Rich Father, Rich Son and Poor Father, Poor Son

Rich Father, Rich Son and Poor Father, Poor Son

It has always been like that, the more money you have, the easier life you will get. No matter what you thing never underestimate the power of money. You will be surprised what can you achieve and get if you are rich. Despite all fairy tales and happy endings, it is not so easy to become rich and to experience this type of life. However, some of them have managed to build an empire and accomplish the American dream like Bill Gates.  He uses his skills wisely, and he managed to build t with his potential real empire. He wouldn’t succeed without his exquisite talent for marketing.

Mounting evidence is demonstrating the inverse relationship between income inequality and intergenerational earnings mobility. This finding is important as it demonstrates how inequality is transmitted from parents to their children and directly reflects on the progress to achieve the American Dream, regardless of initial birth origins. It provides a metric to understand how inequality of outcomes occurs, thereby providing a measure of the status of “equal opportunity” in American society.

Money-EarningsOur society has been built on the central idea that individual initiative, talent, and hard work should determine social and economic outcomes, as opposed to the socio-economic family background.  A survey by the PEW Charitable Trusts in 2009 found 90% of Americans said hard work and having ambition was either essential or very important to getting ahead in life (Economic Mobility Project, 2009).

As indicated in the above figure the U.S. intergenerational elasticity coefficient of .47 tells us that if one father makes 100% more than another, then the son of the high-income father will, as an adult, earn 47% more than the son of the relatively lower income father. The second finding from the above figure is that U.S. transmission of earnings from fathers to sons is higher than most European countries, with Italy and the United Kingdom being the exceptions.


CountingThe above represents a descriptive analysis. The question is why do these findings occur?

According to Corak one accepted framework for answering this question is provided by Solon (2004). He suggests differences in intergenerational elasticity across countries is the result of three major institutions determining the life chances of children:  the family, the labor market, the state and the variations struck between their influence across countries.  (In a previous post, Rich Child, Poor Child: Education’s Role in Upward Mobility, I provided findings from Pew Charitable Trusts’ study of the role of education in determining the life chances of children.)