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Estimating nonlinear intergenerational income mobility with correlation curves

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  • Nilsson, Jan Olof William

Abstract

A correlation curve is introduced as a tool to study the degree of intergenerational income mobility, i.e. how income status is related between parents and adult child. The method overcomes the shortcomings of the elasticity of children's income with respect to parents' income (i.e. its sensitiveness to different dispersion among the generations) and the correlation coefficient (i.e. its inability to capture nonlinearities). The method is particularly suitable for comparative studies and in this study labour earnings are compared to disposable income. The correlation between the parental income and the child's adult disposable income becomes stronger for higher percentiles in the income distribution of the parents. Above the median the correlation is found to be stronger than for labour earnings. Interestingly, the elasticity is higher for labour earnings for most parts of the distribution and complementing the elasticity with correlation curves provides a much more complete picture of the intergenerational income mobility.

Suggested Citation

  • Nilsson, Jan Olof William, 2018. "Estimating nonlinear intergenerational income mobility with correlation curves," Economics Discussion Papers 2018-62, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201862
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    References listed on IDEAS

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    More about this item

    Keywords

    intergenerational mobility; nonlinear; nonparametric; correlation curve;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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