Earnings Mobility in the US: A New Look at Intergenerational Inequality

This study uses a new data set which merges the Social Security earnings histories of parents and children in the 1984 Survey of Income and Program Participation to measure the intergenerational elasticity in earnings in the United States. Earlier studies that found an intergenerational elasticity of 0.4 have typically used only five year averages of fathers’ earnings to measure fathers’ permanent earnings. However, dynamic earnings models that allow for serial correlation in transitory shocks to earnings imply that using such a short time span may lead to estimates that are biased down by as much as fifty percent. Indeed, by using many more years of fathers' earnings than earlier studies, the intergenerational elasticity between fathers and sons is estimated to be 0.6 or higher implying significantly less mobility in the U.S. than previous research indicated. The elasticity in earnings between fathers and daughters is of a similar magnitude. The evidence also suggests that family income might have an even larger effect than parents' earnings on children's future labor market success. Intergenerational mobility is lower for families with low net worth, offering some empirical support for theoretical models that predict differences due to borrowing constraints. Some evidence of lower economic mobility among blacks is found but the results are not conclusive. I am grateful to David Card, David Levine, Ken Chay, John DiNardo, Michael Reich, Nada Eissa, Mike Clune and seminar participants at Illinois, The Chicago Fed, Cornell and UMass for their helpful advice and comments. I greatly appreciated the help of Andrew Hildreth, Julia Lane and Susan Grad in helping me gain access to the data. The help of staff at the Social Security Administration, and especially Minh Hyunh, is also gratefully acknowledged. I would also like to thank the Center for Labor Economics at UC Berkeley for financial support.