By Arnold Kling
OK, so how do experts measure intergenerational income mobility anyway? Using survey data that tracks the income of the same individuals and families over time, researchers compare the income of parents at some specific age or age range to incomes of children at the same or other ages. As I understand it, perfect correlation between parents’ and children’s incomes is measured as an “elasticity” of 1, whereas a lack of any correlation would correspond to an elasticity of 0.
So, if everybody’s income is 50 percent higher than their parents’, that shows up as zero income mobility. On the other hand, if average income stays constant, but a lot of low-earning parents have high-earning children, and vice-versa, that shows up as high income mobility.
The moral of the story to me is, “Be careful what you measure.” My favorite issue is the treatment of immigrants, the life cycle, and changes in family structure. Do you measure family income, so that John’s income is lower than his parents’ because his parents stayed married and he is single? Or because you measure John’s income at age 25 and his parents’ income when they were 35? Do you measure John’s income quintile relative to the incomes of other people born in the U.S. when John was born, or do you measure his income quintile relative to the incomes of the current U.S. population?
UPDATE: Here is the report that is getting all the play. It is not a longitudinal study at all. Instead,
We look at four generations of men born during different periods between 1925 and 1974, and focus on their individual incomes when they were in their thirties — thereby holding constant the point in their careers when measuring their economic status.
…Those in their thirties in 2004 had a median income of about $35,000 a year. Men in their fathers’ cohort, those who are now in their sixties, had a median income of about $40,000 when they were the same age in 1974
One concern is that the men in their thirties in 2004 are not necessarily descendants of men in their thirties in 1974. One factor that intervened is immigration.
Also, I would not be so cavalier to assert that income in one’s thirties is a good proxy for lifetime income. Today, with so many occupations requiring post-graduate education, income in one’s thirties may be lower relative to lifetime income than it was in the past.
On the other hand, 1974 was a bad recession year, and 2004 was not. I would think that would favor those in their thirties in 2004.
All in all, this is an example of how not to produce a convincing analysis of income mobility. What I want to see is research that (a) clearly distinguishes changes that occur within families from changes in the composition of the population and (b) offers a credible proxy for lifetime income.