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The Next Economy / THE NEXT ECONOMY: COVER STORY

Horatio Alger, RIP

The American Dream of upward mobility has been losing ground as the economy shifts. Without a college diploma, working hard is no longer enough.

Struggling: John Sherry works hard but, without a college degree, he is barely scraping by.(Barry Gutierrez)

photo of Jim Tankersley
September 25, 2012

GRAND JUNCTION, Colo.—One day when John Sherry was 10 years old, his parents picked him up from school and drove to a Ford dealership. They walked into a large showroom with Mustangs parked out front. He watched his parents, neither of them college graduates, ink the paperwork to buy a new, dark-green Taurus. Greg and Beth Sherry let their son sign his name at the bottom of one of the pages, just for fun.

John, who’s now 29, says it was the first time he realized that purchasing a car was a bigger deal than buying groceries or a shirt. “I thought, ‘Someday, I’m going to be doing that.’ ” But now, he says, his lips tight and flat, “I don’t see myself buying a new car”—ever. “That seems out of my grasp.”

Unlike his parents, John Sherry enrolled in college after graduating from high school in Grand Junction, a boom-bust, agriculture-and-energy outpost of 100,000 inhabitants on Colorado’s western edge. John lasted two years at Metropolitan State University in Denver before he dropped out, first to bag groceries at Safeway, later to teach preschool children, a job he still holds. He knew it was time to quit college when he failed statistics two semesters in a row. Years passed before John realized just how much the economic statistics were stacked against him, in a way they never were against his father.

 

Greg Sherry, who works for a railroad, is 58 and is chugging toward retirement with an $80,000-a-year salary, a full pension, and a promise of health coverage for life. John scrapes by on $11 an hour, with few health benefits. “I feel like I’m working really hard,” he says, “but I’m not getting ahead.”

This isn’t the lifestyle that John’s parents wished upon their younger child. But it reflects the state of upward—or downward—mobility in the American economy today.

You see a generation working harder outside of the home but failing to get ahead like their parents expected them to.

Americans love to believe that anyone can get ahead, that they can build a better life than their parents had, simply by working hard enough. The evidence suggests, however, that this is less and less the case. Just working hard will no longer suffice, especially for Americans who haven’t been born with wealth or particular talents. More and more, education has become the key to moving up—from poverty into the middle class, from the middle class into affluence—or to holding onto the middle-class lifestyle in which one was raised.

There is also growing—though still nascent—evidence that from one American generation to the next, mobility is declining. It’s getting harder, that is, to work your way into a higher income level than the one into which you were born. A son’s adult income in the United States is about half dictated by how much his father made, a percentage that is nearly as high as in any country in wealth-by-birthright Europe, according to the Organization of Economic Cooperation and Development. In Europe, family connections and the circumstances of one’s birth are considered crucial determinants of success, a consequence of the entrenched aristocracies in the United Kingdom and, to a lesser extent, Italy and France.

This is far from the up-by-the-bootstraps, Horatio Algeresque self-image that most Americans hold dear. In the United States, immobility is a way of life, especially for the very rich and the very poor. Brookings Institution economist Isabel Sawhill estimates that 40 percent of children born into the topmost or bottom income quintile won’t budge as adults from where they began. Katharine Bradbury, a senior economist at the Federal Reserve Bank of Boston, agrees. “Most of the long-term poor are stuck at the bottom; most of the long-term rich have a strong grip on the top; and each of these two groups is somewhat more entrenched than the corresponding groups 20 years earlier,” she concluded in a research paper last spring.

Infographic

But this declining mobility also applies to Americans born into the vast middle class. Even they were less likely to bounce up or down in income during the past 10 years than in earlier decades, Bradbury found. By her calculations, Americans in the highest and lowest quintiles of income are far more likely to stay at the same level over a decade than are people in the three middle quintiles. But lately, members of the middle class have also been getting stuck: Between 1996 and 2006, they were 25 percent likelier to stay where they were, compared with the middle class in the 1976 to ’86 period. Americans feel the change. The Pew Research Center reported in August that 71 percent of middle-class adults say it’s harder to get ahead now than 10 years ago. That’s a jump of 9 percentage points since the Great Recession struck in 2008.

Still, middle-class mobility in the United States is hardly a thing of the past. Americans born into middle-income brackets remain, as adults, equally likely to climb up or to slide down the income ladder, Sawhill writes. What’s the surest way to climb? On that, there’s a clear prescription, reflecting a quiet transformation in our notion of how upward mobility works. Nowadays, hard work will get you only so far. If you want to move from poverty into the middle class—or to avoid falling from the middle class into poverty—there’s only one route, if you’re not Beyoncé or Bill Gates: graduate from college.

