Title: Intergenerational Mobility, Inequality and Government Investment in the United States
Description: Given the widely-accepted finding that countries with greater income inequality also experience less income mobility across generations (Corak, 2013; Krueger, 2012), it is expected that American mobility has decreased with rising income inequality in recent decades (Aaronson & Mazumder, 2008; Corak, 2013; Mazumder, 2012). However, mobility has remained unchanged (Chetty, Hendren, Kline, Saez, & Turner, 2014), and is unresponsive to changes in income inequality (Bloome, 2015). These findings raise questions as to why intergenerational income mobility in the U.S. has not fallen during the periods when income inequality has sharply risen. To address these questions, the dissertation focuses on two aims. The first aim is to examine the association between intergenerational income mobility and income inequality in the United States. The second aim is to examine intergenerational income mobility with respect to income inequality and government spending. The main data for this dissertation come from the National Longitudinal Study of Youth 1979 (NLSY79).

The basic sample includes 4,824 parents-children pairs. I aggregate the state-level data from several different resources such as the IRS’s Statistics of Income, U.S. Census of Governments, and the U.S. Bureau of Labor Statistics. The state-level sample includes 220 state-year observations. Overall, the intergenerational elasticity (IGE) of income is about 0.43, and the analysis indicates that the US in reality is highly immobile, especially when looking at the extreme income groups of the bottom and the top. This study finds that rising income inequality acts to strengthen the importance of parental family income to child’s income. Particularly, the evidence that higher income inequality decreases intergenerational income mobility is clearer when migration problems are addressed. This study extends to include government spending and provides evidence that additional government spending contributes to promoting intergenerational income mobility. Moreover, government spending moderates the effects of income inequality on intergenerational income mobility.

This evidence indicates that government spending plays a role in preventing the decrease in intergenerational income mobility by offsetting the consequences of income inequality on mobility. A number of sensitivity tests confirm that the main results are robust and reliable. However, these results are not uniform across the subgroups—defined by gender, race, and family structure. There are wide variations in the IGE, the effects of income inequality and government spending across the subgroups and by different income measures. The findings of this study have implications for social work policy and practice. Income inequality matters since it hinders the equal opportunity to succeed, especially for children from low-income families. This study demonstrates that government spending plays an important role in promoting intergenerational income mobility by offsetting the consequences of income inequality. Yet, this study does not claim that the effects of increased government spending for increased intergenerational mobility are limitless.

Without efforts to connect low-income families to government policies and programs, economically disadvantaged children would not benefit in their human capital and skill development from increases in government spending.