The Association between Children’s Earnings and Fathers’ Lifetime Earnings: Estimates Using Administrative Data

Molly Dahl, Congressional Budget Office (CBO)
Thomas DeLeire, Michigan State University and Congressional Budget Office (CBO)

Recent studies have found large estimates of the intergenerational elasticity (IGE) in earnings in the United States – as high as 0.6. Recent work (Haider and Solon 2006) suggests that these estimates likely are subject to biases resulting from life-cycle variation in the association between lifetime earnings and current-year earnings. Thus, the ages at which children’s and father’s earnings are measured affect estimates of the IGE in earnings. By using new administrative data of nearly career-long earnings histories of fathers' and children’s earnings around an age that likely is a good proxy for lifetime earnings, we provide an estimate of the IGE in earnings that corrects for both “life-cycle” and attenuation bias. We estimate that the IGE in earnings between fathers and sons is 0.3 to 0.4 and between fathers and daughters is 0.2 to 0.3. Our estimates imply that the United States is substantially more mobile than previously believed.