Persistent racial inequality in the United States
7 Modelling persistent racial inequality
- intergenerational inequality
- The extent to which differences in parental generations are passed on to the next generation, as measured by the intergenerational elasticity or the intergenerational correlation.
- categorical inequality
- Inequality between particular social groups (identified, for instance, by a category such as race, nation, caste, gender or religion). Also known as: group inequality.
To understand how racial economic inequality persists over time, we need to examine intergenerational inequality in America.
(To review the basics of categorical inequality and/or intergenerational inequality, see Unit 19.2 of The Economy 1.0.)
American racial inequality is an instance of categorical inequality (also known as group inequality). Intergenerational inequality and categorical inequality are linked. Racial identities are transmitted from parents to their children, even as cross-race marriage and partnerships are steadily increasing, so a high degree of categorical inequality results in a high degree of intergenerational inequality.
Economists and sociologists measure intergenerational inequality by comparing parents’ economic outcomes with those of their adult children. We estimate a person’s likely economic situation based on their parents’ economic situation, taken at similar points in their lives (for example, incomes at age 30).
Intergenerational mobility can be measured by a statistic called the intergenerational correlation (IGC), which can take values between 0 and 1. It is important to note that the IGC is not a correlation coefficient—it cannot take on negative values. The IGC indicates how similar parents and their adult children are in a particular indicator of economic success, such as income. If the economic situations of parents and their adult children are very similar—rich adult children tend to have rich parents; poor adult children tend to have poor parents—then the IGC will be close to 1 and we say that there is a significant amount of intergenerational inequality.
We measure each generation’s income on a 1 to 100 scale, where numbers indicate an individual’s rank in their generation’s income distribution. For example, the richest parents/adult children have a rank of 100, and the poorest parents/adult children have a rank of 1. By focusing on rankings rather than differences in absolute income among people within a generation, this measure of mobility can be compared across periods and societies with different levels of inequality within generations.
Figure 14a shows the IGC for the U.S. as a whole (top panel), and for different racial groups within the U.S. (bottom panel), with parents’ income ranks on the horizontal axis and their adult children’s income ranks on the vertical axis. The height of the lines gives us a summary of the advantages (or disadvantages) of a group. The slope of the line is the IGC; it shows how strongly connected a subjects’ income is to the income of their parents. The U.S. overall has an IGC of 0.37, so if a parent’s income increases by ten ranks, their adult child’s income will increase by 3.7 ranks (out of 100).
According to this measure, the U.S. has one of the highest IGC’s out of all high-income countries, which means that the future income of a person is more dependent on how well-off their parents are. Compared to the U.S.’s IGC of 0.37, in Canada and Denmark, the IGC is closer to 0.20, meaning the same ten-rank increase in parents’ income would only increase their adult child’s income by two ranks.
Figure 14a The top figure shows the intergenerational correlation for the United States as a whole. The bottom shows the same for different racial groups.
Author calculations from data in Raj Chetty, Nathaniel Hendren, Maggie R. Jones, and Sonya R. Porter. 2020. “Race and economic opportunity in the United States: An intergenerational perspective”. The Quarterly Journal of Economics 1352).: pp. 711–783
Follow the steps in Figure 14b to understand how to interpret the intergenerational coefficient graph.
Figure 14b Understanding the IGC.
The bottom panel of Figure 14a also reveals stark racial disparities in economic opportunities that persist across time and generations:
- Unequal opportunities for economic success across racial groups. A White child whose parents are in the middle of the income distribution is likely to have a similar income rank, whereas a Black child born into a family with the same income is likely to be noticeably poorer than their parents. There is downward economic mobility for the children of Black middle-class families: holding parental income constant, opportunities for Black people to succeed economically are lower.
- Inequality across groups can partly explain the overall high IGC of the U.S. Although cross-race marriage has been increasing over time, occurrence has been historically quite low. So, group membership (race), and thus group inequality, is also intergenerationally transmitted.
- Exceptionally high mobility among Asians and Asian Americans. This trend is partly due to historically high levels of education (even for low-income parents) in this group and U.S. immigration laws and programs which favor potential migrants with labor market connections and high levels of education. Immigrant parents, therefore, have educational and job characteristics that give their children advantages independent of parental income.
Exercise 8 The IGC in the U.S.
![In this chart the horizontal axis shows family income of parents on a 1 to100 scale, and ranges from 0 to 100. The vertical axis shows family income of child on a 1 to100 scale, and ranges from 20 to 80. There are two horizontal lines. One is at family income of child 30 and it is for Group A. The other is at family income of child 70 and it is for Group B.]()
The figure above shows a hypothetical society with two groups, Group A and Group B. The IGC line for each group is perfectly flat. Group A’s income is at 70, Group B’s is at 30. Assume that the IGC lines have always been the same for the entirety of this society’s history.
- What is the IGC for each group?
- How would the IGC for this society as a whole compare to those for the individual groups? Why?
- Would the IGC be larger if group membership was rigid (all children in the same group as their parents) or fluid (some children in a different group than their parents)? Why?
