econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 29 August 2016

Income Persists More Than Wealth Between Generations

from the St Louis Fed

Research has shown evidence of persistence in both income and wealth across generations. But which one persists more? How likely are people to do better than their parents? A recent article inThe Regional Economist explored intergenerational mobility, or the changes in family economic status between successive generations.

Research Officer and Economist George-Levi Gayle and former Technical Research Associate Andrés Hincapié noted: "Being able to do better than one's parents is part of the American Dream. Also, a society with intergenerational mobility might have less economic inequality across generations."

The authors mentioned two ways to approach increasing economic mobility:

  • Economic growth, or raising earnings or wealth for the entire population

  • Economic opportunity structure, such as policies aimed at leveling the playing field

Gayle and Hincapié focused on the effect of the economic opportunity structure, examining which type of policies are more effective for promoting mobility: helping the poor escape poverty or limiting the advantages of the privileged. Those who grew up in more well-to-do homes simply have advantages over those who didn't, as Gayle and Hincapié noted that persistence across generations has been documented for both income and wealth:

  • Earnings persistence is mostly due to investment in early childhood education and other human capital development.1

  • Persistence of residual wealth (or wealth net of education and lifetime earnings from working, or permanent income) is due to bequests, asset accumulation and the capital market.2

Gayle and Hincapié examined age-adjusted correlations of wealth and income across generations for the period 1968-2013. They found that the intergenerational elasticity of earnings was 0.4 and of wealth was 0.38. This means that 10 percent differences in parents' income and wealth led to 4 percent and 3.8 percent differences, respectively, for offspring's income and wealth.

However, for technical reasons, the wealth calculation excluded individuals with no wealth or with net debt, which would be one in five people. To incorporate these households, Gayle and Hincapié also reported the correlation between people's rank in their generation's income or wealth distribution and their parents' rank. This is called a rank-rank correlation.

The authors found that the rank-rank correlation was 0.3 for wealth and 0.4 for labor market earnings. They wrote: "Once the wealth distribution with both positive and negative net worth is accounted for, labor market earnings appear to be 33 percent more persistent than wealth."

Still, as the authors pointed out: "Using one number to summarize the intergenerational persistence of earnings and wealth cannot answer whether such persistence is due to the inability of the poor to escape poverty or the persistence of wealth and income at the top." The next blog post will examine how children move to a different rung of the income and wealth ladders from where their parents were.

This post is the first in a two-part series on intergenerational economic mobility. Today's post discusses persistence of income and wealth from parents to children.

Notes and References

1 Gayle, George-Levi; Golan, Limor; and Soytas, Mehmet A. "What Is the Source of the Intergenerational Correlation in Earnings?" Federal Reserve Bank of St. Louis, Working Paper 2015-019A.

2 Piketty, Thomas. Capital in the Twenty-First Century. Cambridge, Mass., Belknap Press, 2014.

Additional Resources

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

Source

https://www.stlouisfed.org/on-the-economy/2016/august/income-persists-more-generations-wealth

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Expected Effects of Petitions to Improve the Monetary System
Energy and Falling Productivity
News Blog
The World's Most Sustainable Cities
Big Sam In Bad Company
Other Ways To Spend Your AirPod Budget
Crashing Space Station Shows Why China Must Start To Collaborate In Orbit
NFL Edges Towards A Full House In London
What We Read Today 28 September 2016
October 2016 Economic Forecast: Outlook Insignificantly Declines But Little Economic Strength Entering 4Q2016
1 Minute. 34 Seconds. In The U.S., That's All It Takes To Register To Vote. A Single Registration Lasts A Lifetime Of Elections. We've Made It Easy For You Here: Http://g.co/elections/134
Durable Goods New Orders Unchanged in August 2016
90% Rally In Sugar Prices Since Late 2015
U.S. Real Wage Growth: Slowing Down With Age - Part 2 Of 2
Infographic Of The Day: Four Tips To Grow Wealth
Early Headlines: Asia Stocks Down, Yen Rises, Oil Soft, Wells CEO Gives Up Bonuses, Trump Didn't Want To Embarass Clinton, US Asset Bubbles, US Crime Rates Falling And More
Investing Blog
Will Deutsche Bank Survive
Banks Of Absurdity
Opinion Blog
The Federal Reserve Note
Trump, Trade And Taxes
Precious Metals Blog
War On Cash Turns To $20, $50, And $100 Bills
Live Markets
28Sep2016 Market Close: Wall Street Closes Higher After A Sluggish Start In The Morning, Crude Prices Close Higher In Face Of GS Saying Crude Will Fall, Indicators Neutral
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved