WASHINGTON—New analysis by researchers at Stanford University, funded by The Pew Charitable Trusts and the Russell Sage Foundation, finds that approximately half of parental income advantages in the United States are passed on to children, which is among the lowest estimates of economic mobility yet produced. The research also finds that the degree to which income advantages are transferred from parents to children differs across the income spectrum, and that parental income differences benefit children from higher-income families more than those from lower-income families. The results indicate that opportunities for economic success are far from equally distributed.
The report, "Economic Mobility in the United States," provides the most comprehensive assessment to date of the intergenerational transmission of economic advantage. It draws on a new data set from tax returns and other administrative sources to overcome limitations that hampered previous studies. These findings make clear that children raised in families that are far apart on the income ladder can expect markedly different economic futures.
“This analysis finds that a family’s economic circumstances play an exceptionally large part in determining a child’s economic prospects later in life,” said Erin Currier, director of Pew’s financial security and mobility project. “For example, children raised in families at the 90th percentile can expect their own family income to be three times more than the children raised at the 10th percentile. These findings are at odds with our country’s aspirations for equal opportunity.”
This report utilizes the intergenerational elasticity (IGE) to measure the share of economic advantage that is passed on to children. The IGE is typically between zero and one, with an IGE of zero implying that children from families of different socioeconomic status have the same expected income as one another, with no inherited income advantage or disadvantage. An IGE of one, on the other hand, implies that parental advantages are fully passed on.
Among the report’s key findings:
These results show that children born into lower-income families have very different futures than those from higher-income households. The study’s findings provide a fact base that can inform policies intended to increase economic mobility.
“The report documents that public policies must do more to level the playing field so that children from low-income families have greater opportunities to compete in the 21st century economy. Over recent decades, the rising income and wealth of affluent parents have allowed them to increase investments in their children, from day care through college. At the same time, wages have stagnated for most workers and low-income families have struggled to pay for routine expenses,” noted Sheldon Danziger, president of the Russell Sage Foundation.
The results reported in this study are based on a new data set, the Statistics of Income Mobility Panel, which combines tax data and other administrative sources. All access to tax data was limited to Internal Revenue Service employees.
The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Learn more at www.pewtrusts.org
The Russell Sage Foundation is the principal American foundation devoted exclusively to research in the social sciences.