Questions: Intergenerational Mobility

Question 1

An intergenerational elasticity (IGE) of 0.5 means that...

• A. Children earn exactly half of what their parents earned
• B. If a parent earns 10% above the mean, their child is expected to earn 5% above the mean — half the parental advantage persists
• C. 50% of children earn more than their parents
• D. Income is completely determined by parental income

Answer: (B)

The IGE is the elasticity of child income with respect to parent income. An IGE of 0.5 means that 50% of the parents' position above (or below) the mean is transmitted to the next generation. A parent at the 90th percentile produces a child expected at the 70th percentile (halfway between 90th and 50th). Complete mobility would be IGE = 0 (parents' income has no effect); complete immobility would be IGE = 1 (children replicate parents' position exactly). The US IGE of 0.4-0.5 indicates substantial persistence — roughly half of economic advantage or disadvantage carries across generations.

Question 2

The 'Great Gatsby curve' suggests that countries with higher income inequality tend to have higher intergenerational mobility.

• T. True
• F. False

Answer: False

The Great Gatsby curve documents the opposite relationship: countries with higher inequality tend to have LOWER intergenerational mobility. The US and UK (high inequality, low mobility) contrast with Denmark and Finland (low inequality, high mobility). The proposed mechanism is that inequality increases the distance between rungs on the economic ladder, making it harder for children from low-income families to climb. Inequality also correlates with disparities in school quality, neighborhood conditions, and social capital that transmit advantage and disadvantage across generations.

Question 3

What did Chetty et al.'s research reveal about geographic variation in mobility within the United States?

Model answer: Using IRS tax records for millions of Americans, Chetty et al. found enormous variation in intergenerational mobility across US commuting zones. Children born to low-income families in some areas (e.g., Salt Lake City, San Jose) had much higher chances of reaching the top income quintile than those in other areas (e.g., Atlanta, Charlotte). The factors most correlated with high mobility were: less residential segregation, less income inequality, better schools, stronger social networks, and more two-parent families. This variation suggests that local institutions and community characteristics profoundly shape children's life chances.

The geographic variation is striking — a child's chances of upward mobility can differ by a factor of two or more depending on where they grow up, even controlling for parental income. Chetty's subsequent work using movers (families who relocate) showed that moving to a high-mobility area during childhood improves children's outcomes, with larger effects for younger children. This provides causal evidence that place matters — it is not just that high-mobility areas attract better-off families, but that the characteristics of the area itself improve outcomes.