The Economics of Income Mobility
I believe in the American dream, but the data show that some people have an advantage in realizing it.
By Roland Fryer
Robert NeubeckerI was among a small group of economists invited to the White House in 2014 to discuss economic inequality with President Obama.
As he entered the room, he greeted each of us. When he reached me, we shook hands—and, in a quiet recognition of shared culture, that handshake turned into a hug.
“Only in America,” I said, “can a guy who grew up like me meet the president.”
“Only in America,” he replied, “can someone like me become president and meet folks like you.”
That connection soon gave way to a spirited but good-natured disagreement on economic policy.
Economic mobility makes America special.
I was raised by an alcoholic father, at times on government assistance.
Life with him was chaotic and often violent.
I didn’t meet my mother until my 20s, when my father was in prison.
I’ve long believed that what sets America apart is the possibility of growing up in hardship and raising your children in comfort, all within a single generation.
For years, I assumed that my story reflected something fundamental about America itself.
Many of the people I grew up with don’t share that belief—and to a large extent, they’re right.
Although economic mobility is a core American ideal, the U.S. now ranks below the Nordic countries, Canada and much of Europe in overall mobility, including the classic rags-to-riches story of starting in the bottom and working your way to the top.
Across rich nations, only about 8% of children born in the bottom fifth of parental income reach the top fifth as adults.
The chances are 11% in Denmark and 16% in Sweden.
Arithmetic explains part of this: When the rungs on the ladder are closer together, it’s easier to climb.
But the deeper story is institutional: By narrowing inequality and widening access to opportunity,
Nordic countries have made the climb less treacherous.
I still believe in the American dream, but the data have forced me to see it for what it is: not a guarantee, not even a birthright, but a challenge we must constantly work to renew.
That realization set me on a quest to understand what drives economic mobility—and left me haunted by the guilt of having left behind people who, 30 years ago, seemed more talented and came from homes with more stability than mine.
Economists have wrestled with these questions for decades.
Our modern understanding of mobility began with the pathbreaking work of Gary Becker and Nigel Tomes in 1979.
They developed an economic model to explain which families seek to maximize well-being across generations.
In their framework, a child’s outcomes reflect inherited ability, parental investment in helping the child develop human capital, and a dose of luck.
The Becker-Tomes research showed that mobility declines when family resources and inherited advantages exert a large influence—particularly when credit constraints limit poorer parents’ ability to borrow money to invest in their children’s education and skills.
By contrast, higher-income families are able to transmit privilege through these mechanisms.
Yet the researchers also demonstrated that such advantages erode over time.
When I first encountered this research in graduate school at the University of Chicago, I was struck by the power of economics to explain the world around us.
At the same time, I found it hard to reconcile the idea that parents rationally invest in their children’s futures with my own upbringing.
Mr. Becker once told me that given enough time, even America’s racial gaps would fade under the pressure of market forces.
But he was too optimistic, as Glenn Loury’s dissertation at the Massachusetts Institute of Technology showed: When a family’s ability to invest in its children depends on inherited wealth and social capital, inequality can reproduce itself rather than fade away.
Mr. Loury’s thesis has come into sharper focus since the Obama years, thanks to Harvard economist Raj Chetty and his co-researchers, who have analyzed decades of U.S. tax and census data for several important studies of mobility.
In theory, even if black and white Americans have different average incomes today, those gaps could narrow over time if both groups experienced the same mobility rates.
If poorer children of all races tended to move up, and richer children tended to drift down, the process would gradually compress racial income differences.
But Mr. Chetty’s research shows that mobility differs by race.
Black children tend to grow up in lower-income households than white children and tend to have lower incomes as adults even when they start life with similar economic backgrounds.
Two children who begin life with the same family income—one black, one white—often end up far apart by adulthood, with the black child significantly behind.
The question, then, is how to improve mobility for those who lack it.
Mr. Chetty’s work highlights the power of neighborhoods, social capital, civic engagement and family stability to shape opportunity.
He has shown that some places in the U.S. give low-income children a much better shot at the American dream than others.
Mr. Chetty and his co-authors point to a familiar mix of factors that make some places worse for social mobility—concentrated poverty, poor school quality, single-parent families, crime and racial bias.
Yet there’s no single satisfying explanation for what makes some places good for mobility and others bad.
In a 2021 working paper, I researched the same topic with two graduate students, Tanaya Devi and Oren Danieli.
Our work complemented Mr. Chetty’s. His was wide: data on an astonishing number of Americans, but with limited information about each person.
Ours was deep: data on a much smaller group of Americans, but with detailed information about each person.
From Memphis, Tenn., Tulsa, Okla., and New Orleans—cities with higher-than-average poverty rates—we recruited 1,000 adults who self-identified as having grown up poor.
By the time we met them in their 40s, some had exited poverty, but most hadn’t.
Each took part in a three-hour interview about childhood health, parental income, home environment, lifetime traumas, neighborhood safety, psychological skills, beliefs and current income.
The goal was to understand which childhood experiences were most correlated with mobility.
We found that human capital was the strongest predictor of mobility.
The second most important predictor was noncognitive skills—traits like resilience, self-esteem and conscientiousness.
Other factors also mattered: the number of trusted adults in one’s childhood, early encounters with police, mental health and adverse experiences.
Despite the challenges I faced growing up, I’m grateful for the teachers, mentors and moments that produced whatever human capital I have—and for a grandmother who embodied grit and resilience.
Neither Mr. Chetty’s research nor ours offers a complete blueprint for increasing mobility in America, but both point to levers we should test through policy or innovation.
By reforming education, having adults children can count on and helping them build strong character traits, we can begin to restore the American dream I’ve always believed in—one in which birth is a fact, not a fate.
Mr. Fryer, a Journal contributor, is a professor of economics at Harvard, a founder of Equal Opportunity Ventures and a senior fellow at the Manhattan Institute.
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