Intergenerational Earnings Inequality: New Evidence From Italy

Using an innovative dataset built by merging survey and administrative data, we provide new estimates of intergenerational earnings’ inequality between fathers and sons in Italy, extending previous evidence in several directions. We rely on the TSTSLS method to predict fathers’ earnings and compute intergenerational elasticities and imputed rank–rank slopes, trying to reduce estimation biases. Confirming previous evidence, we find that Italy is characterized by a high intergenerational inequality in cross-country comparison. Extending previous analyses, we show that the intergenerational association increases when sons at older ages and multi-annual averages of pseudo-fathers’ and sons’ earnings are considered. We also find that the intergenerational persistence differs across geographical macro-areas and is high also for daughters, especially when family earnings are considered. Furthermore, estimates where possible mediating factors of the parental influence are included among the covariates show that a high intergenerational association persists when sons’ education and occupation are controlled for.     

A New Look at Intergenerational Mobility in Germany Compared to the U.S

Motivated by contradictory evidence on intergenerational mobility in Germany, I present a cross‐country comparison of Germany and the U.S., reassessing the question of whether intergenerational mobility is higher in Germany than in the U.S. I can reproduce the standard result from the literature, which states that the German intergenerational elasticity estimates are lower than those for the U.S. However, based on highly comparable data, even a reasonable degree of variation in the sampling rules leads to similar estimates in both countries. I find no evidence for non‐linearities along the fathers' earnings distribution. In contrast, the analysis shows that mobility is higher for the sons at the lowest quartile of the sons' earnings distribution in both countries. In Germany this result is mainly driven by a high downward mobility of sons with fathers in the upper middle part of the earnings distribution. The corresponding pattern is clearly less pronounced in the U.S.     

Intergenerational Earnings and Income Mobility in Spain

This paper contributes to the large number of studies on intergenerational earnings and income mobility by providing new evidence for Spain. Since there are no Spanish surveys covering long‐term information on both children and their fathers' income or earnings, we deal with this selection problem using the two‐sample two‐stage least squares estimator. We find that intergenerational mobility in Spain is similar to that in France, lower than in the Nordic countries and Britain, and higher than in Italy and the United States. Furthermore, we use the Chadwick and Solon approach to explore intergenerational mobility in the case of daughters and we find similar results by gender.     

Do birth order and family size matter for intergenerational income mobility? Evidence from Sweden

Previous studies of intergenerational income mobility have not considered potential birth-order or family-size effects in the estimated income elasticity. This article uses a large sample of individuals born between 1962 and 1964; income elasticities with respect to parents’ incomes are estimated for individuals with different birth-order positions and family sizes. Results based on labour income and total income for sons and daughters are reported separately. The elasticity tends to decrease with family size as well as with birth order for a given family size, especially in the labour-income analysis of fathers and sons.     

Family Background and Economic Status in Finland

The importance of family background for economic outcomes is analyzed, using a Finnish data set. The estimates for intergenerational and sibling correlations in earnings are comparatively low. By estimating the magnitude of family influence conditional on parental earnings, children with poor parents are found to have lower intergenerational elasticities, while the sibling resemblance is higher. Children with rich parents have higher intergenerational elasticities and the sibling resemblance is also higher, except for daughters. The results also indicate that the largest share of the intergenerational correlation is transmitted through observed characteristics, such as education and, in particular, occupation.
JEL classification : D 1; D 3; J 6     

The intergenerational persistence of lifetime earnings

This paper proposes a new method for estimating the intergenerational persistence of lifetime earnings from data that contain only short sections of individual earnings histories. The approach infers lifetime earnings persistence from the persistence of short earnings averages together with information about the stochastic process governing individual earnings. I find that lifetime earnings are substantially more persistent than previous estimates based on short panel data suggest. About 54% of lifetime earnings differences between fathers persist into their sons’ generation. This persistence estimate exceeds previous estimates based on five-year earnings averages by one third. These findings are robust against alternative assumptions about the data generating process for earnings.     

