Like father, like son? A comparison of absolute and relative intergenerational labour income mobility in Germany and the US

Maximilian Stockhausen

doi:10.1007/s10888-021-09483-w

Maximilian Stockhausen

Open Access

https://doi.org/10.1007/s10888-021-09483-w

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Abstract

Are children better off than their parents? This highly debated question in politics and economics is investigated by analysing the trends in absolute and relative intergenerational labour income mobility for Germany and the US. High quality panel data is used for this purpose; the SOEP for Germany and the PSID for the US. In Germany, 67% of sons born between 1955 and 1975 earned a significantly higher real long-run labour income than their fathers. Those with fathers from the lowest earnings bracket were particularly mobile in absolute terms. In contrast, the fraction of US sons earning more than their fathers is 60% on average for the same cohorts. Their share decreased from 66% in the 1956–60 birth cohort to 48% in the 1971–75 birth cohort, while it changed very little in Germany. Overall, absolute as well as relative labour income mobility is larger in Germany than in the US. This indicates that economic growth has been distributed more broadly in Germany than in the US. While the majority of German males has been able to share in the country’s rising prosperity and are better off than their fathers, US males continue to lose ground. Hence, Chetty et al. (Science 356:398–406, 2017) seem to be right when they say that the American Dream is slowly fading away.

Highlights

Is the promise of advancement and shared prosperity still alive in Germany and the United States (US)? A recent study by Chetty et al (2017) creates some serious doubt, at least for the US
Absolute mobility tends to increase with a higher cut-off value across cohorts and along the fathers’ labour income distribution, such that the results presented in the main section tend to be a relatively conservative estimates of absolute mobility
The same applies to social mobility, which in economics usually means the relationship between the income of parents and their children

Summary

Introduction

Is the promise of advancement and shared prosperity still alive in Germany and the United States (US)? A recent study by Chetty et al (2017) creates some serious doubt, at least for the US. The fraction of children receiving a higher income than their parents has significantly fallen over time: 92% of children born in 1940 earned more than their parents compared to 50% in the 1984 birth cohort. They conclude that the American Dream is fading away. Most indicators of economic inequality show lower levels of inequality in Germany over time, this does not need to automatically translate into a better situation in Germany regarding intergenerational income mobility (Organisation for Economic Cooperation and Development (OECD) 2015).

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