The Decline of the American Dream: A Generation’s Changing Fortunes
About 90 percent of American children born in 1940 grew up to earn more than their parents did at the same age. For children born in the 1980s, that share dropped to roughly 50 percent. This striking statistic is at the heart of The Fading American Dream, a seminal study published in December 2016 by a team led by economist Raj Chetty.
This number puts a concrete figure on what many have sensed intuitively: the American dream — the idea that each generation will do better than the last — is no longer a near certainty but more like a coin toss. As Chetty himself put it at the time, “It’s basically a coin flip as to whether you’ll do better than your parents.”
Understanding What This Number Measures
The measure used in the study is straightforward yet powerful: the share of children who out-earn their parents at the same age. Importantly, both incomes are adjusted for inflation to ensure a real comparison that isn’t skewed by rising prices over time.
A summary from the Washington Center for Equitable Growth highlights that only 50 percent of children born in 1984 surpassed their parents’ earnings, compared to nearly nine in ten for those born in 1940.
However, this figure is more nuanced than it might seem. It does not imply that half of today’s young adults are poor, nor that the economy has ceased to grow. Rather, it specifically measures how children’s earnings compare to their own parents at the same life stage. The largest declines in absolute mobility have been observed within the middle class — traditionally the core demographic associated with the American dream.
Growth vs. Sharing: Divergent Views on the Cause
The intuitive explanation often given is that economic opportunity has become more unequal. While the economy has grown, much of that growth has disproportionately benefited the wealthy, making it harder for typical children to out-earn their parents who lived through a more broadly shared boom. Chetty and his team support this perspective.
Using what-if simulations, they assessed the relative impact of slower growth versus increased inequality. Their findings suggest that if today’s slower economic growth were shared as evenly as it was in the 1940s, absolute mobility would increase to about 80 percent — reversing over two-thirds of the decline. Conversely, if growth rates matched those of the 1940s and 1950s but income inequality remained high, mobility would only rise to 62 percent.
These results point to the distribution of growth as a more significant factor than the growth rate itself. Chetty argued that reviving the American dream would require “policies that foster more broadly shared growth.”
A Contested Reanalysis: The Mirror-Image Perspective
However, this conclusion is not universally accepted. In 2022, Scott Winship of the American Enterprise Institute published a working paper that reproduced the headline drop in absolute mobility but challenged the cause.
Winship confirmed the decline from roughly 91.5 percent for children born in 1940 to 50 percent for those born in 1980. Yet, when reconstructing the simulations, he found the opposite result: faster growth would boost mobility from 50 to 81 percent, while lower inequality would only increase it to 57 percent. He described this as “almost the mirror image of the Chetty findings.”
Winship’s blunt conclusion is that his results “deeply undermine the conclusion that falling absolute mobility is primarily due to rising income inequality.”
It is important to emphasize that this is one contested reanalysis rather than a settled reversal. When Chetty’s paper was first published, Brookings noted that earlier estimates of absolute mobility ranged between 65 and 85 percent due to data limitations and sensitivity to statistical choices, such as inflation measures, income definitions, and household size adjustments. The 50 percent figure is real but sits within a spectrum of methodological choices that influence the story about why mobility has declined.
Why the Shift from Near Certainty to a Coin Toss Matters Most
Despite disagreements over causes, there is broad consensus that the odds of children out-earning their parents have dramatically fallen. The debate centers on whether this collapse is mainly due to the slowdown in economic growth or the increasing inequality in how growth’s gains are shared.
This distinction is crucial because it points toward very different policy solutions. If sharing is the issue, then policies should focus on redistributing economic gains more broadly. If growth is the problem, then efforts should concentrate on expanding the economy itself.
Chetty’s own modeling underscores the challenge: under today’s level of income inequality, the economy would need to grow at real GDP growth rates above 6 percent per year to restore the absolute mobility levels seen in the 1940s — a pace rarely achieved in postwar America, even during its economic peaks.
Ultimately, the near-guarantee that children will out-earn their parents no longer holds true. While the precise reasons remain debated, this reality calls for renewed attention to economic opportunity and mobility in America.
For further reading, see the original research and analysis Here.
