Intergenerational Income Elasticity Research Articles

Intergenerational Mobility and Inequality in China: Evidence from the Chinese Household Income Project

We document intergenerational mobility in the income distribution in China, using Chinese Household Income Project survey data from the 1990s till 2013. To obtain a robust picture of mobility, we use several measures of mobility: from the most commonly used intergenerational income elasticity to the innovative rank mobility measures. We then estimate quantile regressions to capture variation along the income distribution. Conclusively, our results suggest higher dependence of children’s income on parental income for lower income generational pairs, indicating challenges to promote upward mobility and reducing inequality.

A study on altruistic consumption of Chinese residents from the perspective of intergenerational income mobility.

Resident consumption is an important link to smooth the domestic circulation and promote the economy to achieve high-quality development. To stimulate the vitality of residents' consumption and achieve the expansion and quality of consumption, we should not only focus on the scale and willingness of residents to consume, but also consider the motivation of consumption. The paper analyzes the impact of intergenerational income mobility on residents' marginal propensity to consume and consumption altruism motive by expanding the Over Lapping Generation Models and combining the China Family Panel Studies (CFPS) data. The results of the study show: Intergenerational Income Elasticity has a significant positive effect on residents' marginal propensity to consume. When Intergenerational Income Elasticity increases, the "altruistic motive" of residents' consumption will also increase significantly. Compared with rural residents, Intergenerational Income Elasticity has a stronger positive effect on urban residents' marginal propensity to consume and marginal propensity to consume education. With the effect of intergenerational factors, urban residents' consumption shows stronger altruistic motives.

Birth order and intergenerational income mobility in Japan: Is the first‐born child different?

AbstractThis study examines how birth order affects intergenerational income mobility (IGM) in Japan, focusing on the difference in IGM between firstborn and later‐born children. The elasticities of sons’ income with respect to fathers’ income are separately estimated for sons who are firstborn and sons who are later born by family size using a two‐sample, two‐stage least squares approach. For sons born in 1926–1981, this study finds that in families with four or more children, intergenerational income elasticity (IGE) for firstborn sons is substantially and significantly higher than that for later‐born sons. However, no significant birth order effects are found in households with two or three children.

Family-Size Effect on Intergenerational Income Mobility under China’s Family Planning Policy: Testing the Quantity–Quality Trade-Off

The causal link between family size and human capital investment in children is critical for family planning policy. However, empirical studies aiming to test the quantity–quality trade-off are far from sufficient. This paper tried to estimate the family-size effect on intergenerational income mobility using China Family Panel Survey (CFPS) data. The empirical model of intergenerational income mobility with respective to family size was formulated, and the fertility rates allowed by family planning policy were used as an instrument variable for family size. It was found that intergenerational income elasticity tended to decrease with an increase in family size. The impact of family size on intergenerational income elasticity was sensitive to the income rank positions, and nonlinearity in intergenerational transmission of income under unequal family was observed. A quantity–quality trade-off analysis was applied to further test the family-size effect. Pronounced family-size effects were observed in low-income regions with tight budget constraints and in regions with less-developed credit markets, followed by an obvious quantity–quality trade-off. The sex difference in intergenerational transmission of income may be attributed to the existence of the “preference to sons over daughters” phenomenon. The present work provides a theoretical basis for shaping family planning policies toward sustainability.

The Impacts of COVID-19 Shock on Intergenerational Income Mobility: Evidence from China.

The COVID-19 crisis has caused a huge negative shock to economic activities worldwide, leading to a reduction in income and changes in income distribution. Intergenerational mobility is an important indicator of sustainable social development. This paper explores the short-term impacts of the sudden COVID-19 pandemic on intergenerational income mobility and personal income in China. Using the variation in the number of confirmed cases across provinces, we construct a province-level pandemic intensity index and combine it with individual data from the China Family Panel Studies (CFPS). We apply a general difference-in-difference strategy to identify the causal effect of the pandemic on intergenerational income mobility. We find that personal income is positively related to parental income, and that the COVID-19 crisis has caused a decline in individual income and exacerbated intergenerational income persistence. A more intense COVID-19 pandemic shock is associated with a larger increase in intergenerational income elasticity and intergenerational income rank–rank slope. We found that with one standard deviation increase in local pandemic intensity, the intergenerational income elasticity increases by 0.315 and the intergenerational income rank–rank slope increases by 0.198 on average. The mechanism testing suggests that heterogeneous effects among different groups are the force underlying the results. Low-income, low-skilled, and low-parental-income individuals have suffered a more severe impact from the pandemic shock.

