Current trends in income mobility between different generations may be heavily influenced by policies and events in the past, according to a new  study of developed countries by researchers at the Institute for the Study of Labor in Bonn.

Key points

• Income mobility today depends not only on current transmission mechanisms, but also on the distribution of income and characteristics in past generations – and thus on past mechanisms.
• Policy or institutional reforms can therefore generate long-lasting mobility trends, and variation in income mobility across countries or across groups within countries may be partly explained by differences in past institutions.
• For example, the impact of rising wage differentials on income mobility levels may not yet have been fully realised, because changing returns to skills tend to shift mobility over multiple generations.
• Conversely, a shift towards more meritocratic institutions and policies (diminishing the influence of parental income and raising the importance of an individual's own skills in the determination of income) tends to increase mobility in the first affected generation, followed by a longer-lasting negative trend. A decline in mobility observed in more recent cohorts may be a 'rebounding' effect of changes in the early or middle part of the 20th century.

The authors conclude that the analysis of inter-generational mobility would benefit from a 'dynamic' view of the underlying transmission framework, which may help to avoid potential pitfalls in the interpretation of mobility trends. They also highlight various promising avenues for future empirical research, which could lead to a better understanding of the underlying causes of rising or declining mobility.

Source: Martin Nybom and Jan Stuhler, Interpreting Trends in Intergenerational Income Mobility, Discussion Paper 7514, Institute for the Study of Labor (Bonn)
Link: Paper