Intragenerational mobility and the ratio of permanent to total inequality

Abstract

This article provides finite sample conditions for the ratio of permanent to total inequality based on methods of Gottschalk and Moffitt (1994) to be equivalent to the Shorrocks R constructed with a Theil General Entropy Index. A simple test emerges of whether the two measures can be seen as equivalent that reveals the implicit social weighting placed on different parts of the income distribution by the Gottschalk–Moffitt methods. Using data from the PSID and the SOEP for annual income from 1984 through 2006, the condition for the two measures to be equivalent is found to be satisfied in both data sets.