Child climbing a ladder of dollar bills, representing intergenerational mobility.

Is the American Dream Still Real? Unpacking Intergenerational Income Mobility

Reese Marlowe in Business & Economy August 2025 • 4 min read.

"New research reveals how measurement errors skew our understanding of economic mobility, offering fresh insights into the factors that truly shape a child's financial future."

The idea of the American Dream, where anyone can climb the economic ladder regardless of their background, is deeply embedded in the national identity. But what happens when the tools we use to measure this mobility – primarily income statistics – are flawed? Measurement error, a common challenge in economics, can significantly distort our understanding of how income is passed down through generations.

Recent research tackles this issue head-on, focusing on 'two-sided' measurement error, where both a child's and their parents' incomes might be inaccurately reported or observed. This is particularly relevant when looking at intergenerational income mobility, which examines how a child's economic outcomes relate to their parents' financial status.

Traditionally, economists have struggled to accurately assess permanent income, relying instead on annual snapshots that can be affected by temporary factors. This new study, however, uses advanced statistical techniques to correct these inaccuracies and provide a clearer picture of true intergenerational mobility.

What is Intergenerational Income Mobility and Why Does It Matter?

Child climbing a ladder of dollar bills, representing intergenerational mobility.

Intergenerational income mobility refers to the extent to which a child's income level is independent of their parents' income. High mobility suggests that factors like education, skills, and opportunities play a larger role than family wealth in determining a person's economic success. Conversely, low mobility indicates that a child's financial future is heavily influenced by their parents' income bracket, potentially reinforcing existing inequalities.

Understanding intergenerational mobility is crucial for several reasons:

Policy Implications: If mobility is low, it signals that policies aimed at promoting equal opportunity (e.g., education reform, affordable housing) are needed to level the playing field.
Social Justice: A society with high mobility is often viewed as fairer, as individuals have a genuine chance to improve their economic standing regardless of their background.
Economic Efficiency: When talent and skills can rise to the top, regardless of socioeconomic origins, the economy benefits from a more efficient allocation of resources.

The study highlights how accurately measuring income is paramount. When data is skewed by reporting errors or short-term fluctuations, our understanding of these dynamics becomes blurred, leading to potentially misguided policies.

The Path Forward: Better Data, Better Policies

This research underscores the importance of refining our measurement tools to better understand the complex dynamics of intergenerational income mobility. By acknowledging and correcting for measurement error, we can gain a more accurate view of the challenges and opportunities facing individuals from different socioeconomic backgrounds. This, in turn, will enable policymakers to craft more effective strategies to promote a truly equitable society where everyone has a fair shot at the American Dream.

About this Article -

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2107.09235,

Title: Distributional Effects With Two-Sided Measurement Error: An Application To Intergenerational Income Mobility

Subject: econ.em

Authors: Brantly Callaway, Tong Li, Irina Murtazashvili

Published: 19-07-2021

Everything You Need To Know

What is Intergenerational Income Mobility, and why is it important?

Intergenerational Income Mobility refers to the degree to which a child's income is independent of their parents' income. High mobility indicates that factors like education and opportunities play a larger role in economic success than family wealth. This matters because it affects policy implications, social justice, and economic efficiency. Low mobility suggests that a child's financial future is heavily influenced by their parents' income, potentially reinforcing existing inequalities. This underscores the importance of promoting equal opportunity through policies like education reform and affordable housing. In essence, understanding this helps create a fairer and more efficient society.

How can measurement errors in income data impact our understanding of the American Dream?

Measurement errors, particularly in income data, can significantly distort our understanding of the American Dream and Intergenerational Income Mobility. These errors, including inaccurate reporting of income, can skew the analysis of how income is passed down through generations. This leads to a blurred understanding of who truly gets ahead and how. The study focuses on 'two-sided' measurement error, where both a child's and parents' incomes might be inaccurately reported, affecting our perception of the actual economic realities and potentially leading to misguided policies. Correcting these errors provides a clearer picture of true Intergenerational Income Mobility.

What are the main factors that affect a child's financial future according to the study?

According to the study, factors like education, skills, and opportunities play a larger role in determining a person's economic success. The research emphasizes the need to look beyond annual income snapshots, as these can be affected by temporary factors that obscure the true picture. The study's goal is to provide a clearer view of true Intergenerational Income Mobility, by correcting for measurement errors, offering insights into the factors that truly shape a child's financial future.

How does this research propose to improve the measurement of Intergenerational Income Mobility?

The research uses advanced statistical techniques to correct inaccuracies in income data. It focuses on correcting 'two-sided' measurement error, considering that both a child's and their parents' income may be inaccurately reported. By acknowledging and correcting for these errors, the study aims to provide a more accurate view of the challenges and opportunities individuals face. The study shifts the focus from inaccurate annual income snapshots to a more precise understanding of permanent income, allowing for a better assessment of Intergenerational Income Mobility.

Why is it important for policymakers to understand Intergenerational Income Mobility?

Understanding Intergenerational Income Mobility is crucial for policymakers for several reasons. If mobility is low, it signals the need for policies aimed at promoting equal opportunity, such as education reform and affordable housing. High mobility often signals a fairer society where individuals have a genuine chance to improve their economic standing regardless of their background. Furthermore, when talent and skills can rise to the top, regardless of socioeconomic origins, the economy benefits from a more efficient allocation of resources. By refining measurement tools, policymakers can craft more effective strategies to promote a truly equitable society where everyone has a fair shot at achieving their goals and the American Dream.