Understanding the Mechanical Relationship between Inequality and Intergenerational Mobility
37 Pages Posted: 17 Jun 2016 Last revised: 7 Sep 2017
Date Written: September 6, 2017
Income inequality and income intergenerational immobility are positively associated across countries. Here we provide an explanation for this association and show it is mechanically driven by the definition of the intergenerational earnings elasticity. This may hint that higher intergenerational mobility will lead to lower income inequality and vice versa. However, it questions the underlying economic significance of the empirical findings depicted in the so-called "Great Gatsby curve," as it presents the relationship between two measures of the same underlying mathematical property. We also find a similar relationship between the intergenerational earnings elasticity and the rank-rank slope. We conclude that measuring inequality using the Gini coefficient and intergenerational mobility using intergenerational earnings elasticity or rank-rank slope is fundamentally equivalent under general assumptions.
Keywords: Mobility, Inequality, Econometrics, Stochastic processes
JEL Classification: C0, D0, J0
Suggested Citation: Suggested Citation