GINI DP 89: On the relationship between income inequality and intergenerational mobility

Of all the potential consequences of rising economic inequality, none is more worrisome, or more difficult to study, than the possibility that rising inequality will have the long-run effect of reducing equality of opportunity and intergenerational mobility (IGM). Most studies of IGM look backward over the past 45/50 years measuring the mobility of those 40 years of age or younger in the early 2000s by their incomes or earnings, compared to their parental income or earnings status in the late 1960’s. The problem is, of course, that these children grew up in a period of relative equality and stronger and more equal growth in real incomes. In contrast, those who will come of age in the coming decades of this century will have grown up in very different and much more unequal circumstances than their predecessors. Hence we must trace the steps that precede the final analyses of mobility based on the traditional measures of IGM, which can only serve as a starting point. As financial resources have become more unequal in most European and Anglo Saxon countries over the last three decades, the difference in the capacities of rich and poor families to invest in their children also has become more unequal. This change is occurring in a period where relatively more educational investment is needed to meet ongoing labor market changes. It follows that unless these inequities are offset by public policies designed to moderate their effects, the children of the rich will have an increasingly better chance of staying rich in the future, and the children of the poor will have less chance of escaping poverty or low socioeconomic status (SES). This short paper briefly summarizes the status of the relationship between inequality and mobility across several European and four non-European nations. It begins by discussing the concept of an investment in children and summarizing the relationship between social equality and equal opportunities over time and at present, and introducing the concept of IGM to assess the dynamic processes of social development and equality of opportunities and how they differ across nations. The role of parents and the tradeoffs that policy faces in this role is stressed. The paper will also mention some of the differences in outcomes we find according to parental education. We finish with some policies to increase the paths of autonomy and self-administration, privileges, and protective status rights. In the end we must strike a balance between parents’ ability to do as best they can for their children and social institutions and their processes that might provide more equal chances to those less well off, especially children from lower SES backgrounds.