Economic Mobility The relative income of a child (low,

Chapter 12, Problem 88

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Economic Mobility The relative income of a child (low, medium, or high) generally depends on the relative income of the childs parents.The matrix P, given by Parents Income L M H L M Childs income H P = C 0.4 0.2 0.1 0.5 0.6 0.5 0.1 0.2 0.4is called a left stochastic transition matrix. For example, the entry means that 50% of the children of low relative income parents will transition to the medium level of income. The diagonal entry represents the percent of children who remain in the same income level as their parents. Assuming that the transition matrix is valid from one generation to the next, compute and interpret . Source: Understanding Mobility in America,April 2006