, trade freedom, investment freedom

The 12 indicators are weighted equally and scored from 0-100. The overall score is then determined from the average of the 12 indicators.

Here’s a closer look at every country’s score:

RankCountry2023 Score
#1🇸🇬 Singapore83.9
#2🇨🇭 Switzerland83.8
#3🇮🇪 Ireland82.0
#4🇹🇼 Taiwan 80.7
#5🇳🇿 New Zealand78.9
#6🇪🇪 Estonia78.6
#7🇱🇺 Luxembourg78.4
#8🇳🇱 Netherlands78.0
#9🇩🇰 Denmark77.6
#10🇸🇪 Sweden77.5
#11🇫🇮 Finland77.1
#12🇳🇴 Norway76.9
#13🇦🇺 Australia74.8
#14🇩🇪 Germany73.7
#15🇰🇷 South Korea 73.7
#16🇨🇦 Canada73.7
#17🇱🇻 Latvia72.8
#18🇨🇾 Cyprus72.3
#19🇮🇸 Iceland72.2
#20🇱🇹 Lithuania72.2
#21🇨🇿 Czechia71.9
#22🇨🇱 Chile71.1
#23🇦🇹 Austria71.1
#24🇦🇪 United Arab Emirates70.9
#25🇺🇸 United States70.6
#26🇲🇺 Mauritius70.6
#27🇺🇾 Uruguay70.2
#28🇬🇧 United Kingdom69.9
#29🇧🇧 Barbados69.8
#30🇵🇹 Portugal69.5
#31🇯🇵 Japan69.3
#32🇧🇬 Bulgaria69.3
#33🇸🇰 Slovakia69.0
#34🇮🇱 Israel68.9
#35🇬🇪 Georgia68.7
#36🇶🇦 Qatar68.6
#37🇸🇮 Slovenia68.5
#38🇼🇸 Samoa68.3
#39🇯🇲 Jamaica68.1
#40🇵🇱 Poland67.7
#41🇲🇹 Malta67.5
#42🇲🇾 Malaysia67.3
#43🇧🇪 Belgium67.1
#44🇵🇪 Peru66.5
#45🇨🇷 Costa Rica66.5
#46🇭🇷 Croatia66.4
#47🇨🇻 Cabo Verde65.8
#48🇧🇳 Brunei Darussalam65.7
#49🇦🇱 Albania65.3
#50🇦🇲 Armenia65.1
#51🇪🇸 Spain65.0
#52🇧🇼 Botswana64.9
#53🇷🇴 Romania64.5
#54🇭🇺 Hungary64.1
#55🇵🇦 Panama63.8
#56🇲🇰 North Macedonia63.7
#57🇫🇷 France63.6
#58🇷🇸 Serbia63.5
#59🇻🇨 Saint Vincent and the Grenadines63.5
#60🇮🇩 Indonesia63.5
#61🇲🇽 Mexico63.2
#62🇨🇴 Colombia63.1
#63🇧🇦 Bosnia and Herzegovina62.9
#64🇬🇹 Guatemala62.7
#65🇩🇴 Dominican Republic62.6
#66🇧🇸 The Bahamas62.6
#67🇫🇲 Micronesia62.6
#68🇧🇭 Bahrain62.5
#69🇮🇹 Italy62.3
#70🇻🇺 Vanuatu62.1
#71🇰🇿 Kazakhstan62.1
#72🇻🇳 Vietnam61.8
#73🇲🇳 Mongolia61.7
#74🇸🇹 São Tomé and Príncipe61.5
#75🇦🇿 Azerbaijan61.4
#76🇵🇾 Paraguay61.0
#77🇲🇪 Montenegro60.9
#78🇽🇰 Kosovo60.7
#79🇱🇨 Saint Lucia60.7
#80🇹🇭 Thailand60.6
#81🇨🇮 Côte d'Ivoire60.4
#82🇹🇴 Tonga60.0
#83🇹🇿 Tanzania60.0
#84🇧🇯 Benin59.8
#85🇧🇿 Belize59.8
#86🇩🇲 Dominica59.7
#87🇸🇨 Seychelles59.5
#88🇹🇹 Trinidad and Tobago59.5
