Measuring absolute income mobility: Lessons from North America and Europe

What is this research about and why did you do it?

This research calculates the fraction of children who grew up to earn more than their parents, in inflation-adjusted terms, across seven European and North American countries. “Absolute income mobility,” as it is known, is a goal that many parents have for their children: if the economy and society are working for everyone, then children should grow up to have a higher material standard of living than their parents.

We began this project after a previous study found that the rate of absolute income mobility in the United States had declined precipitously over the late 20^th Century. We wanted to see whether that decline was mirrored in other high-income countries, or if it was unique to the US.

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How did you answer this question?

We used administrative data that link parents to their children and report their incomes in each year. For each birth cohort of children, we calculated their family income at age 30 and compare that to the inflation-adjusted family income of their parents at the same age. For two of the countries in our sample, the US and the UK, linked administrative data are not available so we instead used survey data that allow us to calculate rates of upward mobility on average, though not for any individual.

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What did you find?

We found that rates and trends in absolute income mobility vary dramatically across the countries we study. In addition to the US, Canada and Finland have seen low and declining rates of absolute income mobility in recent decades, with just 55% of Finnish children born in 1990 having higher incomes at age 30 than their parents. On the other hand, Sweden and Norway saw high and stable rates of upward mobility, with roughly 75% of Norwegian children growing up to out-earn their parents across the study period. The UK and the Netherlands also saw high rates of upward mobility, but with declines at the end of the study period.

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Rates of absolute income mobility in selected European and North American countries, 1960-1990 birth cohorts. The upward mobility rate is he fraction of members of each birth cohort who had higher inflation-adjusted incomes at age 30 than their parents did at the same age. The US, Canada, and Finland show low and declining rates of absolute income mobility, while the Netherlands, Norway, Sweden, and the UK show higher and more stable rates.

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What implications does this have for the study (research and teaching) of wealth concentration or economic inequality?

This study highlights the way that economic inequality can prevent economic growth from translating into higher material living standards for the population. The US has seen faster economic growth over the past 50 years than most other countries in our sample, but because so much has been captured by the highest-income slice of the population, this growth has not translated into upward mobility in the way that it has in other countries.

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What are the next steps in your agenda?

We hope to expand the study of absolute income mobility to other countries, especially those in the Global South. One contribution of this paper is to test and validate methods of estimating absolute income mobility when linked data is not available, which should allow its study in a wider range of countries.

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Citation and related resources

Manduca, R., Hell, M., Adermon, A,. Blanden, J,. Bratberg, E,. Gielen, A. C,. Kippersluis, H. V,. Lee, K., Machin, S., Munk, M. D., Nybom, M., Ostrovsky, Y., Rahman, S., and Sirniö, O. (2024) "Measuring Absolute Income Mobility: Lessons from North America and Europe". American Economic Journal: Applied Economics, Vol.16, No. 2, April 2024