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The fading American dream: Trends in absolute income mobility since 1940

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Science  28 Apr 2017:
Vol. 356, Issue 6336, pp. 398-406
DOI: 10.1126/science.aal4617
  • Fig. 1 Baseline estimates of absolute mobility by birth cohort.

    (A and B) The fraction of children earning more than their parents (“absolute mobility”) by parent income percentile for selected child birth cohorts (A) and on average by child birth cohort (B). Only parents with positive income are included in (A); within this group, parent income percentiles are constructed according to their ranks in the distribution of parents’ incomes within each child cohort. Parents with zero income are included in (B), defining absolute mobility as 100% for that subgroup when computing the mean rate of absolute mobility by cohort. Child income is measured at age 30 in the CPS March supplement as the sum of individual and spousal income, excluding immigrants after 1994. Parent income is measured in the census as the sum of the spouses’ incomes for families in which the highest earner is between ages 25 and 35. Children’s and parents’ incomes are measured in real 2014 dollars using the CPI-U-RS. Absolute mobility is calculated by combining these income distributions with the copula estimated for the 1980 to 1982 cohorts in tax data by (12).

  • Fig. 2 Effects of copula on absolute mobility by birth cohort.

    (A) Plot of bounds on absolute mobility for each cohort over all copulas satisfying first-order stochastic dominance of child income distributions as parent income rises. The bounds are estimated separately by cohort. Solid circles replicate the baseline estimates shown in Fig. 1B, with the section to the right of the dashed vertical line corresponding to the cohorts (1971 to 1984) for which copula stability is documented in (15). (B) Plot of the marginal family income distributions of children in the 1940 birth cohort and their parents, measured at approximately age 30. Corresponding to the analysis in Fig. 1A, parents with zero income are excluded, but children with zero income are included when estimating these kernel densities. For scaling purposes, incomes above $200,000 are excluded. (C) Plot of analogous income distributions for children in the 1980 birth cohort and their parents. (D) Plot of the income percentile that a child must reach in order to earn more than his or her parents for the 1940 and 1980 cohorts, with labels corresponding to the examples shown by the dashed vertical lines in (B) and (C). Also shown is a heat map of the baseline copula for the 1980 to 1982 birth cohorts. The copula is a 100 × 100 matrix where each cell (x, y) gives the probability of a child being in income percentile y and having parents in income percentile x (conditional on parents having positive income). Darker colors represent areas with higher density in the copula.

  • Fig. 3 Trends in absolute mobility: Sensitivity analysis.

    Plots show absolute mobility by child birth cohort according to a set of alternative income definitions. (A) Estimates that use alternative price deflators to adjust for inflation, including the PPI and the PCEPI. We also consider a price index that adjusts for bias in the CPI-U-RS due to new and higher-quality products by subtracting 0.8% from the annual inflation rate implied by the CPI-U-RS (24, 25). (B) Estimates using income after including federal taxes and transfers. Taxes are estimated using the NBER TAXSIM model (39) for years since 1960 and historical marginal tax rates for years before 1960. Transfers include cash and in-kind transfers. Cash transfers are obtained from census and CPS data; in-kind transfers are obtained from calculations in (40) using CPS data from calendar year 1967 onward (for years before 1967, in-kind transfers are set to zero). (C) Plot of absolute mobility when child income is measured at age 40 and parent income is measured between ages 35 and 45. Note that the last year of income data in our sample is 2014, so absolute mobility can be measured at age 40 only until the 1974 birth cohort. (D) Estimates that adjust income for family size and number of earners. In the series in open circles, we divide the baseline measures of family income by the square root of family size (defined as the number of dependent children plus the number of adults) for both parents and children. In the series in triangles, we estimate the fraction of sons whose individual incomes are greater than or equal to their fathers’ individual incomes. Individual income is defined in the same way as the baseline family income measure but does not include spousal income.

  • Fig. 4 Trends in absolute mobility by state.

    (A) Estimates for decadal birth cohorts for selected states; table S2 shows data by cohort for all other states. (B) Map of the magnitude of the decline in absolute mobility from the 1940 cohort to the 1980 cohort, with darker colors representing states with larger declines. For parents, state refers to location at the time incomes are measured (between ages 25 and 35); for children, state refers to location at birth. Because children’s state of birth is not observed in the CPS, we use the census for both parents and children.

  • Fig. 5 Absolute mobility for the 1980 birth cohort: Counterfactual scenarios with different GDP growth rates or income distributions.

    (A) Plot of absolute mobility by parent income percentile. The solid curves replicate the baseline estimates of observed absolute mobility by parent income percentile from Fig. 1A for the 1940 and 1980 birth cohorts. The series “1940 GDP/family growth rate (2.5%), 1980 income shares” plots the rates of absolute mobility that the 1980 cohort would have experienced if GDP per working-age family had grown at 2.5% annually from 1980 to 2010 instead of the actual rate of 1.5%. The resulting higher level of GDP in 2010 is allocated to households according to the ratio of income to GDP per working family at each percentile of the family income distribution for 30-year-olds in 2010. The series “1980 GDP/family growth rate (1.5%), 1940 income shares” plots the rates of absolute mobility that the 1980 cohort would have experienced if GDP in 2010 had been allocated in the same manner across households as it was for the 1940 cohort. For each series, we also report the mean level of absolute mobility (AM), averaging across all income percentiles (including parents with zero incomes, whose children mechanically have absolute mobility of 100% and are not shown in the figure). (B) Plot of mean absolute mobility for the 1980 cohort if it had experienced alternative GDP growth rates. These estimates are constructed in the same way as the estimate of AM for the “1940 GDP/family growth rate (2.5%), 1980 income shares” series in (A), using growth rates ranging from 1% to 10%. The dashed horizontal lines show the actual levels of AM for the 1940 and 1980 birth cohorts.

Supplementary Materials

  • The fading American dream: Trends in absolute income mobility since 1940

    Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca, Jimmy Narang

    Materials/Methods, Supplementary Text, Tables, Figures, and/or References

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    • Materials and Methods
    • Figs. S1 to S12
    • Tables S1 to S4
    • References and Notes

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