Economic Mobility in America Part 3: Trends in the United States

EXECUTIVE SUMMARY

Is the American Dream dying? A number of studies have examined this question by looking at trends in intergenerational economic mobility. However, studies using different datasets have produced different results. Few studies consider both relative and absolute mobility trends for both men and women. Few consider both summary measures of mobility and finer-grained measures. And few compare results from two different data sources.

This report is the third in a series summarizing the state of intergenerational mobility in the United States. While the first considered contemporary levels of mobility by different measures, and the second compared American mobility levels to those in other countries, this installment looks at trends in the US. A number of trends over the past 40 years are presented using four sets of birth cohorts from the Panel Study of Income Dynamics (PSID) and three sets of cohorts from the National Longitudinal Surveys (NLS). These birth cohorts are chosen so as to be comparable to each other to the extent possible. 

I compare sons’ and daughters’ earnings and family income to the earnings and family income of their parents. I also summarize the complete literature on trends in American intergenerational earnings and income mobility, with an extensive critique of one influential study (Aaronson and Mazumder, 2008). The overall picture is of an American Dream that endures to a greater extent than is appreciated, though one that remains insufÏciently accessible to some. The findings are as follows:

Relative Mobility Among Men

• Relative mobility is concerned with the extent to which adults transcend their parents’ rankings by moving up or 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.

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.
  • 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 difÏcult for sons born mid-century to exceed parental income when the bar is set later in childhood rather than earlier in childhood.

Absolute Mobility Among Women

• 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.

Download the full report.