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As far as intergenerational income mobility is concerned, the U.S. measure is higher than that of most other rich countries. The influence of a father’s income on adult sons' relative earnings is lower than 20 percent in Canada, Denmark, Norway, and Finland, and 30 percent in Germany and Sweden. Intergenerational income mobility comparable to the U.S. is found in France and Britain.
Is it just parental money that accounts for this difference in income mobility between the generations? A 2006 study [PDF] done for the left-leaning Center for American Progress by former American University economist Tom Hertz looked a number of household characteristics that might account for 0.5 intergenerational elasticity figure. Taking into account a large variety of parental variables including race, educational levels, tendency toward fatalism, and religion, Hertz reduces the estimated effect of parental income itself to 0.20. “In other words, about three-fifths of the simple intergenerational elasticity is due to the influence of factors other than parental income,” concludes Hertz.
While most studies in income mobility focus on the fates of those who are at top and the bottom of the income distribution, one should keep in mind that middle-class Americans experience considerable income mobility as well. A 2007 Treasury Department study looking at shifts in income mobility between 1996 and 2005 found that over half of taxpayers moved to a different income quintile over this period. For example, nearly 50 percent of the people in the second quintile moved up to one of the higher three quintiles during that period. And 42 percent of the middle quintile moved up to the two higher ones, while 25 fell into the two lower quintiles.
Overall, Rank’s income data from 1968 to 2009 reveal a lot of churn in the economic fortunes of Americans. How much does this bother Americans? A 2009 Pew Center poll [PDF] found that 71 percent of Americans believe that it was more important to ensure that everyone has a fair chance of improving their economic standing, while only 21 percent think it was more important to reduce inequality. Do Americans have a fair chance to improve their economic lot?
Rank reports data that looks at the distribution of parents’ incomes in the late 1970s compared to the earnings of their adult children in the late 1990s and early 2000s. The percent of adult children exceeding their parents’ household incomes is broken down by income quintiles. Rank finds that 82 percent of kids whose parents were in the bottom 20 percent of the income distribution make more than their parents. The figures for each higher quintile are 74 percent, 68 percent, 67 percent, and 43 percent. Combined, it turns out that 67 percent of kids are making more than their parents did. In absolute terms, most children did improve their economic lot compared to their parents. The rising tide (when it is rising) of the American economy does indeed lift most boats.
Disclosure: I would like to thank the folks at Washington University’s Weidenbaum Center for paying my travel expenses for their excellent media retreat.
Science Correspondent Ronald Bailey is the author of Liberation Biology (Prometheus).