- How do your answers above help us understand why the IGC for the United States is higher than that for any individual racial group?
As a thought experiment, suppose you made a Black family much richer (e.g. through a lottery win), but didn’t eliminate discrimination, segregation, and political inequality. Despite being richer, that Black family would have less access to good schools for their children, good investments for their money, good jobs, and would be less safe. Compared to a similarly rich White family, they would be more likely to end up saving less and investing less, and their kids would likely not be nearly as successful as their White counterparts.
A model of persistent racial inequality
This section builds a simplified representation of U.S. history. In our model, each generation of Black and White people, even those with the same parental income, have different opportunities, due to segregation, discrimination, and political inequality. Over generations, these inequalities reinforce each other, creating a persistent racial income gap.
Figure 15 presents a model of intergenerational mobility for White and Black children on the same axes as in Figures 14a and 14b. The 45-degree line shows where the income rank (measured on a 1 to 100 scale) of adult children and their parents is equal, with no intergenerational mobility at all and an IGC of 1. The blue line shows an example of the IGC for White people, with an intercept at 35 and a slope of 0.3. The red line shows one for Black people, with an intercept at 25 and a slope of 0.25.
- equilibrium
- A model outcome that is self-perpetuating. In this case, something of interest does not change unless an outside or external force is introduced that alters the model’s description of the situation.
The points where each IGC line crosses the 45-degree line (B and C) are equilibria. Given the income and race of the parents and the process by which income-earning advantages or disadvantages (including race) are passed onto the next generation, the future income rank of the children will be the same as their parents’. The slopes of the red and blue lines show the IGCs for Black and White families respectively. The points B (50, 50) and C (33.3, 33.3) show the equilibrium incomes of White and Black households if this dynamic occurs repeatedly over a long period of time.
The income dynamics in this intergenerational mobility model are similar to those of the price dynamics in the asset price bubble model of The Economy 1.0, Unit 11. To understand the intuition in more detail, work through the slideline in Figure 11.17.
To understand how incomes return to equilibrium, suppose there is an unexpected increase in a Black household’s income rank from 33.3 (point C) to 50. In this model, their adult children’s predicted income rank will be 25 + (.25 × 50) = 37.5, their grandchildren’s predicted income rank will be 25 + (.25 × 37.5) = 34.38, and after a few generations the predicted income rank will be back down to 33.3 (point C).
Figure 15 A model of intergenerational mobility by race.
Question 7 Choose the correct answer(s)
In the intergenerational mobility model presented in Figure 15, a child from a family at the 40th percentile of the income scale:
- The income of a Black child will be 25 + (0.25 x 40) = 35, and the income of a White child will be 35 + (0.3 x 40) = 47.
- The income of a Black child will be 25 + (0.25 x 40) = 35, and the income of a White child will be 35 + (0.3 x 40) = 47.
- The White and Black IGC lines do not coincide. Therefore it must be the case that a Black child born to a family at the 40th position of the income scale will have a different income than a White one.
- The income of a Black child will be 25 + (0.25 x 40) = 35, and the income of a White child will be 35 + (0.3 x 40) = 47.
We use this model to tell the stories of two hypothetical families, one White and one Black. We use gray lines to show transitions that happen within a generation. Horizontal arrows denote income changes for parents, while vertical arrows denote income changes for children. Let’s start with a multigenerational story that begins with Louis, a Black sharecropper in the South, and Moe, an Irish immigrant working in Chicago circa 1935.
Work through the steps in Figure 16 to follow the situation of Louis, his son Clyde, his granddaughter Jo, and his great-grandson Calvin. Work through the steps in Figure 17 to contrast Louis’ family fortunes with that of Moe, his son Al, his granddaughter Ellen, and his great-grandson Michael.
Figure 16 A model of intergenerational mobility for a Black family.
Figure 17 A model of intergenerational mobility for a White family.
These two intergenerational trajectories illustrate how historical differences between White and Black people persist over time. Positive shocks to Black households are eventually undone by the cumulative effects of discrimination, segregation, and political inequality. Negative shocks to White households, on the other hand, are eventually undone by the many privileges embodied in U.S. policies.
Exercise 9 The IGC and policy
Compare this model to the data in Figure 1. How well does the model explain what we observe in the data?
Exercise 10 Visualizing inequality
Go to this New York Times article. At the top of the article is a visualization following 10,000 White and Black boys who grew up in rich families in order to see where in the income rankings they end up as adults.
- Looking at the visualization at the top, describe how the adult outcomes differ between White and Black boys from rich households. Is this consistent with our models and data?
- Read through the remainder of the article.
- How do racial gaps in economic mobility differ by gender? What mechanisms are proposed in the article to explain these gender differences?
- Are the explanations offered in the article contradictory or complementary to the analysis in this Insight?
- In this article, scroll down to the bottom, to the graph titled “Create Your Own Mobility Animations.” Run a version of this graph you have not yet seen, describe your results and compare it to the others you’ve seen. Offer an explanation for what you find.
