The Intergenerational Elasticity of What? The Case for Redefining the Workhorse Measure of Economic Mobility

Abstract

The intergenerational elasticity (IGE) has been assumed to refer to the expectation of children’s income when in fact it pertains to the geometric mean of children’s income. We show that mobility analyses based on the conventional IGE have been widely misinterpreted, are subject to selection bias, and cannot disentangle the different channels for transmitting economic status across generations. The solution to these problems—estimating the IGE of expected income or earnings—returns the field to what it has long meant to estimate. Under this approach, intergenerational persistence is found to be substantially higher, thus raising the possibility that the field’s stock results are misleading.