Regular employment and intergenerational income mobility in Japan

Using 1995 and 2005 Survey of Social Stratification and Mobility (SSM), this paper analyzes the effect of being regularly employed on intergenerational income mobility (IGM) from fathers to sons in Japan. Using Two Sample Two Stage Least Square (TS2SLS) method by which fathers’ income is imputed by their characteristics since it is unobservable, intergenerational income elasticity (IGE) between fathers and sons who are employees is estimated, and IGE is decomposed following a well-established framework. Focusing on sons born from 1935 to 1976, this paper finds that IGE increased from 1995 to 2005. The contribution rate of whether being regular employees in current job or not to IGE increased from less than 2% in 1995 to over 9% in 2005, and the increasing in IGE explained by regular employment status accounts for around 30% of increasing in IGE between father and sons who are employees from 1995 to 2005. The dominating reason for this pattern is that it had become difficult for sons from less prosperous families to find regular positions after the collapse of traditional employment structure since late 1990s. This study indicates that “how are people employed” had impeded equality of opportunities for youth and had exacerbated intergenerational transmission of income inequality in Japan.

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

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.

Prevalence of SOEs and intergenerational income persistence: Evidence from China

AbstractThis paper evaluates the impact of state‐owned enterprises (SOEs) on intergenerational income persistence in China. Using population census, we first estimate the intergenerational income elasticities (IGEs) across Chinese prefecture‐level cities. We then find that the prevalence of SOEs in a city is negatively associated with its IGE. The estimation using the geographic variation in SOEs created by the ‘156 Projects’ as an instrumental variable shows the suggestive evidence that the relationship between the prevalence of SOEs and intergenerational income persistence might be causal. Further analysis reveals that the prevalence of SOEs may hamper intergenerational mobility through (1) stifling competition from the private sector and (2) facilitating occupational inheritance within SOEs. Our research implies that reforming SOEs shall promote social mobility.

How Well Do Automated Linking Methods Perform? Lessons from U.S. Historical Data.

This paper reviews the literature in historical record linkage in the U.S. and examines the performance of widely-used record linking algorithms and common variations in their assumptions. We use two high-quality, hand-linked datasets and one synthetic ground truth to examine the direct effects of linking algorithms on data quality. We find that (1) no algorithm (including hand-linking) consistently produces representative samples; (2) 15 to 37 percent of links chosen by widely-used algorithms are classified as errors by trained human reviewers; and (3) false links are systematically related to baseline sample characteristics, showing that some algorithms may induce systematic measurement error into analyses. A case study shows that the combined effects of (1)-(3) attenuate estimates of the intergenerational income elasticity by up to 20 percent, and common variations in algorithm assumptions result in greater attenuation. As current practice moves to automate linking and increase link rates, these results highlight the important potential consequences of linking errors on inferences with linked data. We conclude with constructive suggestions for reducing linking errors and directions for future research.

Estimation of intergenerational mobility in small samples: evidence from German survey data

Using data from the German socio-economic panel, this paper provides new evidence on intergenerational mobility in Germany by focusing on intergenerational association in ranks—i.e. positions, which parents and children occupy in their respective income distributions. We find that the association of children’s ranks with ranks of their fathers is about 0.242 for individual labor earnings and it is higher for sons than for daughters. It is also higher in East Germany compared to West Germany. The results further show that rank-based measures of mobility are less sensitive than conventional measures of intergenerational income elasticity to different methodological and sample specification choices, such as the stages of the life cycle when incomes of children and parents are measured, the number of years for which incomes are considered, the treatment of zero values in income variables and the choice of annual versus hourly earnings. Moreover, they are more robust for sub-group comparisons of intergenerational mobility (e.g. across gender and region). This evidence suggests that, similarly to large administrative datasets, rank-based measures of intergenerational mobility perform better than elasticity-based measures in small samples based on survey data.

