PARTICIPANTS
Gary Becker, Dan Kessler, Joe Grundfest, John Gunn, Jeff Jones, Stephen Langlois, Ed Lazear, Guity Nashat, Sam Nunn, Gary Roughead, Ken Scott, George Shultz, John Taylor, Ian Wright
ISSUES DISCUSSED
The Working Group on Economic Policy met to continue discussion of income distribution and mobility, focusing this meeting on cross-sectional earnings inequality and intergenerational earnings mobility, with Gary Becker and Dan Kessler leading the discussion.
Dan Kessler began by documenting that cross-sectional earnings inequality in the United States has been increasing over time and is higher in the U.S. than in other countries, with differing returns to cognitive skills being a key factor that seems to be driving these facts. Kessler also pointed out that intergenerational earnings mobility is relatively stable over time in the U.S., and perhaps even increasing, despite some economists’ ideas that it is decreasing, and noted that intergenerational mobility in the U.S. is lower than in other countries. Kessler argued these facts about intergenerational mobility and cross-sectional earnings inequality produce a puzzle, as identifying mechanisms that simultaneously explain both is difficult.
Gary Becker continued the discussion by agreeing with Kessler that there is no evidence for a decline in intergenerational income mobility in the United States, while cross-sectional income inequality in the U.S. has increased since 1980. He also presented international data demonstrating a positive relationship between persistence in intergenerational educational attainment and cross-sectional earnings inequality (represented by the Gini coefficient), and confirmed the facts given by Kessler about the U.S. measures relative to other nations.
Becker concluded by presenting a model examining the relationship between cross-sectional income inequality and intergenerational income mobility, as well as how changes in returns to schooling influence each of these. Using his model, Becker showed that intergenerational income persistence and cross-sectional income inequality tend to be positively related, and that just because the benefits of schooling rise does not mean intergenerational earnings mobility will decline. In closing, Becker argued that it is important to remember that equality of opportunity is still much greater in the United States than other countries, even if the different measures of income inequality are relatively higher in the U.S. than in other countries.
