State of the Union 2016: Economic Mobility

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When compared to 24 middle-income and high-income countries, the U.S. ranks 16th in the amount of intergenerational earnings mobility. The relatively low level of mobility in the U.S. may arise in part because low-income children in the U.S. tend to have less stable and lower-income families, less secure families, and parents who have less time to devote to their children.

Economic Mobility in the United States

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Given the substantial body of research on economic mobility, one might imagine that little remains unknown. This is not the case. Although it is well established that a person’s income is related to that of his or her
parents, the estimates of mobility range widely, making it difficult to reach a consensus on how evenly or unevenly opportunity is distributed. These and other limitations can be addressed with a new data set based on tax data and other administrative sources that was developed by the Statistics of Income (SOI) Division of the Internal Revenue Service. This data set, created to study tax policy and intergenerational mobility, allows for one of the most robust assessments of the intergenerational transmission of economic advantage yet conducted in the United States. This assessment finds the following:

1. Approximately half of parental income advantages are passed on to children. The intergenerational elasticity (IGE), when averaged across all levels of parental income, is estimated at 0.52 for men and 0.47 for women. These estimates are at the high end of previous estimates and imply that the United States is very immobile.

2. The persistence of advantage is especially large among those raised in the middle to upper reaches of the income distribution. The IGE among adults whose parents were between the 50th and 90th income percentiles is 0.68 for men and 0.63 for women. This means that approximately two-thirds of parental income differences within this region of the income distribution persist into the next generation.

3. Children born far apart in the income distribution have very different economic outcomes. The expected family income of children raised in families at the 90th income percentile is about three times that of children raised at the 10th percentile.

4. Parental income matters more for men’s earnings than for women’s. The average earnings IGE for men (0.56) is more than 40 percent higher than that for women (0.32). Although both men and women benefit from being born into higher-income families, men benefit much more—at least when it comes to their own earnings.

5. Parental income matters more for women’s chances of marriage, and of marrying better-off partners. The income IGE is large for men (0.52) mainly because children from higher-income families tend to have higher earnings as adults. For women, the income IGE is nearly as large (0.47), mainly because those from higher income origins are more likely to be married in their late 30s—and to marry higher-earnings partners.

These results show that children born into lower-income families can expect very different futures relative to those from higher-income families. Given the country’s commitment to equality of opportunity, the findings may suggest the need for policies that increase economic mobility. Because a wide range of institutions affect mobility, including the family, schools, labor markets, and the tax system, many entry points are possible for developing such policies. Although the findings of this report can inform public policy, they do not lead to particular policy prescriptions or indicate which of these many possible intervention points should be given priority.