Millennial Generation: Information on the Economic Status of Millennial Households Compared to Previous Generations

Recent research indicates that, across three key measures, economic mobility in the United States is limited. Specifically, the Millennial generation (those born between 1982 and 2000) might not have the same opportunity as previous generations had to fare better economically than their parents. According to studies GAO reviewed, the share of people making more money than their parents at the same age (absolute mobility) has declined over the last 40 years, and the chances of moving up the income distribution (relative mobility) have been flat over time. Using a third measure of economic mobility (intergenerational income elasticity), researchers have found that income in adulthood is linked to how much a person's parents made, and that between one-third and two-thirds of economic status is passed down from parents to children. This is especially true of the lowest and highest income groups. Researchers also identified race and geography as key determinants of an individual's economic mobility. Millennials have different financial circumstances than Generation X (born 1965-1981) and Baby Boomers (born 1946-1964), and in light of flat or declining economic mobility, there is uncertainty about how they will fare financially as they age. A snapshot of data that allowed GAO to compare Millennials aged 25-34 to the previous two generations at similar ages showed that Millennial households were more likely than other generations to be college educated; however, incomes have remained flat across the three generations, implying that Millennials have not yet benefited from the potential additional lifetime income earned by college graduates. Millennial households had significantly lower median and average net worth than Generation X households at similar ages, especially among those with low net worth. Median net worth for the lowest quartile of Baby Boomers and Generation X was around zero, but it was substantially negative for Millennials, indicating that debt was greater than assets for the median low net worth Millennial household. Regarding assets, a significantly lower percentage of Millennials owned homes compared to previous generations at similar ages, but had retirement resources at rates comparable to Generation X and Baby Boomers. Finally, Millennials were more likely to have student loan debt that exceeded their annual income. It remains to be seen how these factors will affect Millennials' financial circumstances in the long run, including retirement.

Intergenerational Income Elasticities, Instrumental Variable Estimation, and Bracketing Strategies

The fact that the intergenerational income elasticity (IGE)—the workhorse measure of economic mobility—is defined in terms of the geometric mean of children’s income generates serious methodological problems. This has led to a call to replace it with the IGE of the expectation, which requires developing the methodological knowledge necessary to estimate the latter with short-run measures of income. This article contributes to this aim. The author advances a “bracketing strategy” for the set estimation of the IGE of the expectation that is equivalent to that used to set estimate (rather than point estimate) the conventional IGE with estimates obtained with the ordinary least squares and instrumental variable (IV) estimators. The proposed bracketing strategy couples estimates generated with the Poisson pseudo–maximum likelihood estimator and a generalized method of moments IV estimator of the Poisson or exponential regression model. The author develops a generalized error-in-variables model for the IV estimation of the IGE of the expectation and compares it with the corresponding model underlying the IV estimation of the conventional IGE. By considering both bracketing strategies from the perspective of the partial-identification approach to inference, the author specifies how to construct confidence intervals for the IGEs, in particular when the upper bound is estimated more than once with different sets of instruments. Finally, using data from the Panel Study of Income Dynamics, the author shows that the bracketing strategies work as expected and assesses the information they generate and how this information varies across instruments and short-run measures of parental income. Three computer programs made available as companions to the article make the set estimation of IGEs, and statistical inference, very simple endeavors.

Rising Intergenerational Income Persistence in China

This paper documents an increasing intergenerational income persistence in China since economic reforms were introduced in 1979. The intergenerational income elasticity increases from 0.390 for the 1970–1980 birth cohort to 0.442 for the 1981–1988 birth cohort; this increase is more evident among urban and coastal residents than rural and inland residents. We also explore how changes in intergenerational income persistence is correlated with market reforms, economic development, and policy changes. (JEL J62, O15, O18, P25, P36)

Does Money Matter for Intergenerational Income Transmission?

The intergenerational income elasticity (IIE) is a crucial measure of income mobility. In this article, we develop a structural model to examine the channels through which this elasticity operates. Using data from the Panel Study of Income Dynamics, we separately identify the human capital and the financial components. The human capital component examines the transmission of human capital, independent of financial investments, whereas the financial component examines the impact of income that is uncorrelated with human capital, that is, exogenous income. Using a two‐stage framework, we show that the IIE operates through both channels. Moreover, our estimates show that the financial component may have a larger effect than previously estimated, plausibly attributing to 36% of intergenerational income transmission. Indeed, this result holds even when the financial component is defined in an incredibly narrow manner. This suggests that cash payments could promote intergenerational mobility.

