Working Paper

Disparate Impacts of Job Loss by Parental Income and Implications for Intergenerational Mobility

Abstract: Does job loss cause less economic damage if your parents are higher-income, and what are the implications for intergenerational mobility? In this paper we show that following a layoff, adult children born to parents in the bottom 20% of the income distribution have almost double the unemployment compared with those born to parents in the top 20%, with 118% higher present discounted value losses in earnings. Next, we show that these disparate impacts of job loss have important implications for inequality and intergenerational mobility. They increase the 80:20 income inequality ratio for those impacted by 8% and increase the rank-rank coefficient by 34%, implying large reductions in intergenerational mobility. In a simulation based on our main results, we show that the age 40 rank-rank correlation is 3.9% higher due to the disparate impact and incidence of job loss over the preceding decade. In the last part of the paper, we explore mechanisms and show that "baked in" advantages play an important role in explaining these differences.

Keywords: Intergenerational mobility; Job loss;

JEL Classification: J62; J63; E24;

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Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Opportunity and Inclusive Growth Institute Working Papers

Publication Date: 2021-09-13

Number: 53