About 7.5% of American children born into the bottom quintile of the income distribution will eventually make it into the top one fifth. In the UK this number is about 9%. And in Canada and Denmark, the numbers are 13% and 13.5%, respectively. (The upper bound for these numbers is 20% since you can’t have more than 20% in the top 20% of the income distribution.)
Because of stats such as these, Freakeconomics recently asked: Is the American Dream really dead? And if so, should it instead be called the Canadian Dream, seeing how it’s more readily obtained.
Of course, it’s not necessarily as simple as 7.5% vs. 13%. Upward mobility exhibits a lot of regional variation. In the American southeast, the number is closer to 4%. Whereas in the San Francisco Bay Area, the number is up there with Canada and Denmark. However, this phenomenon is so location-specific that even kids growing up in San Francisco are twice as likely to get to the top 20% compared to kids growing up across the bridge in Oakland.
There’s also a question of spread. Canada and Denmark have less income inequality, meaning you don’t have to travel as far to get to the top of the income distribution.
Still, the reality is that it is becoming harder for Americans to climb the socioeconomic ladder. The number of 30-year old Americans who today earn more than their parents is dropping compared to previous decades. So what needs to be done? What is causing this erosion of the American Dream?
Yesterday I came across an incredibly fascinating chart from Eurostat, analyzing housing tenure (in 2011) across Europe. Here it is:
And here’s what I found interesting.
Working from left to right, there seems to be a clear difference between Eastern and Western Europe in terms of the amount of leverage they use to buy homes. If you look at Romania, not only does over 90% of the population own a home, but they also don’t seem to have any outstanding mortgage or housing loan. That means they’re buying their homes in cash.
By the time you get to the United Kingdom, you start to see numbers that are comparable to Canada and the United States. The percentage of owner occupied homes is sitting at or below 70% and the majority of them have a mortgage or loan.
But as a whole, Western Europe seems much more likely to rent than Eastern Europe. And in the case of Switzerland, more people rent than own. Why is that? This seems odd given its economic strength. But the same could be said for Germany and Austria, which also show relatively low ownership rates. Here’s one possible explanation.
Finally, I found it interesting that in Denmark, the Netherlands, and Sweden, there’s virtually no such thing as subsidized rental housing. If you rent, you’re paying market rate (at least according to this chart). I wonder if this has something to do with there being less income inequality.
