Stone Inequality & Social Policy Seminar: Jesse Rothstein

Intergenerational Mobility in Earnings: The Roles of Neighborhoods and Firms

Jesse Rothstein, Carmel P. Friesen Professor of Public Policy and Professor of Economics, UC Berkeley

Abstract: We use data from the Longitudinal Employer Household Dynamics linked to the 2000 Census to study intergenerational earnings mobility in the United States. We augment the simple intergenerational elasticity (IGE) model relating children’s log earnings to those of their parent with an additional term representing the average log earnings in the childhood neighborhood. The between-neighborhood intergenerational relationship is twice as strong as the within-neighborhood relationship, even after adjusting for measurement error in parents’ earnings. Neighborhoods explain 30% of the Black-white gap in children’s earnings conditional on parents’ earnings; conditional on neighborhood average earnings, children from neighborhoods with higher Black shares achieve higher adult earnings. Across commuting zones, income segregation and racial discrimination are associated with greater racial inequality in neighborhood mean earnings and in children’s outcomes. Finally, we use the Abowd, Kramarz, and Margolies (1999; AKM) model to decompose both parents’ and children’s earnings into person and establishment (firm) effect components. Children’s person effects are strongly influenced by parents’ and neighbors’ person effects, whereas the children’s establishment effects are strongly influenced by parents’ and neighbors’ establishment effects, with much smaller “cross effects.” This implies that winding up in a high-wage establishment is not simply a matter of luck, but reflects systematic influences that may arise from network effects, endogenous preferences, or other not yet understood factors. 

Jesse Rothstein is Professor of Public Policy and Economics at the University of California, Berkeley, where he holds the Carmel P. Friesen Chair in Public Policy and the David Pierpont Gardner Chair in Higher Education. He is the co-director of the California Policy Lab, which he co-founded (with Till von Wachter) in 2017, and the director of the Center for Studies in Higher Education. He previously served as Chief Economist at the U.S. Department of Labor and as Senior Economist with the Council of Economic Advisers, Executive Office of the President. From 2015-2020, he was director of the Institute for Research on Labor and Employment (IRLE) at UC Berkeley.

Rothstein’s research examines education policy, tax and transfer policy, and the labor market. His recent work includes studies of school finance, intergenerational economic mobility, take-up of safety net benefits, and regional and industry wage differentials. His work has been published in leading journals in economics, public policy, education, and law. He has served as an expert witness in several cases regarding teacher evaluation and school finance.

Rothstein received a Ph.D. in economics and a Masters in Public Policy, both from the University of California, Berkeley, and an A.B. from Harvard. He is a member of the editorial boards of Industrial Relations, the Review of Economics and Statistics, Education Finance and Policy, and the National Education Policy Center, and of the executive board of the Society of Labor Economists. He is a research associate of the National Bureau of Economic Research and a fellow of the National Education Policy Center, the CESifo Research Network, the IZA, and the Learning Policy Institute.