How Does Economic Inequality Affect Intergenerational Mobility? An Exploration of the Context of Opportunity

Deirdre Bloome, Harvard University

This paper examines the relationship between family income inequality and intergenerational family income mobility. As family income inequality in the United States rose, children benefited from increasingly divergent resources available for their health, education and care. It is thus possible that economic inequality reduced opportunities for intergenerational mobility, reinforcing the privileges of the affluent and compounding the disadvantages of the poor. Using data from the Panel Study of Income Dynamics (combined with data on state characteristics), this paper exploits state- and cohort-variation in inequality to estimate the relationship between inequality and mobility. Family, neighborhood and institutional mechanisms are explored to help elucidate this relationship. Results suggest that increasing inequality raises the probability of downward mobility for African American children, although most of this movement occurs within income quintiles. The negative effect is largest for children with the highest mobility prospects. Some evidence also suggests a small dependence between the intergenerational income elasticity and inequality.