There is a belief among Americans that with hard work, education and maybe a little luck, anyone can improve their lot in life. That even if you start on the bottom rung of the income ladder, it's possible to climb to the top.
But for most people, that's not true.
Though Americans as a whole have historically been able to count on doing better economically than their parents, for children born since 1980 out-earning the previous generation has been a coin toss.
New data the Federal Reserve Bank of Minneapolis compiled into the Income Distributions and Dynamics in America report shows income stagnation is widespread, and Minnesotans are among the Americans least likely to move out of their current bracket. Those who start at the bottom here tend to stay at the bottom, and those who start at the top tend to stay at the top.
"It is harder for people who are in the lower-earning percentiles to move up over time, but it is also harder to go the other way, for the most part," said Abigail Wozniak, vice president and director of the Minneapolis Fed's Opportunity & Inclusive Growth Institute. "Certainly, beneficiaries of that have often been white earners, but it also does mean for Black earners and earners of color who start to earn in that highest quartile, they are less likely to fall out of it than other places. There is a two-sides-to-the-coin kind of situation with that mobility piece."
Let's see what this looks like.
This is just one five-year span. Through the course of a working life, the opportunity for mobility declines until it's essentially nonexistent.
Only Washington, D.C., and North Dakota have higher rates of so-called "income persistence." Minnesota takes third place, tied with Maryland and Massachusetts.
There is a regional component at play, Wozniak said, with some other states in the Fed's Ninth District — which includes much of the Upper Midwest — experiencing similar limitations in income mobility. Potential contributing factors include lower rates of in-migration and new business formation, she said.
"Minnesota in particular, we really pride ourselves on having these headquarters and these big companies," Wozniak said. "The earnings of their workers tend to be very, very stable, and so then you don't see that movement as much."
Outward migration in recent decades is also a possible contributor to this phenomenon in Minnesota, said Misty Heggeness, an associate economics and public affairs professor at the University of Kansas. She is an example: After growing up in Fargo, she graduated from the University of Minnesota and then left for a job in Washington, D.C.
"People will get educated, and then they'll move to where the jobs are," she said.
For those who opt to stay, Wozniak said, there are strong local networks that "help preserve the earnings, and in another sphere, even the wealth capacity of families."
High earners who stay in Minnesota are unlikely to see their incomes decline. While that's a positive story for those Minnesotans, it raises questions about the systems that allow income inequality to persist, Heggeness said.
"If you're at the upper level, you're benefiting a lot from a system that is rigid," she said. "Are the supports and systems that we have in place ... just maintaining a status quo?"
Median individual earnings in Minnesota in 2019 were $39,750, with about 16% of all income concentrated among the top 2% of earners, according to the Fed.
The lack of mobility exacerbates persistent racial and gender income gaps that have long plagued Minnesota, despite the state's relatively high level of investment in education, health care and social services. This new data — the most detailed ever made public — confirms the true depth of these inequities.
"It's not the story we tell about ourselves," said Ed Goetz, a professor at the University of Minnesota Humphrey School of Public Affairs. "People have to have opportunities to improve or their investment in the existing social structure really begins to erode."
There are also major inequities between Minnesotans, some of which are likely not reflected in tax records. Though tax data can be more reliable than survey data — which often includes underreporting at the highest levels and overreporting at the lowest, Heggeness said — some earners are missing, such as those who are self-employed or work in informal economies.
Some of the greatest disparities are between racial groups. A Native American worker has just a 1 in 3 chance of moving out of the lowest income quartile within five years. Black and white workers are also more likely than not to stay in the lowest bracket, while Latino workers have a 50% chance of moving up. Asian workers have the greatest chance of leaving the bottom quartile at 57%.
For all workers, the chance of moving up declines at higher income levels. For those who jump one rung to the second quartile, odds are they will either stay there or fall back down again.
Men are also more likely to move up the income ladder than women. Male workers in the second quartile have slightly more than a 1 in 3 chance of moving up, compared to a 1 in 4 chance for female workers at the same level.
In addition, workers can be in the same quartile and have very different incomes. Let's look at the middle of the ladder, or the 50th percentile, what we might call "middle class."
At this level, Black workers are earning $16,000 less, and Native American workers are earning $17,000 less than white workers. Closing that gap would nearly double their incomes.
Female earners at every level earn less than men. Though the gap in Minnesota is narrower than the U.S. average, as women climb the work ladder, they fall further and further behind men.
While U.S. women as a whole have earned about 80 cents on the dollar for the past 30 years, women at the highest income levels earn about 60 cents on the dollar.