The Dynamics of Opportunity in America: A Working Framework

Henry Braun

Abstract Since its founding, America has been seen as a land of opportunity, where an individual with skills who was willing to work hard could achieve success and expect his children to do even better. Today we live in turbulent times: A tsunami of change is washing over us, driven by forces operating at multiple levels that have not only led to almost unprecedented inequalities in income and wealth, but also have dramatically restructured the economy and changed the landscape of work. Having sufficient amounts of relevant human and social capital are more critical than ever—and too many Americans are finding they are not equipped to succeed as workers and citizens. Growing inequities in access to opportunities to develop needed capital, strongly linked to socioeconomic status should be cause for grave concern. This chapter presents a framework—gates, gaps, and gradients—that can facilitate understanding of both the dynamics governing the distribution of access to opportunity across the developmental lifespan and the implications of those dynamics for intragenerational and intergenerational mobility. Further, it indicates in broad strokes how this nation can begin to broaden opportunity in order to revitalize the American Dream for the twenty-first century.

Keywords Opportunity • Globalization • Technology • Human capital • Wages • Educational attainment • Skills • Intergenerational mobility • Socioeconomic status (SES) • Unmarried mothers • Unemployment

Introduction

We live in turbulent times—economically, technologically, socially, and politically. A tsunami of change is washing over us, driven by forces operating at all levels: global, national, regional, and local. Some of these forces, such as globalization and technology, are supranational. Some, such as fiscal and trade policy, are decided at the national level. Others, such as education and health policies, are the result of a combination of national and state actions. Yet others, such as changes in the demographics of neighborhoods, are influenced by forces at all levels, such as international migration patterns, as well as by local laws and regulations adopted to achieve certain policy objectives or to accommodate the interests of various stakeholders.

Even prior to the Great Recession, stable employment and guaranteed retirement were pledged to fewer and fewer workers. Today, the nation is experiencing not only ongoing “creative destruction” of firms (and of jobs within firms) but also threats to both public and private pensions. Correspondingly, increasing numbers of individuals are either “under water” or confronting that prospect. Although some are able to ride the wave and prosper, they, too, face greater uncertainties. Indeed, for almost everyone, this is the Age of Anxiety.

That justifiable anxiety is, in part, a consequence of increasing inequality in both income and wealth driven by trends in labor and capital markets, as well as by differences in opportunities to accumulate relevant human capital. Arguably, today's differences will lead to even greater divergence in opportunities in the future. The implications of such a self-reinforcing, multigenerational cycle—for the economy, for society, and for our democratic polity—are a matter of current debate. ^[1] I believe that such a prospect is one we cannot afford to ignore. As Nobel Laureate Joseph Stiglitz argues, “An economic and political system that does not deliver for most citizens is one that is not sustainable in the long run. Eventually, faith in democracy and the market economy will erode, and the legitimacy of existing institutions and arrangements will be called into question. ^[2]

This is certainly not the first time in our country's history that we face great difficulties. In the past, however, there were two beliefs, held by many, that helped to sustain and inspire us to meet the challenges. The first was American exceptionalism—America was unlike (and better than) other countries, truly a light unto the nations. The second was that the U.S. was a land of unprecedented opportunity—no matter their circumstances at birth, individuals could realistically expect to improve themselves through education, hard work, and persistence, and more importantly, their children could aspire to do even better.

These beliefs are harder to maintain today. World events have shaken our belief in American exceptionalism, and reams of statistics—not to mention the experiences of tens of millions of individuals—cast doubt on meaningful opportunity in America being available to all. Indeed, surveys show that many older persons, especially parents, believe that the next generation will not do as well as they have—and even fewer adults consider themselves members of the middle class. ^[3]

Historically, differences in opportunity were associated with race and, indeed, this was the prime motivation for the Great Society legislation pursued by President Lyndon Johnson in the mid-1960s. Although differences by race and ethnicity persist and remain substantial, there is considerable evidence that differences (say, in test scores) by income are now larger than those by race. Moreover, differences by income within a race/ethnicity category are also quite striking (Reardon 2011; Murray 2012). As will be demonstrated in what follows, individual differences in opportunity result in differences in individuals' levels of preparedness to successfully meet the demands of adult life—as workers, citizens and, for most, parents. That level of preparedness is often signified by the term human capital. This chapter focuses on human capital: what it is, how it develops and is accumulated, what is happening to its distribution across the U.S. population, and some possible consequences if current trends continue.

