Business Cycles and American Dreams: (DIS) Aggregate Fluctuations and Intergenerational Mobility

Author

Kailie Drescher, South Dakota State UniversityFollow

Document Type

Thesis - Open Access

Award Date

2020

Degree Name

Master of Science (MS)

Department / School

Economics

First Advisor

Joseph Santos

Keywords

Business Cycles, Credit Constraints, Intergenerational Economic Mobility

Abstract

In this thesis, I test my central hypothesis that aggregate economic fluctuations (business cycles) affect intergenerational economic mobility (American dreams). I exploit heterogeneity across U.S. state-level business cycles. I argue that these cycles impose countercyclical credit constraints on households that rely on credit to invest in the human capital of their children. Thus, credit constraints effectively limit the skills and expected earnings of children. I focus on an empirical measure of absolute mobility that Chetty et al. (2017) propose: the rate of absolute income mobility, which measures the fraction of adult children who earn more than their parents earned, conditional on the parent's income rank in their income distribution. My dataset includes state-level rates of absolute income mobility for children in the birth cohorts 1950, 1960, 1970, and 1980. My panel regressions pair state-level estimates of the rate of absolute income mobility for a particular birth cohort—the dependent variable—with state-level measures of the business cycle during the decade following the cohort year, when the child is heavily dependent on their parent. I find that average cyclical fluctuations in the economy in which children lived between the ages of 0 and 18 drive to some extent their average rate of absolute income mobility through adulthood. This relationship is statistically significant conditional on middle to relatively high percentile ranks of parent income. This may imply that middle-to high-income households rely on credit to
finance investment in human capital to an extent that relatively low-income households do not.

Library of Congress Subject Headings

Business cycles.
Income distribution -- Econometric models.
Income distribution -- United States.
Social mobility -- United States.

Format

application/pdf

Number of Pages

87

Publisher

South Dakota State University

Recommended Citation

Drescher, Kailie, "Business Cycles and American Dreams: (DIS) Aggregate Fluctuations and Intergenerational Mobility" (2020). Electronic Theses and Dissertations. 4069.
https://openprairie.sdstate.edu/etd/4069