Decline of Upward Economic and Social Mobility Term Paper

Pages: 5 (1583 words)  ·  Bibliography Sources: 3  ·  Level: College Sophomore  ·  Topic: Economics

DECLINE OF UPWARD ECONOMIC AND SOCIAL MOBILITY IN THE U.S.

One of the most fundamental and defining elements of the American way of life in the modern age has been the fact that economic and social mobility have always been possible for every individual and family. Regardless of a person's heritage or the economic circumstances of his or her birth, there has always been the perception that hard work and education would pave the way to a better life than the one in which the individual may have started out. According to economic columnist Rana Foroohar's November 14, 2011 article "What Ever Happened to Upward Mobility?" (Time, Vol. 178, No. 19: 26 -- 34), upward economic mobility is no longer a reasonably likely possibility for most Americans who are not already part of the middle class.

More specifically, Foroohar explains that an American born in 1970 to parents in the bottom two-fifths of the socioeconomic spectrum had only a 17% chance of making it into the top two-fifths of the same spectrum as an adult. As a result, many European nations that have traditionally been less upwardly mobile societies than the U.S. are now more upwardly socio-economically mobile than American society. Whereas the U.S. led the world in upward socioeconomic mobility from the end of the Great Depression through the rest of the 20th century, today, countries such as Australia, Britain, Canada, Denmark, France, Germany, Norway, and Sweden are all more socio-economically upwardly mobile societies than contemporary America. For example, Foroohar presents the statistical probability that 42% of Americans whose parents are in the bottom two-fifths of the earning curve and socioeconomic spectrum will remain there throughout their lives; by contrast, the statistical probability of remaining at the same socioeconomic level for individuals born in Denmark and Sweden is only 25% and for individuals in similar circumstances in Britain, it is only 30%.

Foroohar offers an explanation that includes several different causes for this ongoing change in the socioeconomic landscape of American society. First, the concept of social mobility encompasses a complex set of factors and includes the element of perspective that accounts for much of the reason that most Americans do not consider themselves to be wealthier than their parents were at comparable ages even though two-thirds of Americans who are 40 years old today have higher incomes than their parents did at the same age after adjusting for inflation. In that regard, principles of behavioral economics suggest that it is human nature to assess how fortunate one is by comparison to the fortune of others. In principle, this may be an inherent weakness in the American emphasis of upward socioeconomic mobility: if everyone becomes middle class, nobody appreciates the achievement as much as within a society where comparatively fewer can achieve the same status. However, Foroohar also provides a more empirical explanation for the decline in American upward mobility from a macroeconomic perspective as well.

2. Theory Review and Analysis

The first cause of the decline of socioeconomic upward mobility in America identified by Foroohar was the "rise of the money culture" during the 1980s and 1990s in conjunction with the simultaneous deregulation of the banking industry during that time. The author describes the evolution of a 'winner-take-all" American economy in which the financial sector grew out of proportion to the rest of the economy. As salaries within the financial services sector ballooned, the middle and lower classes saw no gains from that ever-increasing element of the American economy.

Meanwhile, as finance became the fastest-growing segment of the economy, job growth necessarily slowed as a direct (and proportionate) result, mainly because the financial services market segment does not produce jobs commensurate with its growth. Traditional macroeconomic principles have always linked national economic growth to job production because the growth of traditional businesses (such as in commercial sales and manufacturing) have always directly stimulated job growth in the economy. Today, the percentage of the economy represented by the financial sector (that produces no goods or services and that does not increase employment proportionally as it grows) amounts to an all-time high of 8% of the American economy.

In principle, this dynamic exposes the continued viability of the American economy to the observations and predictions of the late 18th and early 19th century political economist Thomas Malthus. He predicted that unrestricted population growth would result in mass poverty and starvation. The artificial shifting of wealth to the top in conjunction with the severe reduction in employment opportunities for the middle class seem to have triggered what Foroohar refers to as "Methusian" consequences in the U.S.

The second cause of the decline of socioeconomic upward mobility in America identified by Foroohar were the combined effects (particularly on the middle classes) of the recent collapse of the housing market followed by the credit crises it triggered. These two factors hurt the middle classes much more than the upper classes, largely because home equity represented the bulk of middle class wealth before the American economic crisis. While housing prices have been very slow to recover, the stock market (which represents most of the wealth held by the upper classes) has rebounded quite significantly in the same time period. Foroohar points out that the data from organizations founded to track and increase relative social mobility confirm that the states currently scoring the lowest on the Opportunity Index are the very same states (Arizona, Florida, and Nevada) that were hit the hardest by the housing market collapse and where credit is still the hardest for consumers to come by.

The third (and in some ways, the most important) factor identified by Foroohar for the decline of socioeconomic upward mobility in America is what the author refers to as the "two megatrends" that are currently reshaping the international and global economy. The first of those megatrends is the effects of technology; the second is the rise of emerging markets. Since the 1970s, improved conditions in many former-Third World nations have resulted in 2 billion workers having joined the global workforce; moreover, they continue to do so at a rate of approximately 70 million new workers every year. By American standards of living, their lives are far from desirable; however, by global standards, they have achieved middle class lifestyles. Meanwhile, they represent a much cheaper source of labor for the types of jobs that had previously been filled in the U.S. By Americans. Foroohar points to a study conducted by economist and Nobel laureate Michael Spence, who specifically determined that the trend of outsourcing these jobs in the tradable product and services sector has resulted in the creation of virtually zero net jobs in the last thirty years. More than anything else, this megatrend has "hollowed out" the American manufacturing sector and eliminated most of the middle class jobs that were the basis of American socioeconomic upward mobility for generations.

The rapid development of technology has further eroded the numbers of available middle class jobs as automated equipment and computers perform more and more of the skills that previously required human workers. In combination, the rise of emerging markets (and potential employees willing and able to work for much less than American middle class wages) and the growth of technology have substantially accounted for the reduction of middle class jobs in America from a 52-percent share of jobs in 1980 to a 42-percent share in 2010.

According to Foroohar, those factors all combine to reveal another fundamental weakness in the American economy that increasingly expose the U.S. To falling further behind other nations economically. Specifically, until the 1970s, educational achievement in the U.S. had kept pace with technological evolution. According to Foroohar, this is the principal dynamic that research suggests is the key to national economic growth. While our European counterparts have continually increased their investment in… [END OF PREVIEW]

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