Before diving in, let's look at some data to give us a sense of the state of inequality in America. Following the old adage that a picture is worth a thousand words, we begin with some graphs. Figure 5.1 shows the percentile trajectories for wages and salaries from 1961 to 2000. For about 30 years after World War II, the relationships among the trajectories remained fairly stable, that is, greater prosperity was generally shared. After 1975, and certainly after 1980, the income trajectories began to diverge, quite dramatically. What is especially noteworthy is how the top percentiles

Fig. 5.1 Distribution of real wage and salary earnings for full-year, full-time males workers aged 18–64 as compared to 1961–2000 (Used by permission of The Aspen Institute)

Fig. 5.2 Distribution of real wage and salary earnings for full-year, full-time male workers aged 16 and over, as compared to 2000 (Source: Author's tabulations of the Current Population Survey)

have pulled away from the rest—a striking manifestation of increasing inequality. ^[4] Figure 5.2 presents an analogous picture but employs 2000 as a new starting point. Clearly the divergence in earnings between the higher and lower percentiles has continued through 2014. Putting the two figures together yields a disturbing picture of increasing inequality.

Figure 5.3, which offers a more focused view of this phenomenon, displays the cumulative change (1979–2010) in real annual wages by income group, defined by percentiles of the income distribution. ^[5] Evidently, the increases garnered by the top 1 % dwarf those in the 95th—99th and the 90th—95th percent categories. But these are still more than double the 15 % gain of the rest (the “bottom” 90 %) (Thompson 2012). The divergence is even more striking for changes in total annual household income (i.e., including both capital gains and income transfers)—and more striking still if one considers household wealth or shares of the stock market (Piketty 2014; for a quicker look, see Thompson 2012). ^[6] At the same time, some economists argue

Fig. 5.3 Cumulative change in real annual wages, by wage group, 1979–2010 (Economic Policy Institute, 2012, “Cumulative Change in Real Annual Wages, by Wage Group, 1979–2010”, The State of Working America, Washington, DC: Economic Policy Institute, Aug. 22, 2012, stateofworkingamerica.org/jobs/figure4H)

that focusing on the trajectory of the “1 %” is misguided, at least with respect to addressing the broader issues of inequality (Mankiw 2013). ^[7]

Figure 5.4 displays the 50-year trajectories of real wages for different levels of educational attainment, separately for men and women (Autor 2014; see also Acemoglu and Autor 2012, Fig. 3). Although there are some differences between males and females, in general, individuals with higher levels of attainment have done well, while those at the lowest levels have either stagnated (high school diploma) or even lost ground (less than a high school diploma). Who are the individuals in that last category? Table 5.1 offers one answer. It displays the probability of individuals lacking a high school diploma or GED as a function of their family income and their Armed Services Vocational Aptitude Battery (ASVAB) score, a composite measure of developed skills. ^[8] More than 35 % of individuals coming from poor families with ASVAB scores in the lowest quintile fall in this category of attainment, with the percentages falling with increasing family income and dramatically so with higher ASVAB scores.

Fig. 5.4 Changes in real wage levels of full-time U.S. workers by sex and education, 1963–2012 (Reproduced from Autor 2014)

The last graph in this series, Fig. 5.5, compares the problem-solving skills of American adults (ages 16–65) to those of other developed countries. Comparisons are displayed for two age classes. This is also very striking: For the oldest age class (55–64), the U.S. is at the top, but for the youngest age class (16–24), the U.S. is at the bottom (OECD 2013, Fig. 3.3).

