One of the defining features of the “American dream” is the aspiration that children have a higher standard of living than their parents. When children are asked to assess their economic progress, they frequently compare their own standard of living to that of their parents. Such measures of “absolute income mobility”—the fraction of children earning or consuming more than their parents—are also often the focus of policy-makers when judging the degree of economic opportunity in the United States.
Despite longstanding interest in the topic, empirical evidence concerning absolute income mobility remains scarce, mainly because of the lack of large, high-quality panel data sets linking children to their parents in the United States. Some studies have used panel surveys such as the Panel Study of Income Dynamics to measure the level of absolute income mobility for recent U.S. cohorts. These studies have produced conflicting results because estimates of absolute mobility using available panel income data sets are sensitive to econometric assumptions and sample specification. Moreover, to the best of our knowledge, there is no evidence on trends in absolute income mobility, although prior work has documented declining absolute mobility in terms of occupational status and educational attainment.
Here, we developed a new method of estimating rates of absolute mobility that can be implemented with existing data sets covering the 1940 to 1984 birth cohorts. Our approach combines two inputs: (i) marginal income distributions for parents and children, and (ii) the copula of the parent and child income distribution, defined as the joint distribution of parent and child income ranks.
– Raj Chetty, et al.