The degree of mobility over time measures how the income and education of children of parents with relatively low education and income compares to the income and education of children from more successful families. President Obama along with many others, has claimed that the degree of mobility in the US declined over time. Yet the limited available evidence does not support these claims about declining mobility during past 20-30 years (see the recent study by Chetty, et al, “Is the United States Still a Land of Opportunity?” January, 2014).
Some of the claims about declining mobility appear to depend on the large increase in income inequality since 1980. Not only have the incomes of the top 1% increased much faster than other incomes, but also incomes of college graduates have grown substantially relative to the incomes of persons who did not graduate from college. Nevertheless, an increase in the spread of incomes at a moment in time does not necessarily imply a change in the degree of mobility of their children. For example, income inequality in the parents’ generation could increase, and that higher inequality could be maintained into the children’s generation, and yet the upward mobility of children from poorer families (or the downward mobility of richer children) could be increasing over time.
Although there is no necessary connection between inequality and mobility, one should expect some causation from lower mobility to greater inequality in succeeding generations. For lower mobility means that children from poorer families tend not to do as well as they formerly did, and children from richer families do better than formerly. Over time, this stretches out the income distribution and produces greater inequality. In this case, the causation runs from mobility to inequality, not from inequality to mobility.
A few economists have produced evidence that countries with greater inequality tend to have lower mobility (see Corak, Journal of Economic Perspectives, 2013). For example, Scandinavian countries tend to have both relatively low inequality and high mobility. The causation in their analysis usually runs from greater inequality to lower mobility. Nevertheless, a close examination of the empirical basis for this claim suggests that the relation between inequality and mobility across countries may actually be quite weak (see the preliminary work by the Chicago graduate student Bradley Setzler).
Just as many forces determine the degree of income inequality, so too does the degree of mobility in income and education between parents and children have many determinants. The most important ones are 1) the investment of time and money by parents with different levels of education and income in improving the human capital of their children, 2) the degree of transmission of various types of abilities from parents to children, 3) the magnitude of government spending on the human capital formation of children, and 4) whether this government spending is relatively greater or smaller for children from disadvantaged backgrounds.
The nature of these influences on the degree of mobility implies that greater mobility is not necessarily “better”, at least as judged by the degree of efficiency of the human capital investment process and the market for earnings. For example, if the parent-children transmission of abilities is high or parental education is highly productive in raising the human capital of their children, one would expect an efficient investment process to have a low degree of parent-child mobility in education or earnings. On the other hand, low mobility may be a sign of inefficiency if say able children of poorer parents are unable to obtain the education consistent with their abilities.
These reflections are relevant in trying to evaluate the degree of mobility in the US compared to other countries. The intergeneration elasticity (IGE) measures the effect of an increase or decrease in the income of parents relative to the mean income of their generation on the incomes of their children. An IGE of say 0.4- about the IGE for the US- means that a 10% increase in parental income raises their children’s income on average by 4% relative to the mean income of the children’s generation.
The IGE for the US is higher than those for Japan and many Western European countries, and is below those for many Latin American countries. Even though mobility in the US may not have fallen over time, does the relatively high IGE for the US compared to other developed countries indicate that American mobility is too low?
A major reason why the answer to this question may be in the affirmative is the high and relatively stable American dropout rate from high school of poorer African Americans and Hispanic Americans. I believe much of the blame rests with the fact that many children from minority families are raised with a single and not very educated parent, and that the quality of the schools attended by minority children is deficient. The interaction of these two forces produces a deadly mixture holding back the progress of minority children. The degree of mobility would increase significantly if ways could be found to efficiently lower the high school dropout rate.