What do these pictures tell us? Figures 5.1, 5.2 and 5.3 demonstrate that rising income inequality is real. Even when government benefits are taken into account there is still a widening gap between the bottom 50 % and the top 10 %, and even more so if attention focuses on the top 1 % or, especially, the top 0.1 %. Figure 5.4 and Table 5.1 together show that income inequality is strongly related to the amount

Table 5.1 Percent of 24to 28-year-old adults in the U.S. in 2008 without a high school diploma or GED by ASVAB test score quintile and family's income in their teenaged years in 1997 (Andrew Sum 2014, presentation to Opportunity in America panel)

Fig. 5.5 Problem-solving proficiency among younger adults (age 16–24) and older adults (age 55–65) (OECD 2013) Percentage of adults aged 16–24 and 55–65 scoring at level 2 or 3 in problem solving in technologyrich environments

of education achieved and that those with weak skills and coming from poor families are likely to fall in the lowest category of attainment. ^[9] It is reasonable to conclude that individuals with low skills are unlikely to earn a good wage while those with high skills have an excellent chance of doing so. In point of fact, there are now millions of individuals with low skills confronting poor job prospects.

Figure 5.5 signals America's relative decline. Today's young adults may not be less literate than their elders (and may well be more proficient with technology), but other countries have charged ahead so that too many of our young adults are not competitive in the global marketplace and, more and more, the global marketplace influences what happens in towns and cities across America. Unfortunately, the problem is not confined to the youngest cohort. As Kevin Carey of the New America Foundation has pointed out, comparisons of literacy skills among 25 to 29-year-olds who are college graduates show that Americans again fall well below the Organisation for Economic Co-operation and Development average. ^[10] Similar findings hold for numeracy skills (see Fig. 8 of Goodman, Sands, and Coley 2015).

There is a growing consensus that current trends, if left unchecked, pose a serious threat not only to the American Dream, but to the American way of life (Stiglitz 2012; Noah 2013). If that is the case, we must understand these forces and their interactions if we are to have even a possibility of countering their effects. At the same time, given the multiplicity of factors and the range of dynamics among them, it would be naïve to believe that there is a simple fix such as to just “improve education” or “make the income tax more progressive”; rather, it is surely necessary to undertake a broad set of strategies that are systematic, systemic, and sustained. This will be neither simple nor easy.

The chief purpose of this chapter, undertaken under the auspices of the Opportunity in America project and funded by Educational Testing Service, is to present a framework that can help us to understand both the dynamics governing the distribution of access to opportunity in America and the implications of those dynamics for intragenerational and intergenerational mobility. It offers some of the relevant evidence and constitutes an initial foray into an exceedingly complex and controversial topic. The ultimate goal of the project is to contribute to a constructive public debate on the implications of increasing inequality and social stratification, however measured, and how we can dramatically expand opportunity in order to revitalize the American Dream for the 21st century.

• [1] Stiglitz 2012; Cowen 2013.
• [2] Joseph Stiglitz, “Climate Change and Poverty Have Not Gone Away,” Guardian, January 7, 2013, theguardian.com/business/2013/jan/07/climate-change-poverty-inequality.
• [3] Leslie McCall, “Political and Policy Responses to Problems of Inequality: Past, Present and Future” (unpublished presentation, Opportunity in America advisory panel meeting, June 2014).
• [4] Tabulations by Professor David Ellwood, Harvard University.
• [5] Economic Policy Institute (State of Working America). It is important to understand that this graph does not follow specific people over time but, rather, is constructed anew each year. Thus, it doesn't tell us anything about the (relative) income mobility or immobility of particular individuals.
• [6] Data from the Congressional Budget Office shows that the cumulative growth in average after-tax income (sum of market income and government transfers minus federal tax liabilities) did not vary much across the bottom four quintiles.
• [7] Tyler Cowen,“ It's Not the Inequality; It's the Immobility.” New York Times, April 5, 2015, nytimes.com/2015/04/05/upshot/its-not-the-inequality-its-the-immobility.html? abt=0002&abg=1.
• [8] Data compiled by the Center for Labor Market Studies, Northeastern University. For more information see official-asvab.com/index.htm.
• [9] It appears that differences in educational attainment better account for differences in income below the median than they do above the median – especially differences within the top quintile.
• [10] Kevin Carey, “Americans Think We Have the World's Best Colleges. We Don't,” New York Times, June 28, 2014, nytimes.com/2014/06/29/upshot/americans-think-we-have-the- worlds-best-colleges-we-dont.html.