Intergenerational income mobility and transmission channels in a transition economy: Evidence from China*

Abstract

AbstractFor a large transition economy characterized by urban–rural segmentation, regional disparity and multiple ethnicities, the information transmitted by an integrated measure of intergenerational income mobility is quite limited. Using the method of TS2SLS, this paper estimates the overall and the structure of intergenerational income mobility in recent China. After careful consideration of potential life‐cycle, attenuation and co‐residence biases, our preferred intergenerational income elasticity is 0.41 for father–children and 0.56 for mother–children, which suggests a low level of intergenerational mobility. We then focus on the structure of the mobility regarding age cohort, gender, ethnicity, region, registration type and income percentile. By investigating possible channels, our results show that (a) the role of non‐cognitive characteristics, cognitive abilities, education, occupation and party membership jointly account for nearly 63% of intergenerational transmission, (b) education and occupation are two dominant channels, and (c) non‐cognitive characteristics and cognitive abilities have direct and indirect effects on intergenerational transmission.