One largely overlooked trend in US inequality could be the most alarming

The sharp and steady increase in US inequality in recent decades has been well documented. Less attention has been paid to a potentially even more important and alarming trend — a decline in US social mobility.

After all, this is the very essence of the American Dream, that people can succeed and prosper if they just work and try hard enough. A startling decline in the ability of Americans to climb up the social ladder is documented in a new study published by the Federal Reserve Bank of Minneapolis.

The report, entitled "The Decline in Intergenerational Mobility After 1980" finds "mobility declined sharply for cohorts born between 1957 and 1964 compared to those born between 1942 and 1953."

The best cities for living the American Dream in 2017
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The best cities for living the American Dream in 2017

10. Palmdale, California

Closing out our top 10 comes the city with the best diversity score in the top 10. Of course when it comes to achieving the American Dream, diversity in the population able to reach the dream is key. However, despite having the most diverse population, Palmdale couldn’t quite compete in the other metrics. It had both the lowest mobility score (43.3) and the highest unemployment rate (4.8%) of the top 10 cities. Palmdale’s 65.6% homeownership rate ranked fifth in the top 10.

(trekandshoot via Getty Images)

9. Round Rock, Texas

Down only one spot from last year’s ranking, Round Rock holds steady in the American Dream top 10. This year, Round Rock scored a slightly better diversity number, as well as an almost 2% increase in its homeownership rate. In fact, as the Austin-Round Rock metro area, Round Rock landed as the second-best housing market for growth and stability in 2016. However, the city’s unemployment went up a bit, from 3.1% last year to 3.9% this year.

(Photo by Jack Plunkett/Bloomberg via Getty Images)

8. Cedar Rapids, Iowa

Last year, Cedar Rapids tied with Plano, Texas for the sixth-best city for living the American Dream. Although Cedar Rapids dropped a couple spots, it was able to stay in the top 10 unlike Plano. The second-largest city in Iowa, Cedar Rapids was able to maintain a decent mobility score, ranking 36th overall this year. The city also saw a significant increase in its homeownership rate and a slight increase in median home value.

Known as the City of Five Seasons, Cedar Rapids boasts a big city feel without any of the hassle, leaving its inhabitants a fifth season “to enjoy all other seasons, and to enjoy life,” which sounds like an ideal setting for the American Dream. Despite its idyllic motto, the city has the worst diversity score in the top 10 and the sixth-worst overall.

Photographer: Steve Pope/Bloomberg via Getty Images

7. Kent, Washington

Last year, Kent took the 32nd overall spot, so it was a big jump to the seventh spot this year. Interestingly, Kent’s economic mobility score remained at 43.8 from last year. Its dip in unemployment rate, from 4.5% to 3.3%, giving Kent a boost. REI has its headquarters in Kent, contributing to the city’s economy.

Its diversity score saw little change, though it went up very slightly, from 0.29 to 0.27. The homeownership rate also dipped slightly, which is interesting considering the median home value dropped to the more affordable price of $282,300 compared to last year’s $317,100.

6. Sioux Falls, South Dakota

Sioux Falls is another new name in our American Dream study, standing out for its solid scores across our metrics. It impresses with the fifth-best unemployment rate at 2.9% as well as the ninth-best mobility score. The median home value poses an affordable option, which coincides with the 62.1% homeownership rate.

However, Sioux Falls ranks even lower than Rochester when it comes to diversity. It landed in the 252nd spot out of 261 cities.

5. Rochester, Minnesota

Although one of our newcomers to the American Dream top 10, Rochester is no stranger to accolades. It ranked as the best city for working women, as well as landing on the 10 best cities for children.

While Rochester is unfortunately not the most diverse city (it ranks very near the bottom), it does provide opportunity for mobility, ranking 11th overall in this metric. Rochester’s high homeownership rate of 70.6% also helped it climb the rankings, as did its low median home value and unemployment rate.

(BanksPhotos via Getty Images)

4. Aurora, Colorado

Not to be confused with our top pick in Illinois, the city known as The Gateway to the Rockies ranks as the fourth-best city to live the American Dream, up from the fifth spot last year. We recently named it the third-best city to own a home. Aurora’s numbers barely saw any change in diversity, mobility and the homeownership rate from last year, maintaining a nice stability. Its unemployment rate also remained virtually unchanged, which was good enough to rank 14th in the study. Aurora is an affordable and appealing place to live.

(Ted Wood via Getty Images)

3. Midland, Texas

Just like last year, Midland carries one of the highest scores when it comes to intergenerational mobility. It has the highest score within the top 10 cities in this metric. The Tall City’s homeownership rate increased by 5% as compared to last year. This good kind of growth may be no surprise since Midland also ranked in the top 10 of our best boomtowns of 2016 study.

Midland’s unemployment rate did see a slight bump from 3.3% last year to 4.2% this year. This is one reason why the city slipped a single spot in our ranking.

1. (tie) West Valley City, Utah

While West Valley City was able to hold on to its number one title, it shares that spot this year with Aurora, Illinois. This Salt Lake City suburb scored solidly across the top 10, ranking fifth in diversity and fifth in home value. It also has a mobility score of 45.7, which scored 22nd in the study.

What contributed to West Valley City’s shared win was partly its dip in homeownership, down about 3% from last year. However, this year’s percentage of 67.2% still lands at the third-highest out of the top 10 cities. The city’s unemployment rate did increase a bit though, lowering the city’s overall index score.

(Photo credit: GEORGE FREY/AFP/Getty Images)

1. (tie) Aurora, Illinois

Way up from the 44th spot last year, Aurora, Illinois impresses by tying with West Valley City, Utah as the best place to live the American Dream in 2017. Aurora moved up the ranks with improved mobility numbers – its mobility score was 49. That ranked second in the top 10 and fifth overall. This means that the citizens of Aurora have the opportunity to move to higher economic percentiles than the generations before them. Further, Aurora’s unemployment rate dropped by about 2%. A suburb of Chicago, Aurora lies within the Illinois Technology and Research Corridor, a huge region of industry and commerce.

REUTERS/John Gress

Why the distinction? "The former entered the labor market largely after the large rise in inequality that occurred around 1980 while the latter entered the labor market before this inflection point," write Jonathan Davis of the University of Chicago and Bhashkar Mazumder, a Chicago Fed economist.

They find that "share of children whose income exceeds that of their parents fell by about 3 percentage points" in the period staring in 1980.

Their findings echo a study from the St. Louis Fed in March that showed US social mobility is much lower than its rich-country peers'.

An excerpt from the Minneapolis Fed paper sheds light on the importance of understanding social mobility when studying US inequality, which is now at levels comparable to the Great Depression (emphasis ours):

"One of the most notable changes in the US economy in recent decades has been the rise in inequality. A key inflection point in inequality appears to be around 1980. It was during the early 1980s that there was a pronounced increase in the 90-10 income gap and a sharp rise in the income share of the 1%.

"With the advent of a more unequal society, concerns about a possible decline in inequality of opportunity have risen to the forefront of policy discussion in the US. To better understand inequality of opportunity, economists and other social scientists have increasingly focused attention on studies of intergenerational mobility. These studies typically estimate the strength of the association between parent income and the income of their offspring as adults."

In other words, it's not so much inequality of outcomes that bothers Americans, but inequality of opportunity. And that, unfortunately, appears to still be rising.

Inequality Chart Minneapolis FedFederal Reserve Bank of Minneapolis

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