Intergenerational mobility: Meaning, Criticisms & Real-World Uses

What Is Intergenerational Mobility?

Intergenerational mobility refers to the extent to which an individual's socioeconomic status differs from that of their parents or previous generations. It is a fundamental concept within socioeconomics, exploring how advantages or disadvantages are transmitted across family lines. High intergenerational mobility indicates that a child's economic outcome is largely independent of their parents' financial standing, suggesting greater equality of opportunity cost. Conversely, low intergenerational mobility suggests that a child's future is strongly tied to their family background, often implying persistent income inequality across generations. The study of intergenerational mobility often focuses on measures such as income, wealth, education, and occupation.

History and Origin

The concept of intergenerational mobility has roots in early sociological and economic inquiries into social stratification and the determinants of individual success. While informal observations of social ascent or descent have existed for centuries, rigorous academic study gained prominence in the 20th century. Early research faced significant data limitations, often relying on limited samples or indirect measures of intergenerational links.

A significant shift occurred with the development of longitudinal datasets, such as the Panel Study of Income Dynamics (PSID) in the United States, which began tracking families over extended periods in 1968. These datasets enabled researchers to overcome key methodological challenges, providing more accurate estimates of intergenerational income mobility. For instance, early studies in the U.S. sometimes suggested higher mobility rates, but later, more refined analyses, such as those by Gary Solon in the early 1990s, demonstrated that these earlier estimates were often biased downward due to measurement error and reliance on single-year income data¹⁸. This evolution in methodology revealed that intergenerational mobility in the U.S. was lower than previously thought, particularly when compared to other advanced economies¹⁷. The Organisation for Economic Co-operation and Development (OECD) has extensively studied these patterns across its member countries, highlighting variations in mobility influenced by public policies and economic structures¹⁶.

Key Takeaways

Intergenerational mobility measures how much an individual's economic status is influenced by their parents' status.
It is a key indicator of equality of opportunity within a society.
Common measures include intergenerational income elasticity, educational attainment, and occupational prestige.
High mobility suggests that individuals have a greater chance to improve their financial planning outcomes regardless of their starting point.
Low mobility implies that advantages or disadvantages are strongly inherited across generations.

Formula and Calculation

The most widely used measure in economics for intergenerational mobility, particularly income mobility, is the Intergenerational Income Elasticity (IGE). The IGE estimates the degree of income persistence across generations. It is typically derived from a linear regression of the child's logarithmic income on the parent's logarithmic income:

\ln(Y_c) = \alpha + \beta \ln(Y_p) + \epsilon

Where:

(\ln(Y_c)) = The natural logarithm of the child's income in adulthood.
(\ln(Y_p)) = The natural logarithm of the parents' permanent income (often averaged over several years to reduce measurement error).
(\alpha) = The constant term.
(\beta) = The Intergenerational Income Elasticity (IGE) coefficient. This represents the percentage change in a child's income for a one percent change in parental income.
(\epsilon) = The error term.

A higher (\beta) (IGE) value indicates lower intergenerational mobility, meaning a stronger link between parental and child income. For example, an IGE of 0.6 suggests that 60% of income differences between families persist into the next generation, while an IGE of 0.2 implies that only 20% persist¹⁵. This formula helps quantify the transmission of wealth accumulation and economic standing across generations.

Interpreting the Intergenerational Mobility

Interpreting the intergenerational mobility coefficient, particularly the IGE, provides insight into the structure of economic opportunity. An IGE close to zero would indicate very high mobility, meaning a child's adult income is largely unrelated to their parents' income. Conversely, an IGE close to one would suggest perfect immobility, where a child's income is directly proportional to their parents', implying a lack of upward or downward movement between generations.

For instance, if the IGE is 0.4, it implies that 40% of the economic advantage (or disadvantage) of parents is passed on to their children. This indicates that while there is some movement, a significant portion of socioeconomic standing is inherited. Researchers often compare IGE values across different countries and time periods to understand how various societal factors and public policy influence the degree of mobility. A consistently high IGE in a region might signal "sticky floors" at the bottom of the income distribution and "sticky ceilings" at the top, where individuals find it difficult to move beyond their inherited economic position¹⁴. Understanding these patterns is crucial for policymakers aiming to enhance social equity.

Hypothetical Example

Consider two families, the Smiths and the Johnsons, over two generations.

In the first generation:

Mr. and Mrs. Smith have a combined average annual income of $50,000.
Mr. and Mrs. Johnson have a combined average annual income of $150,000.

Now, let's look at their children's generation:

The Smith children, through diligent efforts and access to quality human capital development, achieve an average annual income of $70,000 in adulthood.
The Johnson children, benefiting from their parents' resources and networks, achieve an average annual income of $140,000 in adulthood.

In this scenario, the Smith children experienced upward intergenerational mobility, earning more than their parents. The Johnson children experienced slight downward intergenerational mobility, earning less than their parents, though still maintaining a high income level. The degree of intergenerational mobility can be quantified using the IGE. If the IGE for this society were high, it would imply that the income difference between the Smith and Johnson children would likely remain substantial, reflecting a strong link between parental and child income. If the IGE were low, the incomes of the Smith and Johnson children might converge more, indicating greater social fluidity and a weaker link to parental income, irrespective of initial poverty or affluence.

