Intergenerational Persistence in Income and Social Class: The Impact of Within-Group Inequality
Summary (4 min read)
1. Introduction
- For both of these comparisons the findings of economists and sociologists contrast sharply for the UK.
- The view the authors adopt here is that both approaches are trying to assess long-term or permanent socio-economic status but measure it in different ways.
2.1 The components of income
- Here the authors set out a framework which demonstrates the relationships between permanent family income, income at a point in time and fathers' social class.
- Note that the authors are considering an asymmetric relationship, relating combined parental income to the sons' own earnings.
- The correlation between the error and permanent income would lead to downward bias in the estimate of intergenerational income mobility ( ).
- In their data this downward bias is more likely to be greater in the later cohort (BCS) than the earlier cohort (NCDS) as earnings are measured in the BCS at age 30, compared to age 33 in the earlier cohort.
- In the lifetime mobility context, where this type of error appears on both sides of the equation, a consequence of this mean reversion is that mobility is understated due to the correlation in errors within individuals.
2.2 Applying the framework to the BHPS
- The cohort datasets only have comparable information on current parental income at age 16 meaning that the authors cannot directly measure permanent parental income in this data.
- The authors can, however, estimate permanent income in the British Household Panel Study (BHPS).
- Alongside income, the BHPS includes information on fathers' social class and so the authors are able to predict the relationship between social class and income ( ˆpf SC ) from both (3) and (5) using both permanent childhood income and current income.
- The authors aim is to assess the difference in the share of the variance of permanent and current income that these measures capture to see if the components of current income are good proxies for permanent childhood income and its components.
- There remains a large residual permanent component of income which forms a substantial part of residual current income (that is, income which is orthogonal to social class and their other explanatory variables).
3.1 Data
- For the headline results on intergenerational mobility, both sociologists and economists have utilised the two publicly accessible mature British cohort studies: the British Cohort Study (BCS) of those born in 1970 and the National Child Development Study (NCDS) of those born in 1958.
- In the NCDS parents were asked to place the father's earnings, the mother's earnings and other income into one of twelve categories.
- The authors continue with the measures used in the original papers to keep the analysis consistent with Goldthorpe and Jackson (2007) .
- The authors use these to address the issue of measurement error directly.
3.2 Measures of Intergenerational Mobility using Income and Class
- Table 2 provides the headline results from the examination of intergenerational income mobility using the regression approach.
- Likewise, relative social class mobility can also be summarised from transition matrices (see working paper, Blanden et al. (2011) : tables 3 and 4 for full transition matrices and a discussion of absolute mobility.
- In Erikson and Goldthorpe (2010) much is made of the stronger association across generations in social class compared to income.
- Their method for a direct comparison between the two is based on comparing income quintiles to a collapsed five rather than seven social class schema.
- This still does not provide the relevant comparison.
3.3 Samples
- Before digging deeper the authors must first check if differences in samples can explain the divergent results.
- The cross-tabulations for income and social class the authors have seen so far are not based on the same sample, and this alone could generate differences in the estimated trends.
- There is no evidence, however, that restricting the sample has affected the trend in intergenerational mobility by social class.
- As has already been mentioned in section 3.1, the samples available for both analyses are substantially smaller than the initial samples of around 9,000 male cohort members.
- Even though the authors have shown that the difference in samples is not responsible for the different trends in mobility, attrition and item non-response could nonetheless be leading to a misleading perception of the change in mobility.
3.4 Data Quality
- As shown above in Section 2.1 classical measurement error in parental income will lead to attenuation in their parameters of interest.
- The structure of the parental income questions is different between the cohorts; this could be a source of differential error.
- In the BCS just one total band is provided.
- Further investigation of the data, its original form and quality, is included in the corresponding discussion paper (Blanden, Gregg and Macmillan, 2011) , but is omitted here for reasons of brevity.
- This is in line with Grawe's (2004) study who finds no evidence of income misreporting in the NCDS due to the reduced working week.
4. Alternative Hypotheses
- The authors return to the income components identified in Section 2 and show that the intergenerational income relationship can be decomposed into the intergenerational relationships between these components.
- This framework enables us to generate a number of hypotheses which could explain the difference between the trends in income and social class mobility.
- The estimated decompositions reported in Sections 4.2 and 4.3 will enable us to comment on the plausibility of the different hypotheses.
4.1 Expanding the Framework: A Decomposition Approach
- The measure of income mobility the authors use in the cohorts is the association between the current earnings of sons in their thirties and their parental income at age 16.
- By expanding the co-variances as suggested in equation ( 12) and scaling them by the denominator of equation ( 11) the authors can decompose r into four components: the intergenerational correlation of incomes associated with social class, the intergenerational association of residual incomes and their cross-correlations.
- What is important is that predicted income will be uncorrelated with random error, implying that if the elements in the middle row of equation ( 15) are higher in the BCS, the divergence in the income and social class is not driven by pure measurement error in parental income.
- To test this hypothesis, the authors can expand their residual income term further to incorporate the transitory element of income.
- There is a greater degree of measurement error in the first cohort, the NCDS, which leads to larger attenuation bias understating intergenerational persistence in the cohort.
4.2 Decomposing Persistence by the Components of Income
- The first explanation for the differences in results for trends in social class and income mobility is that the association between p fi SC Table 4 also allows us to explore the relationship between fathers' income associated with social class and sons' residual earnings.
- Combined, the results show that the larger part of the difference in the results between income and social class must be generated by the relationship between sons' earnings and the other elements of parental income.
- Table 5 summarises the relationship between current income and the available Xs in the BHPS and in the cohorts.
- This contradicts the hypothesis of differential data quality.
4.3 The Role of Transitory Income
- There are three points that need to be made about this evidence.
- To assess this, the authors divide their predicting characteristics into two groups.
- The authors also include in the permanent group any timevarying factors which are measured in the cohorts before age 16 when income is measured, as their predictive power must come from their correlation with long-term differences in living standards.
- Table 8 repeats the decomposition, separating out the influence of predicted transitory income as described by equation ( 18).
- The results from this exercise indicate that transitory income is unlikely to be driving the difference in results, although as expected the transitory component is correlated with sons' earnings, and this association increases slightly across the cohorts.
5. Discussion and Conclusion
- This paper extends a framework first set out by Björklund and Jäntti (2000) to model the link between social class and income measures of intergenerational mobility.
- Hence the hypothesis of differential measurement error is rejected.
- It is possible that the relationship between fathers' social class and family income has changed, perhaps owing to changes in the importance of mothers' earnings for family income.
- It seems plausible that the divergence of trends in intergenerational mobility for income and social class in the UK is related to the growth in within-class income inequality over the same period.
- Share of increase in persistence across cohorts from increased persistence in part of income associated with other income components = 0.126-0.074 = 0.052 (46% of total 0.114 increase) 34 3. Transitory income is calculated as the deviation of current income in the last observed period from average income across all observed periods.
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"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....
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...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)....
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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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"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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