#89🇵🇭 Philippines59.3
#90🇧🇹 Bhutan59.0
#91🇲🇬 Madagascar58.9
#92🇰🇮 Kiribati58.8
#93🇯🇴 Jordan58.8
#94🇭🇳 Honduras58.7
#95🇴🇲 Oman58.5
#96🇲🇩 Moldova58.5
#97🇲🇦 Morocco58.4
#98🇸🇦 Saudi Arabia58.3
#99🇬🇭 Ghana58.0
#100🇫🇯 Fiji58.0
#101🇬🇲 The Gambia57.9
#102🇳🇦 Namibia57.7
#103🇸🇳 Senegal57.7
#104🇹🇷 Türkiye56.9
#105🇬🇾 Guyana56.9
#106🇬🇷 Greece56.9
#107🇸🇧 Solomon Islands56.9
#108🇰🇼 Kuwait56.7
#109🇺🇿 Uzbekistan56.5
#110🇰🇭 Cambodia56.5
#111🇧🇫 Burkina Faso56.2
#112🇬🇦 Gabon56.1
#113🇩🇯 Djibouti56.1
#114🇸🇻 El Salvador56.0
#115🇰🇬 Kyrgyzstan55.8
#116🇿🇦 South Africa55.7
#117🇲🇷 Mauritania55.3
#118🇹🇬 Togo55.3
#119🇪🇨 Ecuador55.0
#120🇸🇿 Eswatini54.9
#121🇳🇮 Nicaragua54.9
#122🇲🇱 Mali54.5
#123🇧🇩 Bangladesh54.4
#124🇳🇬 Nigeria53.9
#125🇷🇺 Russia53.8
#126🇳🇪 Niger53.7
#127🇧🇷 Brazil53.5
#128🇰🇲 Comoros53.5
#129🇬🇳 Guinea53.2
#130🇦🇴 Angola53.0
#131🇮🇳 India52.9
#132🇹🇳 Tunisia52.9
#133🇲🇼 Malawi52.8
#134🇲🇿 Mozambique52.5
#135🇰🇪 Kenya52.5
#136🇱🇰 Sri Lanka52.2
#137🇷🇼 Rwanda52.2
#138🇹🇩 Chad52.0
#139🇨🇲 Cameroon51.9
#140🇵🇬 Papua New Guinea51.7
#141🇱🇸 Lesotho51.6
#142🇳🇵 Nepal51.4
#143🇺🇬 Uganda51.4
#144🇦🇷 Argentina51.0
#145🇧🇾 Belarus51.0
#146🇹🇯 Tajikistan50.6
#147🇱🇦 Laos50.3
#148🇸🇱 Sierra Leone50.2
#149🇭🇹 Haiti49.9
#150🇱🇷 Liberia49.6
#151🇪🇬 Egypt49.6
#152🇵🇰 Pakistan49.4
#153🇬🇶 Equatorial Guinea48.3
#154🇨🇳 China48.3
#155🇪🇹 Ethiopia48.3
#156🇨🇬 Congo48.1
#157🇨🇩 Democratic Republic of the Congo47.9
#158🇿🇲 Zambia47.8
#159🇹🇱 Timor-Leste47.2
#160🇲🇻 Maldives46.6
#161🇹🇲 Turkmenistan46.5
#162🇲🇲 Myanmar46.5
#163🇸🇷 Suriname46.1
#164🇱🇧 Lebanon45.6
#165🇬🇼 Guinea-Bissau44.6
#166🇨🇫 Central African Republic43.8
#167🇧🇴 Bolivia43.4
#168🇩🇿 Algeria43.2
#169🇮🇷 Iran42.2
#170🇧🇮 Burundi41.9
#171🇪🇷 Eritrea39.5
#172🇿🇼 Zimbabwe39.0
#173🇸🇩 Sudan32.8
#174🇻🇪 Venezuela25.8
#175🇨🇺 Cuba24.3
#176🇰🇵 North Korea2.9
-🇮🇶 IraqN/A
-🇱🇾 LibyaN/A
-🇱🇮 LiechtensteinN/A
-AfghanistanN/A

Only four countries in the world have a score of 80 or above, Ireland, Singapore, Switzerland, and Taiwan, categorizing them as completely free economically.

