Economics
Measuring Intergenerational Mobility Across Income Distributions
Quick fact
In countries like Denmark and Canada, the rank-rank correlation between parents' and children's income is around 0.15–0.20, while in the United States it is closer to 0.34–0.50, meaning that the US has significantly lower intergenerational mobility.
Why this is interesting
Think about your own income compared to your parents'—is it sheer luck or a predictable pattern? Economists can actually measure how much of your economic destiny is determined by the family you're born into.
Read the full explanation
Understanding Measuring Intergenerational Mobility Across Income Distributions
Imagine a social ladder—each rung represents a step in the income distribution, from poorest to richest. If a society were perfectly mobile, where you start on the ladder would have no influence on where you end up. Intergenerational mobility measures how much your position on that ladder is influenced by your parents' position. The most common way to measure this is to compare incomes of parents and their adult children. For example, we can rank all parents by income and all children by income, then see how strongly a child's rank is associated with their parents' rank. If a child born to parents in the bottom 10% has the same chance of ending up in the top 10% as a child born to parents in the top 10%, then mobility is perfect. In practice, mobility is never perfect, and the strength of that association is what we measure.
A deeper explanation
The two most widely used measures are the rank-rank correlation and the intergenerational income elasticity (IGE). The rank-rank correlation simply calculates the correlation between the percentile rank of parents and the percentile rank of their children in their respective income distributions. It ranges from 0 (perfect mobility) to 1 (perfect immobility). The IGE, on the other hand, is derived from a regression of the logarithm of the child's income on the logarithm of the parent's income. The coefficient—the IGE—represents the percentage difference in a child's income associated with a one-percent difference in parent's income. For example, an IGE of 0.5 means that if a parent's income is 10% higher, the child's income is predicted to be 5% higher. The IGE is sensitive to changes in income inequality over time, whereas the rank-rank correlation is more stable and captures relative position. These measures are crucial because they quantify the extent to which economic advantage or disadvantage is transmitted across generations, directly informing debates about equality of opportunity and policy interventions like education investment, taxation, and social welfare programs.