Intergenerational Poverty and Mobility

Intergenerational Mobility

What do we mean by Intergenerational Income Mobility?

Is it better to have higher or lower intergenerational income correlation?

Intergenerational Mobility

Measuring Intergenerational Income Mobility (Solon 1992)

ρ is the estimate of intergenerational income correlation between son’s income (y1) and their father’s (y0).

If ρ is close to zero what would that mean? How about one?

iii yy 01

Intergenerational Mobility

Father’s income

Son’s income

Intergenerational Mobility

Measuring Intergenerational Income Mobility (Solon 1992)

Was often estimated to be 0.2 or less.

This should be easy to do right? What does Solon say are problems with previous studies?

iii yy 01

Intergenerational Mobility

1. Measurement error in key variables. We can’t observe what we want to see, which is “permanent income” Rather, we see some indicator of “permanent income” (e.g., income in

one year)

(son i’s income in year s) (father i’s income in year s) Measurement error in “permanent income” will bias our estimates

toward zero. Why? Mathematically?

Intuitively?

isiis vyy 111 isiis vyy 000

Intergenerational Mobility

Father’s income

Son’s income

Intergenerational Mobility

Father’s income

Son’s income

Intergenerational Mobility

Father’s income

Son’s income

Intergenerational Mobility

2. Overly homogeneous samples These studies have often been run on strange samples due to data

constraints (fathers included only twins who served in armed forces, or Wisconsin high school grads who did not go to graduate school).

Why might this cause trouble? Mathematically?

Intuitively?

Intergenerational Mobility

Father’s income

Son’s income

Intergenerational Mobility

Father’s income

Son’s income

Intergenerational Mobility

Father’s income

Son’s income

Intergenerational Mobility

How does Solon attempt to overcome these issues? Sample Homogeneity?

Measurement error in key variables?

Intergenerational Mobility

Intergenerational Mobility

So Intergenerational income mobility appears to be well above 0.4 rather than 0.2, how would we interpret this? Is it a big deal?

Under some assumptions, we can do some calculations Consider a son born to a father in the fifth income percentile (i.e., poor)

If ρ is 0.2: Likelihood of staying in bottom quintile = 0.30 Likelihood of rising above the median = 0.37 Likelihood of rising to top quintile = 0.12

If ρ is 0.4: Likelihood of staying in bottom quintile = 0.49 Likelihood of rising above the median = 0.17 Likelihood of rising to top quintile = 0.05

Intergenerational Mobility

What issue might be missing in Solon’s study?

Intergenerational Mobility

Leblanc’s Random Family How does this excerpt relate to what we have been talking about?

Where does this family’s poverty stem from? Lack of money?

Where and how might one intervene as a social worker or as a policy maker?