Practical Applications

Intergenerational mobility is a critical metric for understanding socioeconomic dynamics and has several practical applications in policy, research, and economic analysis.

Policy Formulation: Governments and international organizations like the OECD use intergenerational mobility data to inform policies aimed at promoting equality of opportunity. Policies related to education, healthcare, and social safety nets are often designed to reduce the intergenerational transmission of disadvantage and enhance upward mobility¹³. For example, investments in early childhood education or access to affordable higher education can significantly influence a child's future¹².
Economic Growth Analysis: High intergenerational mobility is often associated with greater economic growth and efficiency, as talent and effort are better rewarded, leading to a more optimal allocation of human resources within the labor market ¹¹. When individuals can climb the economic ladder based on merit, it can foster innovation and productivity.
Understanding Social Stratification: Researchers use intergenerational mobility studies to map and understand patterns of social stratification, including the persistence of racial and ethnic disparities. For instance, studies by the Brookings Institution highlight significant race gaps in intergenerational mobility in the U.S., with Black children experiencing lower rates of upward mobility and higher rates of downward mobility compared to White children, even at similar initial income levels¹⁰.
Targeting Interventions: By identifying populations or regions with particularly low mobility, policymakers can strategically target interventions, such as educational programs or community development initiatives, to address specific barriers to upward mobility.

Limitations and Criticisms

While intergenerational mobility is a vital concept, its measurement and interpretation come with limitations and criticisms.

Measurement Challenges: Accurately measuring permanent income across generations can be difficult. Studies often rely on single-year income data, which can be affected by temporary fluctuations in earnings or by the life cycle stage at which income is measured, potentially biasing IGE estimates⁸, ⁹. Using multiple years of income data for both parents and children helps mitigate this "life cycle bias."
Exclusion of Non-Income Factors: While income is a primary focus, intergenerational mobility encompasses more than just financial outcomes. Other aspects like health, social capital, and well-being are also transmitted across generations but are harder to quantify and often excluded from standard IGE calculations⁷.
The "Great Gatsby Curve": A notable criticism and empirical finding is the "Great Gatsby Curve," which illustrates a positive correlation between income inequality and intergenerational income persistence across countries. This suggests that countries with higher income disparities tend to have lower intergenerational mobility⁶. This relationship implies that it becomes harder to move up the economic ladder in more unequal societies, challenging the notion that high inequality might be acceptable if accompanied by high mobility.
Policy Effectiveness Debate: There are ongoing debates about the most effective public policies to enhance intergenerational mobility. Some argue for universal investments in education and healthcare, while others emphasize targeted interventions or reforms to labor market institutions and returns to education. The complexity of socioeconomic factors means that a single policy is unlikely to be a panacea.

Intergenerational Mobility vs. Intragenerational Mobility

Intergenerational mobility and intragenerational mobility are both concepts related to movement within socioeconomic structures, but they differ in their scope.

Intergenerational mobility refers to changes in socioeconomic status between different generations of a family—specifically, how a child's status compares to that of their parents. It examines the extent to which economic and social positions are inherited or achieved over time, focusing on the transmission of advantages or disadvantages across family lines. For example, a child of a low-income parent becoming a high-earning professional demonstrates upward intergenerational mobility.

In contrast, intragenerational mobility refers to changes in an individual's socioeconomic status within their own lifetime. It tracks a single person's career progression, income growth, or changes in social standing from their entry into the labor force until retirement. An example would be an individual starting their career in an entry-level position and, over several decades, rising to a senior management role with a significantly higher income. While intergenerational mobility looks at the "start" and "end" points across generations, intragenerational mobility focuses on the journey of an individual within their own life. Both concepts are crucial for a complete understanding of social and economic fluidity.

FAQs

What are the main types of intergenerational mobility?

Intergenerational mobility is broadly categorized into two types: upward mobility and downward mobility. Upward mobility occurs when a child achieves a higher socioeconomic status than their parents, while downward mobility happens when a child's status is lower than that of their parents. Researchers also study absolute mobility (how much socioeconomic status changes) and relative mobility (how an individual's rank in the social classes changes compared to their parents).
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Why is intergenerational mobility important for a society?

Intergenerational mobility is crucial because it reflects the degree of equality of opportunity within a society. High mobility suggests that individuals have the chance to succeed based on their talents and efforts, rather than being limited by their birth circumstances. This can lead to a more meritocratic society, potentially fostering greater social cohesion and a more efficient allocation of talent, which can contribute to overall economic growth.

How does education affect intergenerational mobility?

Education is a key driver of intergenerational mobility. Higher levels of parental education often correlate with higher educational attainment in children. However, access to quality education, regardless of parental background, can significantly improve a child's prospects and facilitate upward mobility. Public policies that ensure equitable access to educational resources can therefore play a vital role in enhancing intergenerational mobility.
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Is intergenerational mobility declining in some countries?

Research suggests that in some advanced economies, particularly the United States, intergenerational mobility may be lower than commonly perceived and has shown signs of decline since the 1980s. ², ³Factors such as rising income inequality and structural changes in the economy are often cited as contributors to this trend. However, patterns vary significantly across countries, with Nordic countries generally showing higher rates of intergenerational mobility compared to southern European countries.¹