A Lifecycle Estimator of Intergenerational Income Mobility

TL;DR

This paper introduces a new lifecycle estimator for intergenerational income mobility that accounts for income growth patterns, revealing stable mobility trends despite rising inequality in Sweden and the US.

Contribution

The paper develops a novel lifecycle estimator that better captures income growth patterns and applies it to recent data, providing new insights into mobility trends.

Findings

Mobility remained stable despite rising inequality.

Standard correction methods struggle with income growth patterns.

The new estimator performs well across different settings.

Abstract

Lacking lifetime income data, most intergenerational mobility estimates are subject to lifecycle bias. Using long income series from Sweden and the US, we illustrate that standard correction methods struggle to account for one important property of income processes: children from affluent families experience faster income growth, even conditional on their own characteristics. We propose a lifecycle estimator that captures this pattern and performs well across different settings. We apply the estimator to study mobility trends, including for recent cohorts that could not be considered in prior work. Despite rising income inequality, intergenerational mobility remained largely stable in both countries.