Intergenerational Elasticity Research Articles

Less Equal and Less Mobile: Evidence of a Decline in Intergenerational Income Mobility in the United States

We use PSID data to 2008 to consider changes in the intergenerational elasticity (IGE) of income in fifteen successive ten-year cohort-groups of sons aged 36-45 between 1997 and 2011. Regressing sons’ estimated lifetime income on fathers’ income within each group, we obtain fifteen IGE estimates, which exhibit a significant rising trend, as do intergenerational correlations and rank correlations. The Gini coefficient of sons’ lifetime income within these groups exhibits a correlation of 0.71 with our IGE estimates, leading us to conclude that as the United States has become economically less equal in recent years it has also become less mobile.

Intergenerational Earnings Mobility in Korea

This study investigates intergenerational earnings mobility in Korea for sons born between 1958 and 1973 and compares Korea's mobility to that of other countries. It uses data from the Korea Labor and Income Panel Study and the Household Income and Expenditure Survey conducted by the National Statistics Bureau. Since no single Korean data set includes the information on both sons' and their fathers' adult earnings, this study follows the two-sample approach previously applied in several other countries. The estimated intergenerational earnings elasticity of around 0.4 is similar to estimates for some already developed countries and smaller than typical estimates for recently developing countries.

A New Proposal to Gauge Intergenerational Mobility: Educational Mobility in Europe as a Case Study

This paper is aimed at presenting a new intergenerational mobility index that (a) combines the intergenerational elasticity and the R-squared of the intergenerational regression and (b) enables the expression of the total degree of mobility as the weighted sum of mobility with respect to both parents. As a case study, we apply our proposal to investigate the intergenerational mobility of education in several European countries and its changes across birth cohorts. The results derived from the proposed index indicate that Nordic countries display higher levels of educational mobility than Southern countries, whereas continental countries are in an intermediate position. Moreover, it appears that the degree of mobility increases over time only in those countries with low initial levels and remains stable for the most mobile countries. Finally, for most of the countries the proposed methodology can prove that the degree of educational mobility with respect to each parent tends to converge to the same level over the course of time.

Intergenerational income mobility revisited: Estimation with an income dynamic model with heterogeneous age profile

The traditional method of estimating intergenerational income elasticity by using the average income over a few years for each generation is subject to attenuation bias due to measurement error and lifecycle bias. In this paper, I estimate the intergenerational elasticity using an income dynamic model with intergenerational linkages. The model can explicitly account for sources of biases such as heterogeneous age profile and transitory shocks of changing variance over the lifecycle. The model can be identified through the covariance structure of earnings within individuals and across generations. Based on the models, I simulate the lifetime income of both generations and calculate the implied intergenerational elasticity.Using PSID data from the United States and GSOEP data from Germany, the estimated intergenerational elasticity of fathers and sons is substantially higher than those in the literature. The intergenerational elasticity is as high as 0.66 for the US and 0.48 for Germany.

Intergenerational top income mobility in Sweden: Capitalist dynasties in the land of equal opportunity?

This paper presents new evidence on intergenerational mobility at the top of the income and earnings distributions. Using a large dataset of matched father-son pairs in Sweden, we find that intergenerational transmission is very strong at the top, more so for income than for earnings. At the extreme top (top 0.1%) income transmission is remarkable with an intergenerational elasticity of approximately 0.9. We also study potential transmission mechanisms and find that IQ, non-cognitive skills and education of the sons are all unlikely channels in explaining the strong transmission. Within the top percentile, increases in the income of the fathers, if they are related at all, are negatively associated with these variables. Wealth, on the other hand, has a significantly positive association. Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society in which transmission remains strong at the very top of the distribution and wealth is the most likely channel.

Black-White Differences in Inter-Generational Economic Mobility in the U.S.

Traditional measures of inter-generational mobility such as the inter-generational elasticity are not useful for inferences concerning group differences in mobility with respect to the pooled income distribution. This paper uses transition probabilities and measures of “directional rank mobility” that can identify inter-racial differences in inter-generational mobility. The study uses two data sources including one that contains social security earnings for a large inter-generational sample. I find that recent cohorts of blacks are not only significantly less upwardly mobile but also significantly more downwardly mobile than whites. This implies a steady-state distribution in which there is no racial convergence in income. A descriptive analysis using co-variates reveals that test scores in adolescence can explain much of the racial difference in both upward and downward mobility. Family structure can account for some of the racial gap in upward mobility but not downward mobility. Completed schooling and parental wealth also appear to account for some of the racial gaps in inter-generational mobility.

