Americans enjoy an enduring belief that by dint of hard work and perseverance, anyone can attain the American dream.
Surveys find that nearly two-thirds of Americans believe it’s “still possible to start out poor in this country, work hard and become rich,” while also discounting the value of family background and connections in achieving success. In a 2014 survey by the Pew Research Center, just 18 percent of Americans said “belonging to a wealthy family” was “very important” for getting ahead.
But a mounting pile of evidence is beginning to show that family background is, in fact, determinative. Family incomes, for example, are highly correlated to rates of college attendance and completion.
Adding to this evidence is a new study – based on a unique longitudinal analysis of income tax data – finding that children largely inherit the income prospects of their parents.
“[C]hildren raised in low-income families will probably have very low incomes as adults, while children raised in high-income families can anticipate very high incomes as adults,” write co-authors Pablo Mitnik and David Grusky of the Stanford University Center on Poverty and Inequality in a report published by the Pew Charitable Trusts and the Russell Sage Foundation.
In particular, the study finds, children raised in wealthy households can expect to enjoy incomes that are at least 200 percent larger than the expected incomes of children raised in low-income households and 75 percent larger than the incomes of children from the middle class.
As a result of the persistence of these advantages – and disadvantages – from generation to generation, Mitnik and Grusky conclude: “[T]he United States is very immobile.”
Source: Pew Charitable Trusts, 2015
One notable aspect of this study is its methodology. Together with analysts Victoria Bryant and Michael Weber in the research division of the Internal Revenue Service, Mitnik and Grusky gathered depersonalized income tax data from roughly 12,000 households with children born between 1972 and 1975.
The researchers first looked at the parents’ income when the children were 15 to 23 years old and then at the children’s tax returns in 2010, when the children were themselves adults between the ages of 35 and 38. They then compared the incomes of the children to that of their parents to determine the correlation between parents’ incomes and the incomes of their children.
In addition to a relatively large sample size, this approach gave the researchers the benefit of government data that’s arguably more accurate than the survey data that other studies have relied on to track families over time. The data are not, however, public, and was only made available under strict guidelines to preserve households’ privacy. (Full details are available in a related IRS working paper available here.)
In addition to their findings around expected incomes, the researchers uncovered two other significant aspects of the advantages that higher-income children inherit from their parents:
Men especially benefit from growing up in higher-income households when it comes to earnings.
As the following chart shows, a man’s expected earnings grow in direct proportion to the income of his parents. In contrast, women’s expected earnings flatten out after a certain level.
But women who grew up in higher-income households are more likely to marry – and to marry high-earning partners.
While women who grow up in higher-income households may not ultimately earn as much as men, the researchers found that these women are also more likely to be married, thereby offsetting some of the earnings disadvantage.
In line with other studies showing marriage rates to be correlated with household income, the researchers found that the marriage rate is roughly 70 percent for women who grew up with household incomes of $200,000. In contrast, the marriage rate is closer to 30 percent for those who grew up in the lowest-income households.
While this study did not seek to explain why household incomes have such a strong effect on children’s incomes and earnings, the results validate other influential research – such as by Harvard University’s Raj Chetty and Robert Putnam – on the links between place, family background and early influences and a child’s future.
“Kids who come from advantaged families are able to develop much better skills and much better human capital,” says Stanford researcher Mitnik. Higher family incomes, for example, mean better access to higher-quality schools and housing, including a lower likelihood of living in segregated communities with lower-quality public services and social capital.
Especially troubling for Mitnik is the apparent lack of mobility and what now seem to be hard-wired generational advantages among the wealthy and their children.
“What’s clear from the results is the magnitude of the interventions that are going to be needed to do something serious about this problem,” Mitnik said. “It cannot be tinkering at the margins. If the goal is to reduce inequality, our research suggests that some really big interventions will be needed.”