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Revised estimates of intergenerational income mobility in the United States

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  • Bhashkar Mazumder

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.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-03-16.

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Date of creation: 2003
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Handle: RePEc:fip:fedhwp:wp-03-16

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Keywords: Income;

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References

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  1. Bhashkar Mazumder, 2001. "Earnings mobility in the US: a new look at intergenerational inequality," Working Paper Series WP-01-18, Federal Reserve Bank of Chicago.
  2. David Card, 1991. "Intertemporal Labor Supply: An Assessment," NBER Working Papers 3602, National Bureau of Economic Research, Inc.
  3. Joseph G. Altonji & Lewis M. Segal, 1994. "Small sample bias in GMM estimation of covariance structures," Working Paper Series, Macroeconomic Issues 94-8, Federal Reserve Bank of Chicago.
  4. Dean R. Hyslop, 2001. "Rising U.S. Earnings Inequality and Family Labor Supply: The Covariance Structure of Intrafamily Earnings," American Economic Review, American Economic Association, vol. 91(4), pages 755-777, September.
  5. Haider, Steven J, 2001. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 799-836, October.
  6. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March.
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Cited by:
  1. Hendricks, Lutz, 2007. "The intergenerational persistence of lifetime earnings," European Economic Review, Elsevier, vol. 51(1), pages 125-144, January.
  2. Muller, Seán M., 2010. "Another problem in the estimation of intergenerational income mobility," Economics Letters, Elsevier, vol. 108(3), pages 291-295, September.
  3. Jesse Rothstein & Nathan Wozny, 2013. "Permanent Income and the Black-White Test Score Gap," Journal of Human Resources, University of Wisconsin Press, vol. 48(3), pages 510-544.
  4. Maribel Jiménez, 2011. "Un Análisis Empírico de las No Linealidades en la Movilidad Intergeneracional del Ingreso. El caso de la Argentina," CEDLAS, Working Papers 0114, CEDLAS, Universidad Nacional de La Plata.

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