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Study Finds Rags-to-Riches Leap Is Rare

April 27, 2006|From Reuters

WASHINGTON — The United States may still think of itself as the land of opportunity, but the chances of living a rags-to-riches life are a lot lower than elsewhere in the world, according to a new study published Wednesday.

The likelihood that a child born into a poor family will make it into the top 5% in income is just 1%, according to "Understanding Mobility in America," a study by economist Tom Hertz of American University in Washington. By contrast, a child born rich had a 22% chance of being rich as an adult, he said.

"In other words, the chances of getting rich are about 20 times higher if you are born rich than if you are born in a low-income family," Hertz told an audience at the Center for American Progress, a liberal think tank that sponsored the work.

He also found that the U.S. had one of the lowest levels of intergenerational mobility in the wealthy world, way behind most of Europe.

"Consider a rich and poor family in the United States and a similar pair of families in Denmark, and ask how much of the difference in the parents' incomes would be transmitted, on average, to their grandchildren," Hertz said. "In the United States this would be 22%; in Denmark it would be 2%."

The research was based on a panel of more than 4,000 children, whose parents' income was observed in 1968 and whose income as adults was reviewed in 1995, 1996, 1997 and 1999.

The survey did not include immigrants, who were not captured in the original data pool.

Recent studies have highlighted growing income inequality in the U.S., but Americans remain highly optimistic about the odds for economic improvement in their own lifetime.

A New York Times survey last year found that 80% of those polled believed that it was possible to start out poor, work hard and become rich, compared with less than 60% back in 1983.

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