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Journal ArticleDOI

Intergenerational Persistence in Income and Social Class: The Impact of Within-Group Inequality

01 Feb 2013-Journal of The Royal Statistical Society Series A-statistics in Society (Wiley)-Vol. 176, Iss: 2, pp 541-563

Abstract: Family income is found to be more closely related to sons' earnings for a cohort born in 1970 compared with a cohort born in 1958. This result is in stark contrast with the finding on the basis of social class; intergenerational mobility for this outcome is found to be unchanged. Our aim here is to explore the reason for this divergence. We derive a formal framework which relates mobility as measured by family income or earnings to mobility as measured by social class. Building on this framework we then test several alternative hypotheses to explain the difference between the trends. We find evidence of an increase in the intergenerational persistence of the permanent component of income that is unrelated to social class. We reject the hypothesis that the observed decline in income mobility is a consequence of the poor measurement of permanent family income in the 1958 cohort.
Topics: Family income (63%), Social mobility (58%), Social class (56%), Economic inequality (53%), Earnings (52%)

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1
Intergenerational Persistence in Income and Social Class:
The Impact of Within-Group Inequality
Jo Blanden*, Paul Gregg** and Lindsey Macmillan**
March 2012
* Department of Economics, University of Surrey and Centre for Economic
Performance, London School of Economics
** Department of Economics, University of Bristol and Centre for Market and
Public Organisation, University of Bristol
Abstract
Family income is found to be more closely related to sons’ earnings for a cohort born in 1970
compared to one born in 1958. This result is in stark contrast to the finding on the basis of
social class; intergenerational mobility for this outcome is found to be unchanged. Our aim
here is to explore the reason for this divergence. We derive a formal framework which relates
mobility as measured by family income/earnings to mobility as measured by social class.
Building on this framework we then test a number of alternative hypotheses to explain the
difference between the trends. We find evidence of an increase in the intergenerational
persistence of the permanent component of income that is unrelated to social class. We reject
the hypothesis that the observed decline in income mobility is a consequence of the poor
measurement of permanent family income in the 1958 cohort.
JEL codes: J13, J31, Z13
Keywords: Intergenerational income mobility, social class fluidity, income inequality.
Acknowledgements:
We would like to thank Anders Björklund, Stephen Machin, Sandra McNally, Elizabeth
Washbrook, Christian Dustmann, Patrick Sturgis, Robert Erikson and John Goldthorpe for
their helpful comments. We also appreciate the comments of the editors and referees who
have helped to substantially improve the paper.

2
1. Introduction
Both economists and sociologists measure the intergenerational persistence of socio-
economic status, with economists tending to use income or earnings as the measure of status
(for surveys see Solon, 1999, Black and Devereux, 2010) while sociologists use fathers’
social class (Erikson and Goldthorpe, 1992) or an index of occupational status (Blau and
Duncan, 1967). To ascertain whether the measured extent of mobility is high or low, both
literatures have asked: i) how does mobility compare across nations? ii) has mobility
increased or decreased across time? For both of these comparisons the findings of economists
and sociologists contrast sharply for the UK.
International comparisons of income mobility place the UK as a country with low
mobility (Corak, 2006) whereas those using the measure of social class/occupational status
tend to rank it closer to the middle (Erikson and Goldthorpe 1992, Breen, 2004). Cross-
country rankings across the two approaches are very weakly correlated with each other
(Blanden, 2011). Similar ambiguity exists when comparing trends in intergenerational
mobility across time. Blanden, Goodman, Gregg and Machin (2004) find that
intergenerational income mobility decreases for a cohort born in 1970 (British Cohort Study)
compared to a cohort born in 1958 (National Child Development Study) while Goldthorpe
and Jackson (2007) find no change in social class mobility for the same datasets. Our aim in
this research is to analyse the factors responsible for the difference in the measured trends in
mobility. Our interest in trends is driven, in part, by wide acceptance of the finding of falling
mobility among politicians and commentators and its contribution to the sense that Britain
has a ‘mobility problem’ (Goldthorpe and Jackson, 2007, Blanden, 2010 and Saunders,
2010). It is therefore crucial to examine the robustness of this result given the contrary results
emanating from the literature that uses social class as the relevant measure.
In addition, we aim to draw out the conceptual links between mobility as measured by
economists and sociologists and therefore offer a fresh perspective on both literatures. The
divergent results may simply reflect underlying conceptual differences. Economists are
aiming to measure economic resources whereas class reflects workplace autonomy and
broader social capital (Goldthorpe, 2000). However, the view we adopt here is that both
approaches are trying to assess long-term or permanent socio-economic status but measure it
in different ways. In principle there are advantages and disadvantages to both measurement
approaches. Erikson and Goldthorpe use a seven-category class schema, and might therefore
only capture a limited amount of the potential variation in permanent economic status
between families (see critiques by Grusky and Weeden 2001 and McIntosh and Munk 2009).