English

Based on the data of China Health and Nutrition Survey (CHNS) from 1989 to 2015, this paper analyzes the mobility and transmission mechanism of rural residents' intergenerational income. The OLS estimation of father and son yields a value of 0.549. The results of quantile regressions show that in rural China, the intergenerational income elasticity (IGE) is higher at the high end but lower at the low end. The human capital investment represented by the schooling years of the children is indeed an important factor explaining the intergenerational income mobility in the rural, and its contribution rate is 26.6%, much higher than the contribution of occupation. Further, the decomposition results indicate that education plays a more important role both at the low end and the high end, while occupation plays a more important role at the media quantile. Key words: Rural resident, intergenerational income mobility, transmission mechanism. &nbsp

Are we born equal: a study of intergenerational income mobility in China

AbstractStudies show that the gain from China's remarkable growth of the past 35 years has not been evenly shared, especially through the intergenerational transmission of income. To address this concern, we use data from China Health and Nutrition Survey and find the intergenerational income elasticity to be 0.466 in 2011, which suggests that sons’ incomes are affected by their fathers’ economic statuses to a large extent. A cross-country comparison indicates that the degree of generational income mobility in China is lower than that in many developed nations. Meanwhile, by investigating possible transmission channels, we find that the fathers’ investments in the sons’ education and occupation play substantial roles in intergenerational transmission of income. The results not only demonstrate the trends in intergenerational income mobility in China, but also identify the most likely transmission channels, which is of great importance to improving social equality.

A Meta-Analysis of the Association between Income Inequality and Intergenerational Mobility

We provide an overview of associations between income inequality and intergenerational mobility in the United States, Canada, and eight European countries. We analyze whether this correlation is observed across and within countries over time. We investigate Great Gatsby curves and perform metaregression analyses based on several papers on this topic. Results suggest that countries with high levels of inequality tend to have lower levels of mobility. Intergenerational income elasticities have stronger associations with the Gini coefficient compared to associations with the top 1 percent income share. Once models are controlled for methodological variables, country indicators, and paper indicators, correlations of mobility with the Gini coefficient lose significance but not with the top 1 percent income share. This result is an indication that recent increases in inequality at the top of the distribution might be negatively affecting mobility on a greater magnitude compared to variations across the income distribution.

Does Education Improve Intergenerational Income Mobility?

When the whole people enter a well-off society, the income gap between residents and the solidification of social strata remain the focus of government and society. The improvement of intergenerational income mobility can improve the internal structure of income distribution and promote social stratum mobility to a certain extent. As the saying goes, “knowledge changes fate”, but there are also “poor families can hardly give birth to noble children”. Then, whether the improvement of education level can help individuals to move upwards, weaken the influence of family economic status on their income, and improve intergenerational mobility? This paper uses household income distribution survey, estimates intergenerational income elasticity with double samples, and uses Intersection item to analyze the effect of education level on intergenerational income elasticity in the model. The empirical results show that the increase of educational years can improve intergenerational income mobility, and the effect is better in rural areas. Therefore, the government should promote education fairness, protect children’s equal right to education, especially low-income families, guide them in the concept of education, continue the development of compulsory education, and improve the funding system of higher education.

Rising Intergenerational Income Persistence in China

This paper documents an increasing intergenerational income persistence in China since economic reforms were introduced in 1979. The intergenerational income elasticity increases from 0.390 for the 1970–1980 birth cohort to 0.442 for the 1981–1988 birth cohort; this increase is more evident among urban and coastal residents than rural and inland residents. We also explore how changes in intergenerational income persistence is correlated with market reforms, economic development, and policy changes.

Rising Intergenerational Income Persistence in China

This paper documents an increasing intergenerational income persistence in China since economic reforms were introduced in 1979. The intergenerational income elasticity increases from 0.390 for the 1970–1980 birth cohort to 0.442 for the 1981–1988 birth cohort; this increase is more evident among urban and coastal residents than rural and inland residents. We also explore how changes in intergenerational income persistence is correlated with market reforms, economic development, and policy changes.