Economic mobility in America: A state-of-the-art primer

Scott Winship, "Economic mobility in America: A state-of-the-art primer," Archbridge Institute, December 1, 2021, https://www.aei.org/research-products/report/economic-mobility-in-america-a-state-of-the-art-primer/

"...The PSID and NLS yield conflicting results. In the PSID, the intergenerational elasticity rises over time, sometimes substantially, indicating falling mobility. In the NLS, the intergenerational elasticity is flat over time. For example, in the PSID, comparing parent family income to daughters’ earnings, the IGE rose from 0.25 for cohorts born 1952-59 to 0.43 for those born 1976-83. In the NLS, the elasticity was 0.26 for those born 1951-53, 0.23 for those born 1962-64, and 0.26 for those born 1981-83...."...Outpacing one’s father’s earnings has increased among daughters, but fewer daughters exceed their mothers’ earnings or, perhaps, their parents’ family income...."

Absolute Mobility Among Women

“…The red line in Figure 16, below, displays estimates of absolute family income mobility for the four sets of PSID cohorts. For cohorts born 1952-59, 47 percent of sons had higher earnings in their early 30s than their fathers had when the sons were between the ages of 8 and 21. The figure for sons born 1976-83 was 50 percent—no differentin the sense of being statistically significant. In contrast, the blue line in the chart comes from the Chetty et al. data and shows the trend for 1949-84 birth cohorts comparing the individual incomes of fathers and sons. (Individual income includes non-earnings income, so the trend is not strictly comparable to the PSID trend.) The four blue dots plot the eight-year averages for the same sets of birth cohorts that are combined in the PSID. The Chetty estimates indicate that absolute mobility fell dramatically over time. Across the cohorts covered in the PSID, the decline was from 61 percent to 42 percent…. If absolute mobility has, in fact, been flat in recent decades, that would suggest that two-thirds to 80 percent of today’s forty-somethings are better off than their parents were at the same age—much higher than the 50 percent suggested by Chetty et al. Similarly, Part One of this primer reported estimates from the PSID, using size-adjusted family income and pooling sons and daughters. The range of those estimates ran from 63 percent to 77 percent for recent cohorts of adults…”

Relative Mobility Among Women

“…Daughters’ relative mobility also likely declined, whether comparing father earnings, mother earnings, or parental income to daughters’ earnings or family income. Whether fathers’ or mothers’ earnings are the baseline, the decline in mobility was modest, except comparing mothers’ and daughters’ earnings when women without any earnings are included. The declines using parents’ family income as a baseline are modest in the NLS but sizable in the PSID. In the PSID the adulthood gap between the richest and poorest children rose by 14 to 19 percentiles over the long run. Lower mobility for daughters primarily reflects diminished upward mobility from the bottom….”

Absolute Mobility Among Men

“…Absolute mobility is concerned with changes in real (inflation-adjusted) income between generations. If poor children stay poor as adults but see large income gains over what their parents received, they experience upward absolute mobility. Using a summary measure often described incorrectly as an indicator of relative mobility (the “intergenerational elasticity”), mobility comparing fathers’ and sons’ earnings changed minimally, possibly increasing between the 1952-59 and 1976-83 birth cohorts. Using parents’ family income as a benchmark, the change in mobility over 30 years is minimal, though the shortterm trends in the PSID and NLS look very different. Mobility was the same in 2014 (among men born 1982-84) as in 1981 (among men born 1949-51) in the sense that the absolute gaps between sons in childhood were similarly narrowed by adulthood in both years.For example, a 10 percentage-point gap between sons in childhood typically narrowed to a 2.0-point gap in adulthood in 1981. In 2014, it only narrowed to a 2.5-point gap. (The elasticity rose from 0.21 to 0.26.) This estimated change in the NLS samples was small enough that we cannot discount the possibility that no change occurred in the real world represented by these samples. Turning to the likelihood that sons will do better than their parents, I find that there has been little change in the share of men who have higher earnings than their fathers.It appears that there was little change in the share of sons whose family income exceeds that of their parents, though that share falls in the PSID when incomes are adjusted for family size. In the NLS, for instance, the share was 51 percent among sons born 1949-51 and 53 percent among sons born 1982-84. However, the change in the PSID (using size-adjusted incomes) was from 66 percent to 56 percent, comparing cohorts born 1952-59 to those born 1976-83….”

Contrast With Chetty,"...The finding of relatively flat absolute mobility is in contrast to widely publicized results from Raj Chetty and his colleagues showing a large decline. I argue that an ideal measure, capturing family income over all of childhood rather than in a single year, would show a decline in absolute mobility, though a smaller one than is reported by Chetty’s study and others. The difference between my results and those other studies is that I measure parent income in adolescence rather than near birth. Because income growth was so fast during the 1950s and early 1960s, it is more difficult for sons born mid-century to exceed parental income when the bar is set later in childhood rather than earlier in childhood...."

that compare fathers’ and sons’ earnings…”

among sons born 1976-83. Due to imprecision in these estimates (which come from samples intended to represent the broader population of men), we cannot conclude that every cohort difference in Figure 2 would be found if we could observe the mobility of the entire population of men in both cohorts. Given some simplifying assumptions, statistical techniques allow us to say that if there were no true difference in mobility between two cohorts of men, we would be very unlikely to find a difference of a given magnitude in the PSID data. These techniques suggest that only one of the trends in Figure 2 is likely to be “real” in this “statistically significant” sense.13 Sons raised in the top fourth of father earnings became much less likely to end up in the top fourth themselves (right-most set of bars).14 Despite this evidence of increasing downward mobility, the IRA in Figure 1 does not reflect an increase, because it appears that upward mobility from the bottom fourth fell (though none of the changes in the left-most set of bars are statistically significant). No previous research has examined long-term trends in relative mobility in the US looking at transition probabilities