According to fresh research from the Pew Economic Mobility Project, middle-quintile children without college diplomas are more than half again as likely as adults to slide into the lowest 40 percent of income earners than are middle-class children who earned a college degree. They’re also twice as likely to fall backward in wealth. College graduates are four times as likely to rocket from poverty into the highest quintile of wealth. “Having a postsecondary education is incredibly important for mobility,” said Diana Elliot, research manager at Pew’s mobility project, and it has “become increasingly important” from one generation to the next.

For American children who aspire to the middle class, this reality highlights the road they need to take. But it can also be cruel, because poor children find it much harder today to finish college than wealthier ones do. “Children from rich families have much greater access to higher education than children from low-income families, even when controlling for innate skills,” Economic Policy Institute researchers concluded in a recent report. “This educational barrier places profound limits on income mobility.” And in the tattered recovery from the Great Recession, wages even for college graduates have stagnated. Meritocracy is not only a solution to restoring upward mobility but also a way to fortify the bastions of privilege.

THE WAY THINGS WERE

Only twice in U.S. history—in the heyday of the Western frontier and in the post-World War II prosperity—have Americans found it easy to rise. This isn’t one of those times. Middle-skill jobs (read: no college required) are disappearing from America’s sputtering economic engine—in factories, in back offices, even lately in state and local governments. For generations, these jobs were the ticket to a comfortable life for Americans who went directly from high school to work. But increasingly in recent decades, economic research shows, lower-wage workers in foreign lands have taken these jobs or automation has rendered them unnecessary. Today, job growth occurs mainly at the poles of the skills spectrum—in sweeping floors or flipping burgers, which can’t be outsourced, or in sophisticated engineering jobs that drive new industries.

Since 1980, the very lowest- and highest-skill jobs in the United States have each grown sharply as a share of the overall workforce, according to research published last spring by economists David Autor of the Massachusetts Institute of Technology and David Dorn of Spain’s Centro de Estudios Monetarios y Financieros. Meanwhile, the share of lower-middle-skill jobs has shrunk: For example, machine operators and assemblers, a classic storehouse of middle-skill jobs, fell from 13 percent of the workforce in 1950 to 4 percent in 2005. Real hourly wages have stagnated, simply as a matter of supply and demand. When too many workers compete for too few jobs, employers can hire qualified people at lower pay.

“The real question of the [displaced] middle class is: Where do they go?” asked Mark Doms, the chief economist at the Commerce Department’s Economics and Statistics Administration. “Only a few of them are going to go to the tippy-top”—the highest-skilled jobs. “The rest will go to the bottom.”

The Sherry family has learned this lesson all too well. Greg Sherry grew up in East Denver, moved to suburban Wheat Ridge in high school, and graduated without much thought of college. His parents never pushed it. His ambition never demanded it. “I liked working with my hands, and I wanted to do something like that,” he says. “I saw college as a white-collar-type job, and I wasn’t interested.”

The world Greg graduated into didn’t require an advanced degree. He could earn nearly $20 an hour in today’s dollars—a wage that could support a family—by working construction or in a warehouse. Across the country, high school graduates could claim their diplomas and walk straight into secure, well-paying, benefit-laden, pension-bearing jobs on assembly lines or, in Colorado, harvesting trees or rare earth metals. Foreign competition was a speck on the horizon; outsourcing wasn’t yet a dirty word.

Greg worked construction jobs from 1971 to 1973, building houses for a developer near the Cherry Creek Reservoir. Then the economy dipped and mortgage rates spiked; homebuilding slammed to a halt. Greg lost his job. With his new bride, Beth, he hopped around seeking work, first in Dallas, then in Denver, and finally across the Rockies to Grand Junction, where his father-in-law, a Union Pacific worker, had found Greg a railroad job. Beth, now 57, took a hygienist’s position in a dentist’s office, where she still works today.

The railroad paid $5 an hour, the 1974 equivalent of about $23 an hour ($48,000 a year) today. It came with health benefits he didn’t even think about for years and a pension that will let him retire at age 60 with health insurance for life. After a few years, Greg had worked his way up to an engineer’s position, driving trains on round trips of several hundred miles on a brutally unpredictable schedule. The Sherrys’ children, firstborn Allison and John, grew up knowing their father could be called onto the rails with two hours’ notice, day or night.

Comfort was their reward. Greg and Beth bought a house on the edge of town and a succession of new cars. Today, in the evenings, in the home where they raised their children, the couple can relax on a new living room couch, dine with a microbrew or a local red wine, and cover fresh peaches with ice cream for dessert. In his youth, John recalls summertime trips to a faraway beach—San Diego, South Padre Island, or someplace else—to splash with cousins in the surf.

