The Taller the Ladder, the Tougher the Climb?: Essays on the Impact of Income Inequality on Intergenerational Mobility

Abstract

The study of income inequality has a rich history within economics and various social sciences. More recently, a growing body of literature has examined intergenerational income mobility to understand not only equality of opportunities but also whether the labor market allocation successfully utilizes the potential abilities from all social strata. This dissertation explores the intricate relationship between income inequality and intergenerational mobility through three distinct research articles.

If we envision the income distribution as a ladder, income inequality can be likened to the relative distance between the ladder’s rungs, where greater inequality corresponds to a more stretched-out ladder. Income mobility, on the other hand, is a much more multifaceted concept. The most common way of measuring it is relative mobility, which tries to quantify the mobility between the rungs of the ladder, where an upward jump for one born poor necessarily implies a downward shift for one born richer.

Article 1 studies how relative mobility is affected by income inequality across regions within Sweden. If there are substantial income differences across regions within countries that persist across generations, this will contribute to a more stretched-out ladder, potentially making mobility more difficult. The study demonstrates that these regional income disparities persist across generations, resulting in decreased income mobility. The article then proceeds to examine whether migration patterns between richer and poorer regions mitigate or exacerbate this effect.

In contrast to relative mobility, absolute mobility measures if children end up being better off in the standard of living compared to their parents, regardless of whether they manage to climb to a higher rung on the ladder compared to their parents. Article 2 delves into examining the trend in absolute income mobility for Sweden, measured as the percentage of children earning more than their parents. The novel decomposition method reveals that Sweden has a high level of absolute mobility mainly due to the low level of income inequality.

Article 3 explores the potential of public education to mitigate inequities by examining the causal effects of a 1989 Swedish teacher strike that caused school closures. The article reveals that the strike had both negative short-run effects, measured as student results, and long-run effects, measured as earnings, and the effects were larger for individuals from low-income backgrounds.

In summary, this dissertation provides both empirical and methodological contributions to the intricate relationship between inequality and mobility.