Intergenerational Wealth Inequality

Studies of intergenerational wealth mobility focus on the impact of wealth transmission from parents to children on the social stratification and inequality of opportunities. In contrast, studies of wealth inequality focus on the unequal distribution of wealth in a society. The current paper wish to study the effect of the potential intergenerational wealth transmissions on the unequal distribution of wealth. We regard the wealth the parents and the children combined as a “potential” intergenerational wealth. We calculate the difference between the inequality of the intergenerational wealth and the actual household wealth. Two competing hypothesis are proposed. (A) Since wealth inequality increased for the last generations, the intergenerational wealth inequality will be lower than household wealth inequality. (B) Due to the association of parents and children’s wealth, intergenerational wealth inequality will be higher than household inequality. Employing the PSID data and using the ISOGRAPH – a tool to measure local inequality over the wealth distribution in comparison to the median wealth, we are able to affirm hypothesis B: intergenerational wealth inequality is higher than household wealth inequality especially above the median wealth. The impact of parental wealth is more pronounced at upper-middle class, where the it serve as a buffer that enable children to increase their gap from the middle and the lower middle class.