Intergenerational Earnings Elasticity Research Articles

Intergenerational mobility of earnings in rural China

ABSTRACT Due to dataset limitations, the results from previous studies on intergenerational income mobility in rural China are inconsistent. Using panel data from the Chinese Health and Nutrition Survey, this study develops a modified version of the model by Zimmerman [Zimmerman DJ (1992) Regression towards mediocrity in economic stature. Am Econ Rev 82(3):409–429] and estimates the intergenerational earnings mobility in rural China. The new estimate demonstrates that intergenerational earnings elasticity is likely greater than 0.5, suggesting a relatively low rate of intergenerational mobility.

Intergenerational Earnings Persistence in Italy between Actual Father–Son Pairs Accounting for Lifecycle and Attenuation Bias

AbstractUsing a longitudinal dataset built merging administrative and survey data, we contribute to the literature on intergenerational inequality providing the first estimate of the intergenerational earnings elasticity (IGE) in Italy based on actual father–son pairs, taking into account issues related to measurement biases and comparing the size of the lifecycle bias when sons are selected by age or by potential experience (i.e. the number of years since the end of their studies). Our findings confirm that Italy is a low‐mobility country. In our baseline estimate, when sons are observed 6 years after the end of their studies, the IGE is approximately 0.41 and is robust to various measures of fathers’ lifetime earnings. However, our results might be downward biased by the young age of sons. To measure the lifecycle bias and correct IGE estimates, we run the ‘forward regression’ of yearly earnings on lifetime earnings on a sample of workers followed for 30 years. We find that selecting sons by potential experience rather than by age reduces the lifecycle bias at young ages and the ‘corrected’ IGE is 0.48. The picture of Italy as a low‐mobility country is also confirmed when we measure the intergenerational association through the rank–rank slope.

Intergenerational earnings mobility in Taiwan: 1990–2010

In this paper, we study the intergenerational earnings mobility between fathers and sons in Taiwan. We apply the two-sample approach developed by Bjorklund and Jantti (Am Econ Rev 87(5):1009–1018, 1997) and find that the intergenerational earnings elasticity in Taiwan was around 0.4–0.5 in both the early 1990s and the late 2000s. We also estimate the intergenerational rank association in earnings to have been around 0.3 in both periods. Intergenerational earnings mobility in Taiwan is similar to that in less mobile countries such as the USA, and it appears to remain stable during a period of rapid economic development.

Intergenerational Earnings Persistence and Economic Inequality in the Long Run: Evidence from French Cohorts, 1931–75

This paper analyses long‐term trends in intergenerational earnings persistence in France for male cohorts born between 1931 and 1975. This time period has witnessed important changes in the French labour market and educational system, in particular an important compression of earnings differentials as well as a large expansion in access to secondary and higher education. Using a two‐sample instrumental variables approach, I estimate two measures of intergenerational economic persistence: the intergenerational earnings elasticity (IGE) and the intergenerational correlation (IGC). Over the period, the IGE exhibits a V‐shaped pattern. It falls from a high of value of 0.6 for cohorts born in the 1930s to around 0.4 for those born in the 1950s, but subsequently rises to a level close to that at the beginning of the period. In contrast, the IGC remains relatively stable over the period. This suggests that changes in the IGE are partly driven by transitory responses to changes in cross‐sectional inequality rather than long‐term changes in the degree of intergenerational persistence.

Intergenerational Earnings Persistence and Economic Inequality in the Long-Run: Evidence from French Cohorts, 1931-1975

This paper analyzes long-term trends in intergenerational earnings persistence in France for male cohorts born between 1931 and 1975. This time period has witnessed important changes in the French labor market and educational system, in particular an important compression of earnings differentials as well as a large expansion in access to secondary and higher education. Using a two-sample instrumental variables approach, I estimate two measures of intergenerational economic persistence: the intergenerational earnings elasticity (IGE) and the intergenerational correlation (IGC). Over the period, the IGE exhibits a V-shaped pattern. It falls from a high of value of .6 for cohorts born in the 1930s to around .4 for those born in the 1950s, but subsequently rises to a level close to the beginning of the period. In contrast, the IGC remains relatively stable over the period. This suggests that changes in the IGE are partly driven by transitory responses to changes in cross-sectional inequality rather than long-term changes in the degree of intergenerational persistence.