3
In addition, mobility measures based on fathers’ social class or fathers’ earnings will ignore
the contribution of mothers. Recently economists have moved to using measures of parental
income in the first generation to account for this increasingly important contribution (Lee and
Solon, 2009, Aaronson and Mazumder, 2008). However, social class measures are sometimes
argued to be better at measuring the most important aspects of the permanent status of the
family (see Goldthorpe and McKnight, 2006). A particular difficulty with the income data
that we use from the cohort studies is that it is measured based on a single interview where
families are asked about their current income. Erikson and Goldthorpe (2010) and Saunders
(2010) suggest that social class is a more reliable measure than current income and that the
differing results between the two approaches are explicable by the poor measurement of
family income in the 1958 cohort.
We begin our analysis by formulating a framework to examine the relationship
between permanent income, social class and current income. This framework is then explored
empirically using the British Household Panel Survey (BHPS). We find that there is a
substantial portion of permanent income which is unrelated to social class. Conceptually, this
component can account for the divergent results. Section 3 of the paper outlines the main
results concerning the trend in mobility over the British cohorts using both economic and
sociological methodologies and addresses the main issues concerning data and measurement.
We focus on a number of specific measurement issues in the National Child Development
Study (NCDS) which might explain our result that income mobility is greater in the earlier
cohort compared with the later British Cohort Study (BCS). We find no evidence to support
the hypothesis that data quality or differential measurement is generating the observed
decline in mobility.
In Section 4 we detail other potential mechanisms that could generate different trends
in measured income and social class mobility. To do this we show that current income can be
decomposed into a number of different components. As mentioned above, the permanent
component can be split into the part associated with social class, and the residual part, which
we refer to as within-class permanent income. In addition current measured income will
include transitory error (the difference between current and permanent income) and finally
any mismeasurement. We then establish four alternative testable hypotheses that could
account for the diverging trends in mobility. In brief they are as follows: (1) the link between
fathers social class and family income within generations has changed, perhaps due to the
increasing role of women in accounting for family socio-economic position; (2) the

4
divergence is due to differential measurement error across the cohorts; (3) within-class
permanent income has become more important in determining children’s outcomes; and (4)
differences can be explained by a decline in the transitory component of parental income.
We find no evidence that a change in the mapping from father’s social class to income
affects our results; instead we find that a substantial part of the increased persistence across
generations can be predicted by observable short and long-run income proxies. Indeed, it is
possible to plausibly account for the full rise in income persistence through the increased
persistence of within-class permanent income. This is fully consistent with the data
examination which finds no evidence that the differential results could be explained by
measurement problems. In summary, it appears that explanation (3) above, is the most likely.
2. Measuring permanent income
2.1 The components of income
Here we set out a framework which demonstrates the relationships between permanent family
income, income at a point in time and fathers’ social class. This provides clear foundations
for our examination of the reasons behind the divergent results regarding intergenerational
mobility as measured by income or social class.
For economists, the intergenerational relationship of interest is the relationship
between parents’ permanent income and the child’s permanent income. y* represents the log
of permanent income with subscripts p and s referring to the parents and child
(son).Intergenerational mobility can be summarised by
ˆ
,
the estimate of the coefficient
from the following equation:
**
si pi i
y y u

