Tuesday, July 04, 2006

Among Developed Countries, Income Mobility Almost Least In United States

In a previous post, I provided a summary table from a 1997 study on income mobility in the United States. Tom Hertz, with American University, provides a more recent analysis. I select a couple of his results to highlight here.

Hertz looks at how one’s place in the United States income distribution is transmitted to one’s children. He analyzes data on “4,004 children observed in the Panel Study of Income Dynamics (PSID) in their parents’ households in the 1968 survey… The children are then observed again as adult heads of households, or spouses thereof, in” biannual surveys in recent years. The sample was corrected to preserve its original representative demographics. Both parents and grown children are observed near their “prime earning age”.

Table 1 summarizes some of Hertz’s results. Define the “rich” (not shown here) to be those in the top 5% of households, by income. Hertz finds the odds of becoming rich are less than 2% for children of parents in any of the first three quintiles of household income. The odds of becoming rich are approximately 20 times greater if you are born into a rich household than if you are born into a household in the bottom quintile.

Table 1: At Least 65% Of Grown Up Children Are In A Household Within One Quintile Of Their Parents’ Household
Parental 1967-1971
1st Quintile41.5%24%15.5%13.2%5.9%
2nd Quintile22.625.823.118.510.0
3rd Quintile18.725.824.119.616.9
4th Quintile11.119.020.725.124.0
5th Quintile6.

Hertz also provides an international comparison of intergenerational mobility, but I do not understand the source of his data. Hertz looks at the intergenerational elasticity of earnings, that is, the percent increase in expected earnings associated with a one percent increase in parents’ earnings. Table 2 provides his results. Hertz summarizes his findings:
By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom has a lower rate of mobility than the United States.

Table 2: The U.K. and the U.S. Have Least Mobility
CountryIntergenerational Elasticity Of Earnings
United Kingdom0.5
United States0.47

  • Hertz, Tom (2006). Understanding Mobility in America, Center for American Progress (26 April).

1 comment:

Matthew Renodin said...

Is this adjusted for inflation?