Was Rising Inequality Behind Falling Absolute Mobility? Reassessing Chetty et al. (2017)

By Scott Winship of AEI.

"In 2017, a widely publicized paper by a research team led by Harvard economist Raj Chetty found that while the vast majority of American kids born in 1940 ended up better off at age 30 than their parents fared at the same age, that was only true of half of kids born in 1980. Moreover, the paper found that rising income inequality was much more to blame for this falling “absolute mobility” than slower economic growth.

In the years since, no one has seriously challenged the team’s claim about the role of inequality in reducing absolute mobility. However, after replicating their results, I reanalyzed the data available on the study’s website to address technical issues behind the assumptions in their modeling. My findings deeply undermine the conclusion that falling absolute mobility is primarily due to rising income inequality.

Chetty et al. report that absolute mobility fell from 91.5 percent for children born in 1940 to 50 percent for those born in 1980. In their counterfactual simulations, they found that if the economic growth rates prevailing for the 1940 cohort had been experienced by the 1980 cohort, with inequality nonetheless rising as much as it actually did, the absolute mobility rate for the 1980 cohort would have been 62 percent rather than 50 percent. However, if the adulthood inequality experienced by the 1980 cohort had been what the 1940 cohort saw, with economic growth increasing as slowly as it actually did, 80 percent of the most recent cohort would have experienced absolute mobility.

However, while the Chetty paper concluded that lower inequality would have raised absolute mobility much more than higher economic growth would have, my results indicate the opposite: higher growth would have raised absolute mobility from 50 percent to 81 percent, while lower inequality would have increased it to just 57 percent. This is almost the mirror image of the Chetty findings.

Read the full working paper here."