This study uses a new data set that contains the Social Security earnings histories of
parents and children in the 1984 Survey of Income and Program Participation, to
measure the intergenerational elasticity in earnings in the United States. Earlier
studies that found an intergenerational elasticity of 0.4 have typically used only up
to five-year averages of fathers’ earnings to measure fathers’ permanent earnings.
However, dynamic earnings models that allow for serial correlation in transitory
shocks to earnings imply that using such a short time span may lead to estimates that
are biased down by nearly 30 percent. Indeed, by using many more years of fathers'
earnings than earlier studies, the intergenerational elasticity between fathers and
sons is estimated to be around 0.6 implying significantly less mobility in the U.S.
than previous research indicated. The elasticity in earnings between fathers and
daughters is of a similar magnitude. The evidence also suggests that family income
has an even larger effect than fathers’ earnings on children's future labor market
success. The elasticity of earnings is higher for families with low net worth,
offering some empirical support for theoretical models that predict differences due
to borrowing constraints. Some evidence of a higher elasticity among blacks is
found but the results are not conclusive.