Black-White Differences in Intergenerational Economic Mobility in the US

Traditional measures of intergenerational mobility such as the intergenerational elasticity are not useful for inferences concerning group differences in mobility with respect to the pooled income distribution. This paper uses transition probabilities and measures of “directional rank mobility” that can identify interracial differences in intergenerational mobility. The study uses two data sources including one that contains social security earnings for a large intergenerational sample. I find that recent cohorts of blacks are not only significantly less upwardly mobile but also significantly more downwardly mobile than whites. This implies a steady-state distribution in which there is no racial convergence in income. A descriptive analysis using covariates reveals that test scores in adolescence can explain much of the racial difference in both upward and downward mobility. Family structure can account for some of the racial gap in upward mobility but not downward mobility. Completed schooling and parental wealth also appear to account for some of the racial gaps in intergenerational mobility.

Empirical Strategies to Eliminate Life-Cycle Bias in the Intergenerational Elasticity of Earnings Literature

I argue that the empirical strategies for estimation of the intergenerational elasticity of lifetime earnings that are currently employed in the literature might not eliminate bias arising from life-cycle effects. Specifically, I demonstrate that procedures based on the generalized errors-in-variables model suggested by Haider and Solon (2006) or the consideration of differential earnings growth rates across subpopulations may not yield unbiased or consistent estimates. I further argue that instrumental variable estimators will not identify an upper bound for the true population parameter.

The Intergenerational Transmission of Employers

We find that about 40% of a cohort of young Canadian men have been employed at some time with an employer for which their father also worked, and 6%–9% have the same employer in adulthood. The intergenerational transmission of employers is positively related to paternal earnings, particularly at the very top of the earnings distribution, and to the presence of self-employment income and the number of employers with which the father has had direct contact. It has an important influence on nonlinear patterns in the intergenerational elasticity of earnings.

THE POLITICAL ECONOMY OF INTERGENERATIONAL INCOME MOBILITY

The intergenerational elasticity of income is considered one of the best measures of the degree to which a society gives equal opportunity to its members. While much research has been devoted to measuring this reduced-form parameter, less is known about its underlying structural determinants. Using a model with exogenous talent endowments, endogenous parental investment in children, and endogenous redistributive institutions, we identify the structural parameters that govern the intergenerational elasticity of income. The model clarifies how the interaction between private and collective decisions determines the equilibrium level of social mobility. Two societies with similar economic and biological fundamentals may have vastly different degrees of intergenerational mobility depending on their political institutions. We offer empirical evidence in line with the predictions of the model. We conclude that international comparisons of intergenerational elasticity of income are not particularly informative about fairness without taking into account differences in politico-economic institutions. (JEL E24, J62, J68, P16)

The Intergenerational Transmission of Employers

We find that about 40% of a cohort of young Canadian men has been employed with an employer for whom their father also worked; and six to nine percent have the same employer in adulthood. The intergenerational transmission of employers is positively related to paternal earnings, particularly at the very top of the earnings distribution, and to the presence of self-employment income and the number of employers with which the father has had direct contact. It has an important influence in determining nonlinear patterns in the intergenerational elasticity of earnings.

Empirical Strategies to Eliminate Life-Cycle Bias in the Intergenerational Elasticity of Earnings Literature

Empirical Strategies to Eliminate Life-Cycle Bias in the Intergenerational Elasticity of Earnings Literature

Intergenerational Mobility of Earnings and Income in Japan

Abstract This paper presents estimates on the intergenerational mobility of economic status in Japan. We estimate the intergenerational elasticity of the earnings and income of offspring with respect to parental income using microdata from the 1993–2004 rounds of the Japanese Panel Survey of Consumers. The estimated intergenerational elasticity using predicted parental income is 0.41–0.46 for married sons, 0.30–0.38 for married daughters, and marginally less than 0.30 for single daughters. A downward trend in elasticity is also observed. Quantile regression does not suggest any particular relation between elasticity and quantiles. A nonlinear analysis of the relation between parental log income and log earnings of offspring illustrates an S-shaped relation for married sons and single daughters, and a linear relation for married daughters.

Estimates of Intergenerational Elasticities Based on Lifetime Earnings

Using Norwegian intergenerational data with a substantial part of the life-cycle earnings of children and almost the entire life-cycle earnings for their fathers, we present new estimates of intergenerational mobility. Extending the length of the fathers' earnings windows from 5 to 30 years increases the estimated elasticities. Increasing the age of father at observation has the opposite effect. Our findings indicate that intergenerational earnings mobility may have been strongly overstated in many earlier studies with shorter earnings histories. Biases in the estimated elasticities appear to be related to age and/or life-cycle measurement errors more than persistency in the transitory innovations.

