Fed Official: America No Longer Top Country to Achieve American Dream

Research finds upward mobility higher in Canada and Denmark

William Dudley
William Dudley / AP
April 11, 2016

Federal Reserve official William Dudley said America is no longer the top country for achieving the American Dream in remarks on economic opportunity and income mobility at a conference in New York on Monday.

"While income mobility in the United States has been relatively unchanged, it remains well below several other nations," Dudley said. "The probability of moving from the bottom quintile to the top quintile is 7.5 percent in the United States, as compared to 11.7 percent in Denmark and 13.5 percent in Canada—two countries with relatively high levels of intergenerational mobility."

"So effectively the chance of achieving the American Dream is not the highest for children born in America," Dudley said.

Dudley, who is president of the Federal Reserve Bank of New York, made the comments at a conference hosted by the Association for Neighborhood and Housing Development, where he discussed what is going on at the grassroots level of the economy and shared data on the health of household balance sheets at the state and local levels.

"Broadly, the economy’s potential growth rate depends on effectively investing in and taking advantage of all of the resources in the economy—in particular, we need to achieve the full potential of the human capital of all Americans," Dudley said. "For the United States to reach its maximum economic potential, all Americans must have the opportunity to reach their potential."

According to Dudley, income mobility is an essential component of the American Dream. He also distinguished the difference between income mobility and income inequality.

"Income mobility is a dynamic concept—the degree to which individuals or families can move up or down in the income distribution over time," he said. "Income inequality is a static concept—how unequal are individual or family incomes at a particular point in time."

One way of measuring income mobility is to evaluate a child’s chances of moving up in the income distribution relative to their parents’ chances of moving up. Dudley said that this metric in America has been stable over the past half century. According to economist Raj Chetty, the ability to move up from the bottom quintile to the top quintile in America remains below several other nations, including Denmark and Canada.

Chetty’s research also evaluated upward mobility across different metro and rural areas within the United States. He found that income mobility was highest in the Mountain West and rural Midwest and lowest in the Southeast. The research also found that upward mobility is higher in areas that have stable family structures, higher quality schools, stronger social networks, higher community involvement, lower income inequality, and less residential segregation by race and income.

"While there are difference of opinions on the most relevant measures of school quality, there is ample evidence that children who attend better schools on average end up with better outcomes later in life—such as higher levels of educational attainment and higher earnings," Dudley said.

Dudley said one way to do this is to give parents more educational choices for their children, while another is to equalize school quality across the country.

"There exists research indicating that school vouchers that enable students to move to private schools or better-quality public schools can lead to improvements in public school quality and student performance by increasing competition among schools," Dudley said. "More research into evaluating the effectiveness of voucher programs and charter schools at raising student achievement would be desirable in terms of informing public policy choices."

Published under: Economy