In the mid-20th century, many developed economies experienced several generations of high prosperity, with children generally earning higher incomes than their parents had at the same age. In economics, this is technically known as increasing absolute intergenerational mobility. For the United States, however, studies suggest that such mobility has more recently been falling. It decreased from 90% for children born in 1940 to just 50% for those born in 1980, mostly due to changes in the income distribution, but also due to slower economic growth. Whether this pattern also holds for other countries and birth cohorts is less clear.
In a recent paper, LML Fellow Yonatan Berman uses a variety of data sources to test the generality of this finding. He considers the long-run evolution of absolute intergenerational mobility in income in a large group of advanced economies, finding robust evidence that absolute mobility has been decreasing in most nations, primarily as a result of faltering economic growth and, secondarily, due to changes in inequality.
As Berman demonstrates, the data reveals a large and nearly monotonic decrease during the post-war period in the chances of children to have a higher income than their parents in many European countries, as well as in Canada, Australia, Japan and the United Kingdom. This decrease followed a rapid increase in absolute mobility from the early 1900s until World War II, reflecting the economic boom and the decreasing income inequality during the three decades that followed the end of the war. These results thereby confirm earlier findings for the United States and extend them to many other nations. The results show that levels of absolute mobility, high before the war, peaked around the 1940 birth cohort.
As Berman notes, however, the factors driving the decrease in absolute mobility differ among countries. In Australia and the United States the decrease is mainly due to increasing income inequality. Yet, in other countries, notably Denmark, France and Japan, the slow economic growth of the past several decades was the key contributor to a similar decrease. Despite higher growth rates and the ethos of the “American Dream” ethos, the absolute intergenerational mobility in the United States for late 1970s and early 1980s birth cohorts is among the lowest within the group of countries studied.
The paper is available at https://www.aeaweb.org/articles?id=10.1257/app.20200631&from=f