Is the American Dream Dead?

Challenges to improving one’s economic status.

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The concept of the American dream—that this country is the land of opportunity, and that anyone can achieve success through hard work—has given hope to people born without privilege, and it's one of the main reasons people come to the United States from throughout the world.

But in recent years, the basic premise of the American dream has been questioned. The Great Recession had a much larger impact on the working class than it did on the upper and middle classes. Most of the people who lost jobs had a high school education or less. A recent report by Georgetown University's Center on Education and the Workforce found that employment among people who didn't attend college has been flat since the recovery began, meaning people who lost their jobs can't find new ones.

[See 12 Ways To Stop America's Decline.]

The uneven nature of job losses spurred by the recession has exacerbated income inequality, further spreading the gap between the wealthy and the rest of the nation. According to Nobel Prize-winning economist Joseph Stiglitz, the percentage of income that goes to the top 1 percent of American earners has doubled since 1980, while the percentage that goes to the top 0.1 percent has tripled.

In addition, the Organization for Economic Cooperation and Development (OCED) recently warned that structural income inequality in the United States threatens the long-term strength of the country.

"The U.S. education system is less effective than those of other countries in helping children realize their potential," OCED said in its June 2012 report. "The United States is one of only three OCED countries that on average spend less on students from disadvantaged backgrounds than on other students."

The stark inequalities between the upper and middle classes have become fodder for the presidential campaigns. More important to the average American consumer, however, is what these changes mean as the nation's economy attempts to rebound. Are there still real opportunities to better your lot in life through hard work? Or is the American dream dead?

Lack of consensus on economic mobility, but data gaps exist. According to Scott Winship, a fellow in economic studies at the Brookings Institute, most of the research on economic mobility focuses on people who were born in the early 1970s. These studies have not reached a consensus on whether mobility is increasing or decreasing.

[See 10 Ways to Give Your Money a Makeover.]

However, Winship says that when studies are done on people born in subsequent generations, it's not clear whether there will be a decline in economic mobility. "Kids born more recently, when they are in [their] middle age, [might] have experienced less mobility than we have in the past," he says.

But Winship adds that it's not clear if this lack of mobility is structural or cyclical. Opinion polls show that many American parents believe children will not be better off. "If you look at trends in public opinion on the question of whether children will end up better off, you do see very clear cyclical patterns," says Winship. "During downturns, people are more pessimistic."

Brian Domitrovic, a professor of economic history at Sam Houston State University in Texas, says the main factor that could limit economic mobility is debt, particularly debt in the form of student loans.

"When you're talking about college kids with $120,000 in debt, nothing like that has been in the landscape before, especially in terms of women," he says. "You're going to spike the impossibility of realizing the dream if you're saddled with that kind of debt coming out the gate."

Domitrovic adds that any lack of economic mobility is intensified by the anemic recovery of the U.S. economy. "I don't think there's going to be any problem with jobs and wealth in this county if we figure out a way solve the problems of the Great Recession," he says.

[ See 50 Ways to Improve Your Finances in 2012]

Holding on to hope, but the end of quick wealth. Lisa Kirchenbauer, president of Omega Wealth Management in Arlington, Va., says she believes the American dream of improving one's lot in life still exists, but it's becoming more difficult to accomplish.