Intergenerational mobility in Korea

This study investigates intergenerational earnings mobility in Korea for sons born between 1958 and 1973 and compares Korea’s mobility to that of other nations. It uses data from the Korea Labor and Income Panel Study and the Household Income and Expenditure Survey conducted by the Korean National Statistics Bureau. Since no single Korean dataset includes information on both sons’ and their fathers’ adult earnings, this study follows the two-sample approach previously applied in Korea by Ueda (J Asian Econ 1–22, 2013), whose estimated intergenerational earnings elasticity is 0.22, and extends the analysis by using fathers’ earnings from a more approximal cohort. The estimate of around 0.4 is similar to estimates for some already developed countries and smaller than typical estimates for recently developing countries.

A land of the ‘fair go’? Intergenerational earnings elasticity in Australia

AbstractThis paper contributes to the existing literature on income mobility by developing and applying a two‐stage panel regression model and assessing the effects of using different levels of occupational (dis)aggregation and different earnings measures on the magnitude of father–son earnings elasticities in Australia. We find that the overall intergenerational earnings elasticity in Australia between 2001 and 2013 ranges from 0.11 to 0.30. Our preferred estimates lie between 0.24 and 0.28. Elasticity estimates vary depending on the level of occupational (dis)aggregation and earnings measure used: they are highest when two‐digit level occupations and hourly earnings are used, and lowest when four‐digit level occupations and annual earnings are used. We read these findings as indicating that elasticity estimates are sensitive to the use of different data and methods, and researchers should be careful when undertaking cross‐study, cross‐temporal or cross‐national comparisons.

Lifecycle variation, errors-in-variables bias and nonlinearities in intergenerational income transmission: new evidence from Canada

This paper uses Canadian administrative data to test the impact of lifecycle earnings variation and errors-in-variables bias on estimates of intergenerational earnings and income mobility. We find lower levels of mobility compared to previous studies, with a new estimate of the father-son intergenerational earnings elasticity of 0.32. Our analysis also shows that the father-daughter elasticity is much less sensitive to these biases. We investigate whether improved measures of father/child permanent earnings may have a distinct impact on the estimated intergenerational persistence at different parts of the distribution. Taking advantage of exceptionally high sample sizes, we find that the impact of lifecycle bias is more pronounced at the top of the income distribution. We also document that much of the average intergenerational income persistence in Canada can be accounted for by limited mobility at the top, while mobility is significantly higher among children born to low-income fathers. These nonlinear patterns resemble those found in Northern Europe and are different from those observed in the United States.

Economic Development and Intergenerational Earnings Mobility: Evidence from Taiwan

How economic development affects intergenerational earnings elasticity is not well-documented. In this paper, we estimate intergenerational earnings elasticities between fathers and sons in two periods. In the current period, 2005–2010, Taiwan is already a developed economy with slower economic growth. We apply the two-sample approach developed by BjA¶rklund and JA¤ntti (1997) and find that intergenerational earnings elasticity is around 0.4–0.5 in this period. In the earlier period, 1990–1994, Taiwan was still a developing economy with fast economic growth. We mimic the BjA¶rklund-JA¤ntti two-sample approach and use average earnings by occupation as a proxy for fathers’ earnings. To quantify potential bias, we apply the same method to the 2005–2010 data. Our proxy method yields similar estimates in both the early 1990s and late 2000s. These results suggest stable intergenerational transmission of economic status in Taiwan, despite its rapid economic development.

Understanding the Mechanical Relationship between Inequality and Intergenerational Mobility

Inequality and immobility are known to be positively associated, as demonstrated by the Great Gatsby curve, depicting cross-country income inequality and income intergenerational immobility data. Here we describe the theoretical mechanism leading to this relationship. We demonstrate that the association between the income Gini coefficient and the intergenerational earnings elasticity is a result of the manner in which the earnings elasticity is defined. This definition guarantees the existence of inequality to some extent, and its increase with increasing intergenerational earnings elasticity. The relationship found is mechanically driven and may hint that reducing income inequality will lead to higher mobility and vice versa. We also show that inequality and other measures of mobility are theoretically independent, supporting this argument with empirical findings.

