Is the 'American Dream' now a pipe dream for millennials?

Only half of Americans born in 1985 earn more than their parents did at the same age, a study has found.
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Is "The American Dream" over for millennials? Maybe not, but a study has found it's becoming a lot harder to achieve thanks to stagnating wages and the growing wealth gap.

A research team from Stanford, Harvard and the University of California has found that only half of Americans born in 1985 are making more money than their parents did at the same age (when inflation is accounted for).

It represents a significant drop on previous decades, when more young Americans were able to take advantage of favorable economic conditions to enjoy greater wealth than their parents' generation.

Here's a look at how the percentage of American 30 year olds earning more than their parents has been declining, based upon the year they were born:

  • 1940 – 91.54 percent.
  • 1950 – 79.8 percent.
  • 1960 – 62.33 percent.
  • 1970 – 60.95 percent.
  • 1980 – 50.03 percent.
  • 1985 – 50.26 percent.

The 1980 figure is lower than 1985, but those born in 1980 turned 30 years old in 2010 – the height of the financial crisis. The percentage of millennials earning more than their parents grew in 2011 and 2012, but is back on a downward trend again.

The study was compiled using Census and tax return data, with parents' incomes up-rated using inflation.

FiveThirtyEight reports it's one of several recent studies on stagnating household incomes and the declining middle class, but such research does come in for criticism from those who argue inflation doesn't take into account tax policies and assistance programs that help the poor.

Why is this happening?

The American Dream, the set of U.S. ideals predicated on the opportunity to pursue prosperity, success and upward mobility – the ability to rise up the income ladder – is "fading," according to the study.

The reason why fewer 30 year olds are earning more than their parents did is not down to a lack of economic growth, but rather the growth of economic disparity.

Although growth has been slower recently than compared to the booms seen in the middle of last century, the distribution of wealth has been "more unequal," with the gap between the rich and poor widening.

If the growth returned to the levels seen in mid-century America and it was spread more equally across the population, around 80 percent of 30 year olds would be earning more than their parents did, the study estimates.

Raj Chetty, an economist with Stanford University who co-authored the study, told the Wall Street Journal: "Wages have stagnated in the middle class. When you’re in that situation, it becomes very hard for children to do better than their parents."

It's not as bad in the Twin Cities

The research highlights which areas of the country are particularly bad at upward mobility, with the following map showing the chances of someone born into a family earning in the bottom 20 percent has of reaching the top 20 percent when they're older.

You'll notice that there are some lighter colors in Minnesota, and the Harvard/Stanford/UCLA study name-checks Minneapolis as one of the cities where "the fading of the American Dream is not immutable."

Better social mobility in the Twin Cities metro means the chances of moving up out of poverty "remain high," and cities like this tend to have five similar characteristics: lower levels of residential segregation; a larger middle class; stronger families; greater social capital; and higher quality public schools.

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