Intergenerational Poverty and Mobility

Intergenerational Mobility Leblanc’s Random Family How does this excerpt relate to what we have been talking about? Consider lecture on “Teen Pregnancy”. How does it compare to “There Are no Children Here”? Where and how might one intervene as a social worker or as a policy maker?

Intergenerational Mobility What do we mean by Intergenerational Income Mobility? Is it better to have higher or lower intergenerational income correlation?

Intergenerational Mobility Father’s income Son’s income

Intergenerational Mobility Measuring Intergenerational Income Mobility child income i = α + ρ*parent income i + ε ρ is the estimate of intergenerational income correlation between son’s income and their father’s. If ρ is close to zero what would that mean? How about one? Was often estimated to be 0.2 or less. Solon (1992) argued that these estimates likely understated intergenerational mobility for two main reasons.

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) child permanent income = child income y + e y parent permanent income = parent income y + e y Measurement error in “permanent income” will bias our estimates toward zero. Why?

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 college). Why might this cause trouble?

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 Solon tries to overcome this by: 1. Using a national representative sample. 2. Using average income over a number of years to better measure “permanent” income.

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 Chetty, Hendren, Kline, and Saez (2014) “Where is the Land of Opportunity...” Argue that Solon’s methodology might still have issues, most notably impact of parent’s income on child’s income might be “non-linear”, so they use alternative method to measure intergenerational mobility. Also, they are interested in whether mobility differs across different parts of the U.S. What do they do?

Intergenerational Mobility Chetty, et al (2014) cont. Their alternative method for measuring intergenerational income correlation: They have a huge sample of adult individuals and their earnings over time, where they can link “children” with their parents via tax records. They compute the income percentile of each “child” corresponding to where he sits in the income distribution for all the “children.” Do similar ranking for parents. Regress child’s income rank on parent’s income rank (similar to Solon). child percentile i = α + ρ*parent percentile i + ε

Intergenerational Mobility Chetty, et al (2014) cont. child percentile i = α + ρ*parent percentile i + ε Get an intergenerational income rank correlation coefficient (ρ) of Interpretation? Is this big or small?

Intergenerational Mobility Chetty, et al (2014) cont.

Intergenerational Mobility Chetty, et al (2014) cont. Also look at intergenerational income correlation cross “cities”. For each “city”, they regress child’s rank in child income distribution (over whole U.S.) on parent’s rank in the parent’s income distribution (over whole U.S.). percentile child = α city + ρ city *percentile parent + ε How do you interpret the slope and intercept?

Intergenerational Mobility Chetty, et al (2014) cont.

Intergenerational Mobility Chetty, et al (2014) cont. They then use estimates of slope and intercept for each city to calculate expected rank of children coming from parents at any given percentile p from the national parent income distribution for each city. E.g., A child born in Chicago IL to parents in the 25 th percentile of the national income distribution (so p = 25) is expected to be in the 39 th percentile of the national income distribution as an adult. They term this the “absolute” mobility associated with each city.

Intergenerational Mobility Chetty, et al (2014) cont. Absolute Upward Mobility vs Relative Mobility by city.

Intergenerational Mobility Chetty, et al (2014) cont. Absolute Upward Mobility and Race

Intergenerational Mobility Chetty, et al (2014) cont. Other Correlates of Absolute Upward Mobility Direction of Causation?

Intergenerational Mobility Chetty, Hendren, Kline, Saez, Turner (2014) “Is the United States Still A Land of Opportunity? How has mobility changed over time?