Revised Estimates of Intergenerational Income Mobility in the United States

35 Pages Posted: 30 Nov 2003

Date Written: November 2003

Abstract

Solon's (1992) landmark study estimated the intergenerational elasticity (IGE) in income between fathers and sons to be 0.4 or higher. This dramatically changed the consensus view of the U.S. as a highly mobile society. In this comment, I show both analytically and empirically how Solon and others have actually underestimated this parameter by about 30 percent, suggesting that the IGE is actually close to 0.6 and that the U.S. appears to be among the least mobile countries. There are two key measurement issues that lead researchers to underestimate the IGE. First, the use of short-term averages of fathers' earnings is a poor proxy for lifetime economic status due to highly persistent transitory shocks. Second, the variance of transitory fluctuations to earnings varies considerably by age causing a "lifecycle" bias when samples include measures of fathers' earnings when they are especially young or old. In this comment Solon's results are replicated and then re-estimated using a new technique that is able to address these issues using the same PSID sample. The results confirm that the intergenerational elasticity is likely to be around 0.6.

Keywords: intergenerational, mobility, inequality

JEL Classification: J0, D3, J62

Suggested Citation

Mazumder, Bhashkar, Revised Estimates of Intergenerational Income Mobility in the United States (November 2003). FRB of Chicago Working Paper No. 2003-16. Available at SSRN: https://ssrn.com/abstract=473188 or http://dx.doi.org/10.2139/ssrn.473188

Bhashkar Mazumder (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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