Let’s now look at things from a more regional perspective.

Europe

map of economic freedom in europe in 2023

From a regional perspective, Europe ranks the strongest in economic freedom.

Despite being a powerhouse within Europe, Germany ranks 10th in the continent, with a score of 73.7. One of the categories Germany scored the weakest in was government spending (28.3/100). Over the last three years, government spending has averaged 49% of GDP.

Ireland ranks third globally, scoring particularly high in categories like property rights and judicial effectiveness. The country also has no minimum capital requirement—which is typically a banking regulation and corporate law issue determining how many assets an organization must hold—making it attractive for businesses to set up shop on the Emerald Isle.

Africa

map of economic freedom in Africa in 2023

Currently, Africa is the continent with the least economic freedom in the world, however, it is also the region with the highest potential for economic growth. A booming population, and thus, labor force, are promising for future innovation. In fact, it’s anticipated that Africa will see an increase of 2.5 billion people by the end of the century.

The lowest scoring country in Africa is Sudan, a country under further strain thanks to rife civil conflict. Historically, economic development has been constrained by rampant corruption and a lack of institutional capacity.

Conversely, Botswana registered the highest score on continental Africa (64.9), ranking higher than countries like France and Italy.

The Americas

map of economic freedom in the americas in 2023

In the Americas, the United States ranks 3rd regionally—25th overall—with a score of 70.6. The report attributes the categorization of U.S. as only “mostly free” to issues like inflation, increasing government debt, and unchecked deficit spending. Public debt currently sits at a figure equivalent to more than 128% of GDP.

In South America, Chile comes out on top, ranking above many other economic powerhouses like the U.S., the UK, and Japan. However, the 2021 election of a new Constitutional Assembly could risk the current economic state, as it favors a much more socialist approach to the economy.

East Asia and Oceania

map of economic freedom in asia and oceania in 2023

China’s score is among the lowest in East Asia & Oceania, ranking 154th in the world categorizing it as a repressed economy. The ruling Chinese Communist Party routinely exercises direct control over economic activity. China’s protectionist stance towards foreign investment and a plethora of trade tariffs imposed by other nations also factor in here.

In India, where public debt is equivalent to about 84% of GDP, fiscal health is the worst-scoring category. Additionally, much of the economy remains quite informal; a large share of people work in jobs without tax slips, recorded income, or formal contracts protecting them, which challenges labor freedoms.

The Middle East and Central Asia

map of economic freedom in the middle east and central asia in 2023

It may come as no surprise that the United Arab Emirates has the highest score in the Middle East. The UAE has implemented various measures and initiatives, such as tax exemptions, duty-free zones, streamlined business registration processes, and flexible regulatory frameworks to encourage entrepreneurship and foreign direct investment. As well, the top individual and corporate tax rates in the country are 0%.

Türkiye’s lowest scoring category relates to judiciary effectiveness and the rule of law. President Recep Tayyip Erdoğan, who has already been in power for two decades, recently won the country’s election, again cementing his authority over Turkish politics. This makes it unlikely that Türkiye’s economic freedom score will recover in the short to medium term.

Where Does This Data Come From?

Source: The Index of Economic Freedom from the Heritage Foundation

Data notes: A number of countries were not ranked due to unavailable data or other factors, like ongoing war, that made it difficult to properly assess the economy. These countries include: Ukraine, Afghanistan, Iraq, Libya, Liechtenstein, Somalia, Syria, and Yemen.

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