Over the last three decades, millions of people have slipped through a dodge in the American dream and turn out to be downwardly mobile as a result of downsizing, plant closings, mergers, and divorce: the middle-aged computer executive laid off during an industry crisis, blue-collar workers phased out of the post-industrial economy, middle managers whose positions have been phased out, and once-affluent housewives stranded with children and a huge mortgage as the result of divorce. Increasing downward mobility can also cause serious economic problems. The downwardly mobile must reduce consumption, investment, and savings. Such cuts by a substantial segment of the population could dampen future economic growth. Even those not downwardly mobile could feel more at risk, possibly depressing consumer confidence. An increase in the number of downwardly mobile could also contribute to income inequality. For example, if more persons experience very large drops in income while fewer maintain their income level or enjoy income gains, income inequality increases. Lastly, if many of the downwardly mobile become poor, the demand on already strained public assistance resources increases. (Jencks, Christopher, and Susan E. Mayer. 1990)
Downward mobility may create unlike problems depending on which class experiences the majority of the income declines. For instance, if complete downward mobility consists totally of super-rich persons becoming only modestly rich or middle class, then problems related to declines in savings and investment would be expected. In contrast, if downward mobility consists mostly of middle income persons dropping into the lower class, increased demand or public assistance, and problems related to diminished consumer confidence and perhaps to political instability, would be expected. More of the downwardly mobile came from the middle and lower classes, and fewer from the upper class, in the mid eighties. This result is consistent with studies which find greater income inequality.......