“…Figure 2 displays four sets of bars, each of them depicting outcomes for men who grew up with fathers in a different part of the male earnings distribution. The left-most bars show results for the 25 percent of sons with the lowest-earning fathers, the next set does the same for the sons of the next-poorest quarter of fathers, the next bars apply to sons with fathers in the third quartile of earnings, and the right-most bars depict the 25 percent of sons raised by the highest-earning fathers. Within each set are two bars, one for the earliest and most recent set of PSID birth cohorts. Each bar, in turn, is divided into four portions, showing where in the distribution of male earnings sons from a given cohort and quartile of the father earning distribution end up. In a world where the ranking of fathers on the earnings ladder had no relationship to the ranking of sons, each of the bars in Figure 2 would be divided into four equal sections. For instance, 25 percent of men starting in the bottom fourth would end up in the bottom fourth, 25 percent would end up in the second fourth, 25 percent in the third fourth, and 25 percent at the top. The analyses here are primarily concerned with the trend in mobility, so the important comparisons are within each set of bars in Figure 2. For instance, the left-most set of bars indicates that 40 percent of sons born 1952-59 and raised in the bottom fourth of father earnings were in the bottom fourth of male earnings themselves when observed as adults. In the subsequent set of birth cohorts, upward mobility out of the bottom fourth became less common over time: 49 percent remained in the bottom fourth. Men who started out in the bottom fourth were also slightly less likely to rise to the top fourth of male earnings over time; that share was 5 percent among sons born 1952-59 and 4 percent

“….In Figure 1, the PSID estimates for four cohorts and NLS estimates for three are displayed as lighter lines, whilethe dark lines display the linear trends through the four (or three) data points. The red lines display the IRA trend for male earnings, from the PSID. The trend shown by the light red line compares sons born 1952-59, 1960-67, 1968-75, and 1976-83, displaying the data points at 1955.5, 1963.5, 1971.5, and 1979.5. Relative mobility was unchanged over this period. The IRA for the earliest set of cohorts was 0.36, and for the most recent cohorts it was 0.32. (Appendix 2 provides estimates for all cohorts for all trends.) The change is far too imprecise to have confidence an actual decline in the IRA (an increase in mobility) occurred. Given the magnitude of the change and the number of men in the PSID samples, statistical methods allow us to assess how likely it would be to find a change in the data even if there were no true change in the American population. The decline in the IRA fails to achieve “statistical significance” in this sense.11 The linear trend line closely resembles the trend between the earliest and most recent cohorts….”

Relative Mobility Among Men

“….Relative mobility is concerned with the extent to which adults transcend their parents’ rankings by moving up o down in ranks. If everyone gets richer, but the poorest children still end up as the poorest adults, there is limited relative mobility. Relative earnings mobility, comparing fathers and sons, may have increased slightly over time. To the extent that it did, it likely reflected increased downward mobility from the top.Relative mobility trends are similar whether parental family income in adolescence is compared with men’s subsequent earnings or with their own family income in adulthood. Relative mobility may have declined, but any change was modest. According to the NLS data, for example, rather than the richest and poorest adolescent sons being separated by just under 25 percentiles in adulthood, as in 1981 (for cohorts born around 1950), they were separated by around 30 percentiles in adulthood in 2014 (for cohorts born in the early 1980s). There is evidence that both upward mobility from the bottom and downward mobility from the top declined. When sons’ earnings are the outcome, both the PSID and NLS indicate reduced downward mobility, and both indicate reduced upward mobility when considering sons’ family income….”

Evidence, “…The red line in Figure 16, below, displays estimates of absolute family income mobility for the four sets of PSID cohorts. For cohorts born 1952-59, 47 percent of sons had higher earnings in their early 30s than their fathers had when the sons were between the ages of 8 and 21. The figure for sons born 1976-83 was 50 percent—no different in the sense of being statistically significant. In contrast, the blue line in the chart comes from the Chetty et al. data and shows the trend for 1949-84 birth cohorts comparing the individual incomes of fathers and sons. (Individual income includes non-earnings income, so the trend is not strictly comparable to the PSID trend.) The four blue dots plot the eight-year averages for the same sets of birth cohorts that are combined in the PSID. The Chetty estimates indicate that absolute mobility fell dramatically over time. Across the cohorts covered in the PSID, the decline was from 61 percent to 42 percent…. If absolute mobility has, in fact, been flat in recent decades, that would suggest that two-thirds to 80 percent oftoday’s forty-somethings are better off than their parents were at the same age—much higher than the 50 percentsuggested by Chetty et al. Similarly, Part One of this primer reported estimates from the PSID, using size-adjustedfamily income and pooling sons and daughters. The range of those estimates ran from 63 percent to 77 percent forrecent cohorts of adults…”

Note Contrast With Chetty,"...The finding of relatively flat absolute mobility is in contrast to widely publicized results from Raj Chetty and his colleagues showing a large decline. I argue that an ideal measure, capturing family income over all of childhood rather than in a single year, would show a decline in absolute mobility, though a smaller one than is reported by Chetty’s study and others. The difference between my results and those other studies is that I measure parent income in adolescence rather than near birth. Because income growth was so fast during the 1950s and early 1960s, it is more difficult for sons born mid-century to exceed parental income when the bar is set later in childhood rather than earlier in childhood...."