Economics
Measuring Social Mobility Through Intergenerational Income Elasticity
Quick fact
In a perfectly mobile society, intergenerational income elasticity would be 0, meaning a child's income is completely unrelated to their parents' income. In reality, it ranges from about 0.2 in Nordic countries to nearly 0.5 in the United States, showing that parental income plays a substantial role in shaping children's economic futures.
Why this is interesting
What if we could predict a child's future income from their parents' income? Intergenerational income elasticity gives us a number that does exactly that.
Read the full explanation
Understanding Measuring Social Mobility Through Intergenerational Income Elasticity
Imagine we compare hundreds of father-son pairs (and increasingly mother-daughter pairs). For each parent, we record their income rank or log-income. For each child, we do the same at a similar age. We then plot child income against parent income, with each point representing one family. Social mobility is about how scattered that cloud of points is. If the points show no relationship—meaning a child from a low-income family is just as likely to earn a high income as a child from a high-income family—the cloud would be shapeless. Intergenerational income elasticity (IGE) is simply the slope of the best-fit line through that cloud. A slope of 0.2 means that for every 1% difference in parent income, the child's income differs by 0.2% on average. A slope of 0.6 means a 1% parent income gap leads to a 0.6% child income gap. The steeper the slope, the more a child's destiny is tied to their parents' income. This single number captures a core measure of social mobility: the degree to which economic status is passed from one generation to the next.
A deeper explanation
Why does IGE work as a measure of social mobility? Under the hood, it's a regression coefficient from a simple linear model: log(child income) = α + β log(parent income) + ε. The coefficient β is the IGE. It measures the fraction of the income gap between two parents that is transmitted to their children. The mechanism is the transfer of advantages: parental income buys resources like better education, healthcare, and social networks, which in turn raise a child's earning potential. But IGE is not purely a measure of opportunity; it is also influenced by the overall distribution of income. In a society with high income inequality, even a modest transmission of advantage can produce high IGE because small differences in parental income translate into large absolute differences in children's outcomes. Conversely, in a more equal society, the same underlying transmission yields a lower IGE. Therefore, IGE captures both the process of transmission and the structural context of inequality. This is why comparing IGE across countries reveals stark contrasts: Nordic countries like Denmark have IGE around 0.2, indicating high mobility, while the United States and China hover near 0.5, indicating lower mobility. Understanding IGE helps us diagnose whether a society offers genuine equality of opportunity or perpetuates privilege.