(1)
The focus on sons here simplifies the analysis so that we are focusing on male social class in
both generations and to reduce the issues resulting from endogenous labour market
participation (a lot more important for women). Note that we are considering an asymmetric
relationship, relating combined parental income to the sons’ own earnings. We take care to
reflect this asymmetry in the rest of the paper and we explicitly consider the role of mothers
earnings as part of our first hypothesis in Section 4 below.
The intergenerational correlation, r, is also of interest in cross-cohort studies as this
adjusts
for any changes in variance that occur across cohorts.
ˆ
r
is calculated by adjusting
ˆ
by the sample standard deviations of parental income and child’s income. Björklund and

5
Jäntti (2009) urge the more widespread use of this statistic when making international
comparisons of mobility and the same arguments apply when considering trends over time.
)
ˆ
(
)
ˆ
(
ˆ
ˆ
*
*
s
p
y
y
r
(2)
Following Björklund and Jäntti (2000), permanent parental income can be
decomposed into the part that is associated with fathers social class (in our exposition social
class is denoted by a continuous variable
fi
SC
, but categorical variables are used in our
analysis; the subscript f represents father) and
.
p
v
is the parentspermanent income that is
uncorrelated with fathers’ social class.
*
pi p fi pi
y SC v

(3)
p
will reflect the relationships with fatherssocial class and of all the different components
which make up total income: fathers and mothers earnings and unearned income. This is a
point we shall return to later. The child’s permanent income can also be split into similar
components: the part that is related to the child’s own class and the part that is independent of
this.
*
si s si si
y SC v

(4)
Unfortunately, permanent income is generally not available for intergenerational research
(see Solon, 1992 for the first discussion of resulting biases) and the British cohort studies
suffer from this limitation. Measured current parental income is permanent income plus the
deviation between current measured income and permanent income (
pi
e
). Later in the
analysis we will explore the components that make up this term, but for now we consider it to
be anything which leads to a difference between measured and permanent income. Measures
of current income are related to these components as follows:
pipifippi
evSCy
(5)
sisisissi
evSCy
(6)
Under classical measurement error assumptions that the level of measured
i
y
is uncorrelated
with the size of the total error and that errors are uncorrelated across generations it is
straightforward to show that any error in measuring parental permanent income will lead to a

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Cites background or methods from "Intergenerational Persistence in In..."

  • ...Blanden et al. (2010a) make a similar argument about the relationship between social class fluidity and income mobility in the UK; asserting that the transmission of income inequality within classes is essential to explaining why the UK has become more immobile on the basis of income at the same…...

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  • ...We use the comparable data sets generated for Blanden et al. (2010b) which examine the relationship between sons’ earnings and total parental income, and merge in information on fathers’ and sons’ education in years and class for both generations (see notes to Table 6 for more details)....

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References
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Book
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TL;DR: The American Occupational Structure is renowned for its pioneering methods of statistical analysis as well as for its far-reaching conclusions about social stratification and occupational mobility in the United States.

4,161 citations


"Intergenerational Persistence in In..." refers background in this paper

  • ...…of socio-economic status, with economists tending to use income or earnings as the measure of status (for surveys see Solon (1999) and Black and Devereux (2011)) whereas sociologists use fathers’ social class (Erikson and Goldthorpe, 1992) or an index of occupational status (Blau and Duncan, 1967)....

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  • ...As found by Bound et al. (2001) mean reversion is common when reporting income, with those of higher income tending to under-report (negative errors) and with positive errors showing up among those with lower incomes....

    [...]

  • ...Both economists and sociologists measure the intergenerational persistence of socio-economic status, with economists tending to use income or earnings as the measure of status (for surveys see Solon (1999) and Black and Devereux (2011)) whereas sociologists use fathers’ social class (Erikson and Goldthorpe, 1992) or an index of occupational status (Blau and Duncan, 1967)....

    [...]


