Rising Inequality, Declining Mobility: The Evolution of Intergenerational Mobility in Germany

This paper is the first to show that intergenerational income mobility in Germany has decreased over time. We provide estimates of intergenerational persistence for the birth cohorts 1968-1987 and document that the rank-rank slope rises sharply for cohorts born in the late 1970s and early 1980s, after which it stabilizes at a higher level. Depending on the specification, the slope increases by 59%-107%. As a step towards understanding the mechanisms behind this increase in income persistence, we show that parental income has become much more important for educational outcomes of children over the same time period. Moreover, we show that the increase in intergenerational income persistence coincided with an increase in cross-sectional income inequality, providing novel evidence for an "Intertemporal Great Gatsby Curve" in Germany.