Evidence on Declining Intergenerational Mobility in the United States

If the US economy had considerable intergenerational mobility–that is, if the children growing up in lower-income households had a reasonably good chance of ending up as adults in higher-income households, and conversely the children growing up in higher-income households had a reasonably good chance of ending up as adults in lower-income households–then I would be less concerned about the extent of income and wealth inequality. 

Brian Stuart offers a readable overview of the current evidence in “Inequality Research Review: Intergenerational Economic Mobility” (Economic Insights: Federal Reserve Bank of Philadelphia, Third Quarter 2023, pp. 2-7).

Here are a couple of figures to summarize the main takeaways. The first figure shows the share of children at age 30 who earn more than their parents did at age 30 –adjusted for inflation. For children born in the 1940s and ’50s, the share was 80% and higher. For children born in the 1960s and 1970s, it was about 60%. For children born in 1984 (who would have been 30 years old in 2014), the share is about 50%.

A related but different measure of intergenerational mobility looks at how the ranking of parents’ income is correlated with the ranking of their children, when those children are grown to adulthood. As Stuart writes:

Specifically, there is considerable upward mobility for children born to parents with lower incomes. For example, children born to the poorest parents—in the 1st percentile of the income distribution—rise on average to the 31st percentile. There is also considerable downward mobility for children born to parents with higher incomes. Children born to the richest parents—in the 100th percentile—on average fall to the 73rd percentile. When averaging over all parents and children in the data, each 1 percentile increase in parents’ income rank is associated with a 0.37 percentile increase in children’s income rank. This relationship lies between the benchmarks of perfect mobility—where a child’s income rank would be unrelated to their parents’ income rank—and no mobility—where a child’s income rank would equal their parents’ rank.

The breakthrough in the last 8-10 years in this area of research is that it became possible to take Census data and to link it to data from federal income tax returns over a sustained period of time. The data is “de-identified,” that it’s impossible to track specific individuals, but only to look at patterns. However, when filling out tax returns, you list your children and their Social Security numbers. Thus, it’s possible to look at patterns of adult earnings, and then later at earnings for children. It’s also possible to look at neighborhoods where children grew up, and what happens to families who move to higher-income or lower-income neighborhoods, and all sorts of interesting stuff. For an overview of this line of research in earlier posts, see “Intergenerational Mobility and Neighborhood Effects” (March 8, 2021) and “Black-White Income and Wealth Gaps” (July 2, 2018).

I do not have a magic ethics ball to tell me if this is “enough” intergenerational mobility or not. After all, any distribution of income will always have, by definition, half of the population below the median income and half above. Not everyone can be above-average. Humans and the world being what they are, it doesn’t feel reasonable to expect that children will be unaffected by the household where they grow up.

On the other hand, a society where most people are out-earning their parents and thus feel an expanding sense of possibility will have a different feeling than a society where half the people are not out-earning their parents. Perhaps the issue is not mobility from bottom-to-top, or top-to-bottom, but the share of people who feel that they have a “middle-class” level of income. A few years back, the OECD did a report on the middle-class, arguing in part that being middle class means feeling that you can afford certain middle-class goods, and in particular, a middle-class level of education, health care, and housing. Thus, trying to assure that children from lower-income families have a reasonable shot at the education and health they need to succeed is one useful goal, but the definition of “success” may depend on policies that make education, health care, and housing feel available and affordable to those with middle-class incomes.