The parents knew early that their path might not be available to their kids. On a winter afternoon in 1983, Beth and Greg sat at tables in a high school cafeteria and listened to a senator from Colorado test out a presidential-campaign message about the changing global economy. This generation, Gary Hart told the crowd, is the last one in which people will hold a single job for 30 years; your children will need education and training to prepare for the tumultuous job market to come. The message stuck. When the Sherry children reached school age, their parents began saving for college. We’ll pay for college, they told Allison and John—and we expect you to go.

A WEED-STREWN YARD

The Sherrys’ ranch-style house has a panoramic view of downtown Grand Junction and the mesa beyond. The backyard, a long rectangle of grass of a softness and greenness you sometimes forget exists on the parched Western Slope, drops steeply to reveal the skinny Colorado River snaking through town. This is the yard in which John Sherry romped as a child.

Today, the back door of John’s West Denver house—purchased by his father and rented to John at a discount—opens to a sun-baked lot with litter and weeds, a fading pink shed, a drooping clothesline, and a back fence that looks one summer storm away from collapse. Inside, the hallways are cluttered with bikes, televisions, and secondhand furniture. John lives with two roommates who help make the rent. His mother calls the neighborhood “a barrio.” This is the house John landed in, years after he dropped out of Metro State.

He and his parents tell near-identical stories about his childhood. He, in some ways, enjoyed learning and worked hard outside of school. He would recommend nonfiction tomes to his parents. As a grocery clerk, he’d get thank-you notes from customers for home-delivering the sacks of food they had left at checkout.

But when it came to school, John couldn’t bring himself to care. It was hard growing up in the shadow of his older sister, now 34, who at age 10 started to walk around holding a clipboard and collecting quotes from her parents for miniature news stories. Allison, the first in her father’s family to attend college, graduated from Colorado State University—her parents paid, as promised—and landed a job as a reporter for The Denver Post. John’s elementary school teachers asked Beth and Greg why their son couldn’t be more like Allison; whenever his parents conveyed this to John, he’d feel the sting and rebel. In high school, he skipped classes and spent a lot of time grounded. “I just didn’t have the motivation,” John explains. He graduated with a C- average.

He attended Metro State because he wanted to leave Grand Junction; his friends were going to college, and his parents expected him to go. “It wasn’t something I really wanted to do,” John says. “ ‘Obligation’ would be a better word for it.” He hoped to earn a degree and go into social work. But the dream faded when he struggled with math and science. When he quit school, he was too scared to tell his parents. Only months later, after a relative saw him in a UPS uniform for a holiday temp job, did they learn that he had dropped out.

Thanks to the wrenching changes in the American economy, John’s career choices were few and unpromising. The assembly-line and clerical jobs that had sustained high school graduates were pretty much gone. Frank Levy, an economics professor emeritus at MIT, has written extensively on the changing skills the American workforce requires. These lost “rules-based jobs,” as he calls them, are anything simple or routine enough for a computer or offshore worker to perform instead; they paid a lot more than the options that John had available after he left college. By Levy’s calculations, a 40-year-old man with a high school diploma earns 5 percent less today, in real terms, than he did in 1980, while a college graduate who’s 40 earns 25 percent more than before. The jobs available to high school graduates today also offer less prospect for rising pay. Levy’s research suggests that a male high school grad in 1980 could expect his income to grow by about 75 percent before peaking in his mid-40s, versus just 61 percent today.

John Sherry’s work life has proved a long and punishing lesson in these unpleasant truths. He has never earned more than $13 an hour. Now he makes $11 an hour—about $23,000 a year—teaching students in an expensive preschool in downtown Denver. He sometimes relies on a sort of payday loan from his bank to pay his rent. He rides his bike and plays kickball in a league for recreation—they’re both free—and brews his own beer at home. He wants to go back to school to study early-childhood education and become an elementary school teacher, with a salary at least double what he makes now. Meanwhile, he’s thinking of applying for a job at night, waiting tables, or slinging drafts at a bar he frequents once or twice a week.

“It’s almost like a survival thing now,” he says. “I could live the way I’m living now and be OK, but I would like to have a family someday. I would like to take nice vacations, things like that.” His annual wage these days would put him at the federal poverty level for a family of four. Sometimes it angers him that he earns so little for a job he sees as important. (A Brookings study calculates that enrolling a disadvantaged child in a high-quality preschool correlates to a $100,000 increase in lifetime earnings.) “But I also kind of blame myself,” he says, “because without a college degree, that’s what you get paid.”

GAINING, BUT FALLING BEHIND

Here’s some good news: Today’s households with prime-aged workers are bringing home more income than their parents did. Even after adjusting for rising prices over time, according to Pew, nearly 90 percent of middle-class children earn more, as a household, than their parents did at the same age. They’re “ahead” of the previous generation—but with two painful caveats.

