Intergenerational Income Mobility

Intergenerational Income Mobility

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January 17, 2017
Intergenerational Income Mobility
In a mobile society, individuals’ incomes and income rank
unchanged or decline. This is illustrated in Figure 1, which
rise and fall over time. Intergenerational income mobility
depicts an individual (solid line) who is mobile across
describes these patterns across generations; specifically
generations in absolute terms (i.e., higher income), but not
how children’s incomes in adulthood compare with their
in relative terms (i.e., rank is unchanged). The dashed line
parents’ incomes in the past. There are several ways to
indicates an individual who is mobile across generations in
assess the degree of intergenerational mobility, but
both relative terms and absolute terms.
fundamentally, a society exhibits more intergenerational
mobility where children’s incomes are less determined by
Empirical Challenges
their parents’ income or rank. By contrast, where income
Efforts to estimate the degree of intergenerational income
mobility is lacking, individuals are more likely to remain at
mobility in the United States have encountered several
the economic position of their upbringing; the rich stay rich
empirical hurdles, including a paucity of datasets that track
and the poor stay poor.
incomes across generations, small sample sizes, and
imprecise measurement of incomes. In addition, analysts
Strong intergenerational income mobility is generally
must decide how to define incomes and select methods to
appealing because it means that children are not entirely
ensure that child-parent comparisons are meaningful. These
constrained by the resources or economic status of their
choices include selecting a price deflator to inflation-adjust
childhood. Instead, building blocks of economic prosperity
parents’ incomes, identifying the ages at which children and
(e.g., education, health, credit, and job markets) are broadly
parents were at comparable life stages, and accounting for
available, and effort, education, investment, and talent can
changing trends in household size and composition, the
generate economic success regardless of a child’s starting
value of non-cash benefits (e.g., employer-sponsored health
point. Optimism in the United States about broadly shared
insurance), and work-related costs associated with dual-
economic opportunities has waned recently and concerns
earner households (e.g., child care).
about declining mobility have been bolstered by new
research findings that indicate a falling trend in the share of
Prominent Data Sources
children who have higher incomes than their parents did,
Many studies use data from the Panel Study of Income
when compared at similar ages.
Dynamics (PSID), which has collected information from a
large-scale nationally representative sample of families
Measuring Intergenerational Mobility
since 1968. Important to mobility research, the PSID
In broad terms, intergenerational income mobility measures
continues to collect information on children who reach
can be grouped into two categories: absolute measures
adulthood and leave their parents’ home. It also contains
describe children’s income levels (in inflation-adjusted
information on education and other factors that may help
dollars) relative to their parents’ at similar ages, and
discern drivers of the parent-child income connections.
relative measures compare children’s rankings in the
(contemporary) income distribution to their parents’
A recent and promising development to intergenerational
placement in a past income distribution (i.e., the family’s
mobility measurement is the publication of a detailed set of
rank during childhood).
mobility estimates by researchers at the Equality of
Opportunity Project, based on a large sample of federal
Figure 1. Absolute and Relative Income Mobility
income tax records. A 1986 change to the U.S tax code that
required tax return filers to provide dependents’ Social
Security numbers allowed for a direct comparison of the
income distribution rankings of families in 1987-1998 to
later rankings of children from those families in 2000-2012.
Recent Research Findings
Recent studies indicate that large shares of children have
higher incomes (in adulthood) than their parents did at
similar ages (i.e., indicate upward absolute mobility), but

also offer some evidence that this share has declined among
Source: Congressional Research Service.
children born between 1940 and 1984. In terms of relative
mobility, the share of children who rise to a higher
Absolute and relative income mobility measures do not
distributional rank than that held by their parents is lower,
necessarily have the same magnitudes nor must they move
but does not appear to have changed discernibly for
together over time. Because distributional rank describes
individuals born between 1971 and 1982.
one’s placement relative to others, it is possible for incomes
to rise in absolute terms but distributional rank to remain
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Intergenerational Income Mobility
Absolute Mobility Estimates
Intuitively, the higher a parent’s income, the harder it is for
Table 1 summarizes recent estimates of the share of
a child to surpass it; consistent with the recent sharp rise in
children who had higher incomes as adults than their
incomes at the top of the distribution, this hurdle has
parents did at similar ages, using PSID data. Estimates are
increased over time. A comparison of results for the 1940
between 63% and 84%, with the wide range reflecting
and 1984 birth cohorts (Figure 3) indicates that the share of
differences in data years, sample studied, and definitions.
children who earned more than their parents fell by 60.4
percentage points for children from families ranked at the
Table 1. Absolute Upward Intergenerational Mobility
90th percentile of the income distribution, whereas the
Estimates, Based on PSID Data
decline was 23.9 percentage points for those from the 10th
percentile.
Children with Higher
Incomes than Their
Birth
Relative Mobility Estimates
Study
Parents
Cohorts
Parent-child rank correlations measure the degree to which
Urban (2016)
63%
1963-1968
parents’ past placement in the income distribution are
related to children’s rank. If no relationship exists (i.e., a
Pew (2012)
84%
1950-1968
perfectly mobile society), this correlation is zero; where
parental rank perfectly predicts a child’s rank, the
Brookings (2008)
67%
1950-1968
correlation is one. A recent analysis of linked federal tax
Source: Urban Institute, What Would Substantially Increased Mobility
records produced statistically significant parent-child rank
from Poverty Look Like?, 2016. The Pew Charitable Trusts, Pursuing the
correlations of about 0.3 for the 1971-1982 birth cohorts,
American Dream: Economic Mobility Across Generations, 2012. The
indicating that (1) parents’ past ranking in the income
Brookings Institution, Getting Ahead or Losing Ground: Economic Mobility
distribution is related to a child’s ranking in adulthood, and
in America, 2008.
(2) relative intergenerational mobility has not increased or
declined across the birth cohorts examined (Figure 4).
A recent study—using new methods and a combination of
federal tax records and Census data (i.e., not PSID data)—
Figure 4. Estimated Parent-Child Rank Correlations
finds that upward mobility, measured in absolute terms, has
declined markedly among individuals born between 1940
and 1984. Figure 2 summarizes this main result, and shows
that, whereas 92% of children born in 1940 earned higher
incomes at the age of 30 than did their parents, this share
dropped to 50% for children born in 1980.
Figure 2. Share of Children with Greater Incomes

Than Their Parents, by Children’s Birth Year
Source: R. Chetty, N. Hendren, and P. Kline, et al., "Is the United
States Still a Land of Opportunity? Recent Trends in Intergenerational
Mobility," American Economic Review, vol. 129, no. 4 (2014).
Relative mobility can also be assessed by the share of
children who achieved a higher distributional rank than
their parents. Figure 5 shows that among the 1950-1968
birth cohorts (in PSID data): (1) fewer than 60% of children
Source: R. Chetty, D. Grusky, and M. Hell, et al., The Fading
raised in each of the bottom four income quintiles achieved
American Dream: Trends in Absolute Income Mobility Since 1940,
a higher distributional rank in adulthood, and (2) the odds
National Bureau of Economic Research Working Paper 22910, 2016.
of moving upward decrease with family income rank.
The same study also finds that the degree to which absolute
Figure 5. Relative Intergenerational Mobility, 1950-
mobility declined is larger for individuals raised in higher
1968 Birth Cohorts
income families (Figure 3).
Figure 3. Share of Children with Greater Incomes
Than Their Parents, by Parent’s Income Rank

Source: The Pew Charitable Trusts, 2012.
Sarah A. Donovan, Analyst in Labor Policy
Source: Chetty et al., 2016.
IF10586
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Intergenerational Income Mobility

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