Ratio Working Paper No. 325: The American Dream Lives in Sweden: Trends in intergenerational absolute income mobility

Abstract

Despite a sizeable literature on relative income mobility across generations, there is a dearth of studies of absolute mobility across generations, i.e. whether current generations earn more or less than their parents did at the same age, as well as how to explain the level of absolute mobility. We use individual micro data to study the trend in intergenerational absolute income mobility measured as the share of sons and daughters earning more than their fathers and mothers, respectively, for eleven Swedish birth cohorts between 1970 and 1980. We find that absolute mobility in Sweden significantly exceeds that of the United States and is largely on par with Canada. The rate of absolute mobility for women exceeds that of men throughout the study period, however the trend has been stronger for men. Using an augmented decomposition model which supplements standard models by accounting for differences in the income distribution of every birth cohort’s parent generation, we find that heterogeneity in the parent income distribution strongly determines how much economic growth contributes to absolute mobility across birth cohorts. If income inequality is high in the parent generation, more growth is required if children that move downward in the relative income distribution are to earn more than their parents.