Book
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Abstract: This is a study of social mobility within the developing class structures of modern industrial societies based on a unique data-set constructed by John Goldthorpe and Robert Erikson. The focus is on the experience of European nations - western and eastern - in the period of the `long boom' following the Second World War; but the book also devotes separate chapters to examining the experience of the USA, Australia, and Japan. The authors combine historical and statistical approaches in their analysis of both trends in mobility and of cross-national similarities and differences. They show that wide variation at the level of actually observed mobility coexists with a surprising degree of constancy and commonality in underlying patterns of social fluidity. The empirical results of their study serve as the basis for a critical re-examination of current theories of mobility and for raising more general issues of the proper concerns and methods of comparative macro-sociology. This book is intended for teachers and postgraduates in sociology, social and economic history, social stratification, and the sociology of industrial societies.

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Posted Content
Abstract: Social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the United States, but remarkably little empirical evidence is available. The few existing estimates of the intergenerational correlation in income have been biased downward by measurement error, unrepresentative samples, or both. New estimates based on intergenerational data from the Panel Study of Income Dynamics imply that the intergenerational correlation in long-run income is at least 0.4, indicating dramatically less mobility than suggested by earlier research. Copyright 1992 by American Economic Association.

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"Intergenerational Persistence in In..." refers background in this paper

  • ...Solon (1992) points out that time averaging over many years of income observations allows us to get closer to a permanent income measure....

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  • ...…and the part that is independent of this, yÅsi = δs SCsi +vsi: .4/ Unfortunately, permanent income is generally not available for intergenerational research (see Solon (1992) for the first discussion of resulting biases) and the cohort studies carried out in Britain suffer from this limitation....

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TL;DR: While standard methods will not eliminate the bias when measurement errors are not classical, one can often use them to obtain bounds on this bias, and it is argued that validation studies allow us to assess the magnitude of measurement errors in survey data, and the validity of the classical assumption.
Abstract: Economists have devoted increasing attention to the magnitude and consequences of measurement error in their data. Most discussions of measurement error are based on the “classical” assumption that errors in measuring a particular variable are uncorrelated with the true value of that variable, the true values of other variables in the model, and any errors in measuring those variables. In this survey, we focus on both the importance of measurement error in standard survey-based economic variables and on the validity of the classical assumption. We begin by summarizing the literature on biases due to measurement error, contrasting the classical assumption and the more general case. We then argue that, while standard methods will not eliminate the bias when measurement errors are not classical, one can often use them to obtain bounds on this bias. Validation studies allow us to assess the magnitude of measurement errors in survey data, and the validity of the classical assumption. In principle, they provide an alternative strategy for reducing or eliminating the bias due to measurement error. We then turn to the work of social psychologists and survey methodologists which identifies the conditions under which measurement error is likely to be important. While there are some important general findings on errors in measuring recall of discrete events, there is less direct guidance on continuous variables such as hourly wages or annual earnings. Finally, we attempt to summarize the validation literature on specific variables: annual earnings, hourly wages, transfer income, assets, hours worked, unemployment, job characteristics like industry, occupation, and union status, health status, health expenditures, and education. In addition to the magnitude of the errors, we also focus on the validity of the classical assumption. Quite often, we find evidence that errors are negatively correlated with true values. The usefulness of validation data in telling us about errors in survey measures can be enhanced if validation data is collected for a random portion of major surveys (rather than, as is usually the case, for a separate convenience sample for which validation data could be obtained relatively easily); if users are more actively involved in the design of validation studies; and if micro data from validation studies can be shared with researchers not involved in the original data collection.

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"Intergenerational Persistence in In..." refers background in this paper

  • ...As found by Bound et al. (2001) mean reversion is common when reporting income, with those of higher income tending to under-report (negative errors) and with positive errors showing up among those with lower incomes....

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  • ...Income inequality rose strongly through the 1980s (see Brewer et al. (2008) for a recent summary), and Blanden (2011) found a strong association between intergenerational income persistence and cross-sectional income inequality based on international comparisons....

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