Intergenerational Income Mobility in Singapore

Abstract Research on intergenerational earnings mobility in less developed economies is lacking. This paper investigates the case of Singapore, a newly-industrialized economy in Asia. Interval regressions are employed because of grouped dependent variables. Instrumental variables address problems of respondent errors and unobserved permanent income. Still, the estimated intergenerational elasticity of between 0.23 and 0.28 is probably under-estimated because the study uses a survey of young respondents who reported contemporaneous incomes of parents. Transformation of the estimates using scales in recent comparative studies indicates that intergenerational earnings mobility in Singapore may be moderately low when compared internationally. Education as a means through which parents invest in their children's future earnings appears important. There are some small independent returns from schooling. Mobility does not appear to differ by ethnicity, sex or income. These findings have important implications for equity, development and policy in Singapore, which has rising income disparity, a maturing economy, and an educational system which is increasingly privately run.

Studying Consumption with the Panel Study of Income Dynamics: Comparisons with the Consumer Expenditure Survey and an Application to the Intergenerational Transmission of Well-Being

Beginning in 1999, the Panel Study of Income Dynamics (PSID) added new questions about several categories of consumption expenditure. The PSID now covers items that constitute more than seventy percent of total expenditure measured in the Consumer Expenditure Survey (CE). We show that expenditure for each of the broad categories in the PSID aligns closely with corresponding measures from the CE. Using the new PSID data, we impute total expenditure in the PSID and show that this is also very close to total measured CE expenditure. For several distinct categories and for total consumption, we show that cross-sectional life cycle estimates of household expenditure activity are very similar across the two surveys. Finally, we illustrate the unique research value of the PSID for studying consumption by exploiting the survey's longitudinal design and genealogical structure to estimate the intergenerational elasticity of consumption expenditure, which is found to be in the range of 0.32-0.34.

Trends in the Intergenerational Elasticity of Family Income in the United States

This paper asks whether the degree to which our incomes resemble our parents’ incomes has changed over time. After comparing various methods of correcting for differences in the ages at which successive birth cohorts are observed, and correcting for sample attrition, I find no evidence of a linear trend in the intergenerational elasticity of family income for those born into the Panel Study of Income Dynamics between 1952 and 1975 and observed as adults between 1977 and 2000.

Intergenerational mobility and sample selection in short panels

AbstractUsing data from the first 11 waves of the BHPS, this paper measures the extent of the selection bias induced by standard coresidence conditions—bias that is expected to be severe in short panels—on measures of intergenerational mobility in occupational prestige. We try to limit the impact of other selection biases, such as those induced by labour market restrictions that are typically imposed in intergenerational mobility studies, by using different measures of socio‐economic status that account for missing labour market information. We stress four main results. First, there is evidence of an underestimation of the true intergenerational elasticity, the extent of which ranges between 12% and 39%. Second, the proposed methods used to correct for the selection bias seem to be unable to attenuate it, except for the propensity score weighting procedure, which performs well in most circumstances. This result is confirmed both under the assumption of missing‐at‐random data as well as under the assumption of not‐missing‐at‐random data. Third, the two previous sets of results (direction and extent of the bias, and differential abilities to correct for it) are also robust when we account for measurement error. Fourth, restricting the sample to a period shorter than the 11 waves under analysis leads to a severe sample selection bias. In the cases when the analysis is limited to eight waves, this bias ranges from about 40% to 65%. Copyright © 2006 John Wiley & Sons, Ltd.

Studying Consumption with the Panel Study of Income Dynamics: Comparisons with the Consumer Expenditure Survey and an Application to the Intergenerational Transmission of Well-being

Beginning in 1999, the Panel Study of Income Dynamics (PSID) added new questions about several categories of consumption expenditure. The PSID now covers items that constitute more than seventy percent of total expenditure measured in the Consumer Expenditure Survey (CE). We show that expenditure for each of the broad categories in the PSID aligns closely with corresponding measures from the CE. Using the new PSID data, we impute total expenditure in the PSID and show that this is also very close to total measured CE expenditure. For several distinct categories and for total consumption, we show that cross-sectional life cycle estimates of household expenditure activity are very similar across the two surveys. Finally, we illustrate the unique research value of the PSID for studying consumption by exploiting the survey's longitudinal design and genealogical structure to estimate the intergenerational elasticity of consumption expenditure, which is found to be in the range of 0.32-0.34.

The Intergenerational Transmission of Income in Switzerland: A Comparison Between Natives and Immigrants

This paper analyses the intergenerational income mobility for natives and immigrants in Switzerland. An IV approach based on data from two different data sets is used. As there is no adequate data on fathers, I revert to information from a period that differs from actual fathers' work period. This methodological approach leads to a bias of the resulting intergenerational elasticity. Nevertheless, cross-national comparison of income mobility is still possible. A comparison across subgroups of the Swiss population shows strong differences between Swiss and immigrants. Compared to natives, immigrants are more immobile. Also, substantial heterogeneity is found across different ethnic groups. Using quantile regression, mobility for natives is found to be similar for all income quantiles. Among immigrants, mobility is higher at the lower as well as at the upper end of the income distribution. These patterns differ from previous results from other countries.