Nov 282011

CHARLOTTE, N.C. — Economic mobility — a family’s ability to improve its financial situation — has slowed for America’s lowest-paid workers since 1980, meaning it’s getting harder to make “rags to riches” a reality, according to a recent report from Wells Fargo&Co.

The paper, released this month by a team of economists at the San Francisco-based bank, said concerns about income inequality will likely be at the center of political debates before next year’s presidential election.

But it said economic mobility is a more important measure “from the perspective of keeping the American Dream alive” and that steps such as providing access to better education and promoting financial literacy, rather than sweeping economic policies, might be the best fix.

“Simply knowing that this fair shot exists … fosters greater competition in the labor market and increased worker productivity,” it said.

The report, called “Economic Mobility: Is ‘Rags to Riches’ Still Possible?” found a widening income gap between the ultrarich and everyone else since the late 1970s, though all income groups are doing better, on average, than in years past.

But increasing inequality isn’t necessarily a problem if workers are constantly moving in and out of the highest income brackets, meaning every worker has a chance, in theory, to reach higher pay, the paper said.

The Wells Fargo economists found on the high end of the income spectrum, mobility fell in the 1980s and 1990s from the decades before. But more recently, mobility in the middle and at the upper end has increased.

“It might be an overstatement to suggest that economic mobility is alive and well, but it is not dead either,” the paper said.

Yet economists found that for the lowest-paid families, economic mobility was much higher a few decades ago, suggesting the likelihood of a worker moving from poverty to wealth was much greater in the 1970s than after 1980.

Globalization is partly to blame, the report found. As that trend gained steam in the 1980s, employers found a greater supply of lower-skilled workers worldwide and a greater demand for highly skilled, highly educated workers. That drove down wages and job opportunities for those at the bottom of the ladder, the report said.

Still, the study found enough economic mobility exists in the U.S. for workers to move from
“an urban apartment to a suburban mansion” with enough hard work, education and luck.

The economists said while boosting government aid for lower-income workers could help improve economic equality, fueling greater economic mobility for those workers — whose challenges often begin in childhood — is a better solution.

The paper said broader access to affordable education, better nutrition for children born into poverty and more stable and interactive child care experiences are “critically important” for improving the odds of low-income workers reaching a higher income bracket.

Financial literacy also is important for all income groups, the economists said, with low-income workers, especially, benefiting from better education about potential tax breaks and personal finance.

 Posted by at 5:19 pm

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