New Estimates of Intergenerational Mobility in Australia

We present new estimates of intergenerational earnings elasticity for Australia. We closely follow the methodology used by Leigh [BE Journal of Economic Analysis & Policy, 7 (2007) 1], but use considerably more data (12 waves of HILDA and four waves of PSID). Our adjusted estimates are intended to be comparable to those for other countries in Corak [Journal of Economic Perspectives, 27 (2013) 79]. Our preferred estimate (0.35) is considerably higher than implied by Leigh's study, and is less subject to sampling variation. In an international context, intergenerational mobility in Australia is not particularly high, and is consistent with its relatively high level of cross‐sectional inequality.

New Estimates of Intergenerational Mobility in Australia

We present new estimates of intergenerational earnings elasticity for Australia. We closely follow the methodology used by Leigh (2007), but use considerably more data (twelve waves of HILDA and four waves of PSID). Our adjusted estimates are intended to be comparable to those for other countries in Corak (2013). Our preferred estimate (0.35) is considerably higher than implied by Leigh’s study, and is less subject to sampling variation. In an international context, intergenerational mobility in Australia is not particularly high, and is consistent with its relatively high level of cross-sectional inequality.

Intergenerational Earnings Mobility in Korea

This study investigates intergenerational earnings mobility in Korea for sons born between 1958 and 1973 and compares Korea's mobility to that of other countries. It uses data from the Korea Labor and Income Panel Study and the Household Income and Expenditure Survey conducted by the National Statistics Bureau. Since no single Korean data set includes the information on both sons' and their fathers' adult earnings, this study follows the two-sample approach previously applied in several other countries. The estimated intergenerational earnings elasticity of around 0.4 is similar to estimates for some already developed countries and smaller than typical estimates for recently developing countries.

Intergenerational earnings mobility: A new decomposition of investment and endowment effects

This paper investigates the contribution of investments and endowments in generating intergenerational persistence in earnings. The empirical analysis involves the estimation of a theoretical model where log-earnings of children are determined by the log-earnings of parents and two sources of randomness arising from labor market and endowment shocks. An important feature of the model is that it predicts a nonlinear relationship between earnings across generations, thereby providing support for nonlinear specifications adopted previously. Using PSID data on father–son pairs in the US over the period 1968 to 2005, the results show that about one-third of the intergenerational earnings elasticity arises from investments with the remaining two-thirds coming from endowments. The results also show that the relative decomposition varies with log-earnings of fathers, with the investment effect dominating the endowment effect at low incomes and the reverse occurring at high incomes.

Intergenerational Earnings Mobility and the Inheritance of Employers

Our analysis of intergenerational earnings mobility modifies the Becker-Tomes model to incorporate the intergenerational transmission of employers, which is predicted to increase the intergenerational earnings elasticity. About 6% of young Canadian men have the same main employer as their fathers, but this is positively related to paternal earnings and rises discretely at the top of the distribution. We use a switching regression model and identify two regimes associated with the inheritance of employers that have different intergenerational earnings elasticities. The results demonstrate that the inheritance of employers plays a role in understanding observed nonlinearities, and particularly the preservation of economic status at the very top of the earnings distribution.

Intergenerational Mobility in Australia

Abstract Combining four surveys conducted over a forty year period, I calculate intergenerational earnings elasticities for Australia, using predicted earnings in parents' occupations as a proxy for actual parental earnings. In the most recent survey, the elasticity of sons' wages with respect to fathers' wages is around 0.2. Comparing this estimate with earlier surveys, I find little evidence that intergenerational mobility in Australia has significantly risen or fallen over time. Applying the same methodology to United States data, I find that Australian society exhibits more intergenerational mobility than the United States. My method appears to slightly overstate the degree of intergenerational mobility; if the true intergenerational earnings elasticity in the United States is 0.4–0.6 (as recent studies have suggested), then the intergenerational earnings elasticity in Australia is probably around 0.2–0.3.

Biases of the ordinary least squares and instrumental variables estimators of the intergenerational earnings elasticity: Revisited in the light of panel data

The OLS estimator of the intergenerational earnings correlation is biased towards zero, while the instrumental variables estimator is biased upwards. The first of these results arises because of measurement error, while the latter rests on the presumption that the education of the parent family is an invalid instrument. We propose a panel data framework for quantifying the asymptotic biases of these estimators, as well as a mis-specification test for the IV estimator.