The first is that, compared to people at the top, most workers are slipping behind. Income gains for the highest quintile of earners have run about 50 percent higher than for the bottom quintile. Think of it as a marathon: Everyone is farther along the course, but the rich have widened their lead. Looking beyond income to consider a household’s wealth—including savings and assets such as investments and a home—the middle class and poor are actually moving backwards. For households in the top two quintiles of income, inflation-adjusted wealth has grown by a fourth from the past generation to this one. In the middle quintile, it has declined by 5 percent. At the bottom, it’s down by 63 percent.

The second uncomfortable truth is that the reason household incomes are rising from generation to generation is not because children are finding better-paying jobs than their parents held. It’s because more households are bringing in two incomes. Today, a young man in the top four income quintiles, Pew found, has roughly a 50-50 chance of earning more than his father did at the same age. The difference between that toss-up proposition and the 90 percent chance that a household’s income has risen between generations is that many more women work. Simply getting married and waiting until you’re 21 to have children, Sawhill and coauthor Ron Haskins have written, are two of the most important ingredients for moving from poverty into the middle class. But any additional income may be overstated: In families with children, having both parents work will typically entail higher costs for child care, mounting stress, and lost leisure time.

Add those two truths together and you see a generation working harder outside of the home but failing to get ahead like their parents expected them to.

For black Americans, that reality is even gloomier. African-Americans born in the bottom income quartile are about twice as likely to stay at the bottom in adulthood, compared with whites born in poverty, according to the recent Economic Policy Institute report. Whites are four times as likely than African-Americans to rise from the bottom quartile to the top. Middle-class African-Americans grow up to exceed their parents’ level of wealth less than a quarter of the time, compared with more than half the time for middle-class whites, Pew reports. (Neither survey looked at Latinos.)

College has become the golden ticket off that hamster wheel. But this, too, has widened the demographic gap in upward mobility. Lower-income children typically struggle to keep up in school, falling well behind wealthier children on K-12 test scores, which hurts their chances of getting into college and earning a diploma. A student with high scores on eighth-grade standardized tests but whose family is poor (in the lowest-income quartile) had only a 29 percent chance of finishing college, the EPI study found. That was a lower chance than a student from the top of the income ladder with low test scores. In other words, a dumb, rich kid is more likely to get a college diploma than a smart, poor kid.

“Although we cannot say with any certainty how much mobility today’s children will experience over the coming decades,” Bhashkar Mazumder, a senior economist at the Federal Reserve Bank in Chicago, wrote last spring, “recent research suggests cause for concern. The gap in children’s academic performance between high- and low-income families has widened significantly over the last few decades.” If this trend persists, college will no longer serve as the equalizer for a stratified economy in which the rich get richer and the poor don’t.

ONWARD AND … UPWARD?

In some ways, the story of middle-class mobility has a silver lining. If you’re born into the middle quintile, like the Sherry children were, you’ve got about a 50 percent chance as an adult of staying there or moving up a quintile, according to Pew. You’re just as likely to rise all the way to the top—about 20 percent—as you are to sink one quintile. Education improves your odds of climbing higher: A child born in the middle quintile who finishes college has a three-in-five chance of rising into the top two quintiles.

John has seen his sister Allison succeed. Now the chief of The Denver Post’s Washington bureau, she earns a salary roughly comparable to her father’s on the railroad and recently backpacked through the Alps with friends. So, too, their cousin, Andrew Elliot, who’s a lawyer living in one of Washington’s trendiest neighborhoods. John wants something like that for himself. He knows he has only one route, really: earning a college degree.

“Economic mobility is not predetermined,” says Erin Currier, project manager of Pew’s Economic Mobility Project, “but our research has shown that a host of drivers and factors can influence a person’s chances of moving up or falling down.” These determinants fall into three categories: social capital (who you know and where you live); financial capital (your savings and access to credit); and human capital (your education).

John’s parents have tried to help him with social capital (John rebuffed his dad’s offers to help him find a job at the railroad) and financial capital (the house with discounted rent, although no help with tuition). What he needs is more human capital. For that, his parents can’t help much, except to offer encouragement. “He’s smart enough to go to college,” Greg says. Beth adds: “We still want better for him, we really do. But we don’t know what to do.”

John is still planning his full-fledged return to college. He figures on taking school slowly this time, one or two classes a quarter, while working full time. He’s taking a course this fall in early-childhood education so he can keep his state license for teaching preschool.

Seated on a bar stool in West Denver, sipping a beer, lines of worry cross his narrow face. On his calves are tattoos he designed himself, crossed swords over a bicycle. Everyone in the place seems to know him and treat him as a friend. As he talks about his latest batch of home brew, his scowl lifts. He offers to pay for the drinks. His dreams are still flowing, like the microbrew. What isn’t clear yet is whether they are pipe dreams, or real.

The author is an economics correspondent for National Journal.

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