Half of millennials make less than their parents did at their age

Future of Finance
Future of Finance

The American dream hinges on the idea that future generations will do better than the ones that preceded them. But a new study (pdf) from a team of economists and sociologists at Harvard, Stanford, and the University of California is bad news for a whole generation: Only half of American 30-year-olds today earn more money than their parents did at the same age. That’s a steep drop from the early-1970s, when 30-year-olds were virtually guaranteed to outpace their parents’ generation in earning power.

According to research from the Equality of Opportunity Project, led by Stanford economist Raj Chetty, 91.5% of 30-year-olds in 1970 earned more than their parents did at the same age, adjusted for inflation. By 2014, just 50.3% of 30-year-olds in the US were in a similar position.

Though the research is not yet peer-reviewed, Chetty and his team analyzed tax records and census data stretching over decades. The results paint a grim picture of declining prospects that steadied briefly around the mid-1990s, only to begin another plunge in 2002.

Chetty examined data across all 50 states. He wrote in a post about the findings that, while absolute mobility fell all over the country, “the largest declines concentrated in states in the eastern Midwest, such as Michigan and Illinois.”

The researchers attribute the trend in part to a slowdown in GDP growth, but more specifically point to a significant uptick in income inequality. Because increases in wealth are more frequently concentrated among the rich, the middle class is not benefiting from economic growth.

“Wages have stagnated in the middle class,” Chetty told the Wall Street Journal. “When you’re in that situation, it becomes very hard for children to do better than their parents.”

Some critics point out, however, that 30-year-olds in the 1970s faced significantly better circumstances than their parents because they weren’t embroiled in a massive war, which may have had an impact on the data.

Regardless, Chetty’s findings are in line with another paper (pdf) released Dec. 2 from economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. Their analysis indicates that, despite overall economic growth in the US, about half of all Americans have “been completely shut off from economic growth since the 1970s.”

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