America and its opportunities attract workers and prospective immigrants from around the world. Yet a recent study suggests that their collective dream -- moving up the economic ladder -- has lost some of its luster.
The Economic Mobility Project, a collaboration between the Pew Charitable Trusts and experts from four well-known policy think-tanks, studied whether the American Dream of economic prosperity and ongoing improvement is alive and well. The results were less positive than many would have believed.
This isn't your daddy's salary
The study's most alarming finding was that men currently in their 30s make less, on average, than their fathers did when they were in their 30s. Comparing income levels among men in their 30s in 1974 and 2004, the study found that median incomes dropped about 12%, from $40,000 to $35,000 in current-dollar terms.
This stands in stark contrast to earlier results, in which successive generations did better than their ancestors. The study points out that while productivity gains were linked closely to income gains before 1975, the past 30 years have seen continuing sharp gains in productivity without resulting rises in income. This suggests that those gains are accruing to business owners, rather than being distributed among rank-and-file employees.
Belief vs. reality
Americans still have confidence in the country's status as a land of opportunity. Strong majorities believe that Americans are still rewarded economically for their intelligence, skills, and hard work, and less than 20% believe that being born in a wealthy family is very important to one's prospects for getting ahead.
Yet it's uncertain whether those beliefs can withstand changing economic conditions. Income inequality has become more marked in recent decades, with top tiers on the economic spectrum enjoying disproportionate growth. In addition, if your parents had low incomes, it's much less likely that you'll have a high income in America than in many countries in Europe, especially the Scandinavian countries.
Working harder
American families have responded to changing economic circumstances not with despair, but by working harder. With the influx of women into the workplace in recent decades, total family incomes continue to increase from those of 30 years ago. At the same time, however, spending levels among families have risen even faster, draining savings and leading to a huge encumbrance of debt that many Americans will have great difficulty escaping.
It's tempting to shrug off the study's results by looking at our relative wealth compared to the rest of the world. America's position as a global wealth leader remains unchallenged. Yet in order for the general population to participate in the American economy's opportunities, workers must embrace the changing economic environment by decreasing spending and increasing their levels of investment.
If the shifting of profits from labor to capital is truly responsible for the combination of stagnant income levels, higher inequality, and dramatic gains in the stock market since 1975, the best way to benefit is to become a shareholder in the most successful companies. It hasn't taken a huge investment in long-term outperformers like Altria (NYSE:MO) and General Electric (NYSE:GE) to produce significant wealth over time. All it takes is patience and determination to make a savings plan and stick to it.
The American Dream is alive and well. But it won't come automatically to everyone. Only hard work, plus a change in mindset, will help the average citizen find the U.S. economy's unique paths to economic prosperity.
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Fool contributor Dan Caplinger believes that economic mobility and personal responsibility go hand in hand. He owns shares of Altria. The Fool's disclosure policy is always rewarding.