INTERGENERATIONAL INCOME MOBILITY IN SWEDEN: WHAT DO TAX‐DATA SHOW?

The aim of this paper is to investigate intergenerational income mobility in Sweden by means of a representative sample drawn from tax-data files. Longitudinal data on actual parent-child pairs spanning 1978–92 are employed. Regression and correlation coefficients are analyzed and transition matrices calculated in order to investigate income mobility over generations. The results achieved show high intergenerational income mobility in Sweden between fathers and sons in comparison to estimations performed in most other countries and more especially compared to the U.S. This indicates that Sweden does not only have lower cross-sectional income inequality, but also higher intergenerational income mobility than those countries. The mother's earnings influence children's earnings less than the father's. However, the mother's earnings correlate more strongly with a daughter's earnings than they do with that of a son. The major indication of immobility across generations is found in the upper income deciles.     

A Political Economy Model of Earnings Mobility and Redistribution Policy

This paper presents a politico‐economic model that includes a mutual link between life cycle earnings mobility and redistributive politics. The model demonstrates that when an economy features a high opportunity of upward mobility and high risk of downward mobility, it attains a unique equilibrium where unskilled, low‐income agents support a low redistribution because of the hope of upward mobility in future. In contrast, the economy attains multiple equilibria when mobility opportunity and risk are low: one is an unskilled‐majority equilibrium defined by low mobility and the other is a skilled‐majority equilibrium defined by high mobility. The paper gives a comparison between the political equilibrium and the social planner's allocation in terms of mobility, and shows that the skilled‐majority equilibrium realizes mobility close to the optimal one.     

The Evolution of Individual Male Earnings in Great Britain: 1975–95

I study the dynamic structure of male wages in Great Britain using the New Earnings Survey Panel from 1975–95. Computing auto-covariances of individual wages by cohort I find evidence of a permanent component of earnings that increases over the life cycle and a highly persistent, serially correlated transitory component. In addition, the estimated variances of both these components have risen over this period, each explaining about half the rise in inequality. Using individual's occupation at age 22, I split the sample into four skill groups. I find some differences across these groups, with the rise in the permanent variance most important for the manual groups.     

THE INTERGENERATIONAL CORRELATION BETWEEN CHILDREN'S ADULT EARNINGS AND THEIR PARENTS' INCOME: RESULTS FROM THE MICHIGAN PANEL SURVEY OF INCOME DYNAMICS

Intergenerational correlations between parental income and child earnings reflect the extent of intergenerational economic mobility and equality of opportunity. Previous estimates are about 0.2, but these estimates suffer from a number of problems, including the use of but one year of observations and of nonrandom samples. We present new estimates based on the Panel Study of Income Dynamics. These estimates suggest correlations over 0.5 with longer-run income and earning measures, as well as some gender and race differences and some impact of liquidity constraints. They also suggest that the intergenerational elasticity is greater as parental income increases, the opposite of the Becker-Tomes conjecture.     

LONG‐RUN INEQUALITY AND SHORT‐RUN INSTABILITY OF MEN'S AND WOMEN'S EARNINGS IN CANADA

This paper examines the variability of workers’ earnings in Canada over the period 1982–2006. We decompose the total variance of workers’ earnings into a ‘permanent’ component between workers and a ‘transitory’ earnings instability component over time for given workers. We then investigate the statistical relationships between these components and indicators for the business cycle. The most marked change in earnings variances in Canada since 1982 is the general rise in total earnings variance, which is essentially driven by a quite dramatic rise in long‐run earnings inequality. The patterns across age categories of the two variance components are almost opposite. Long‐run earnings inequality generally rises with age, but earnings instability is seen to generally decline with age, so that earnings instability is markedly highest among entry age workers. Unemployment rate effects are positive on almost all variance measures, while higher unemployment is associated with widened long‐run earnings differentials and greater short‐run earnings instability.     

Do Education and Sex Matter for Intergenerational Earnings Mobility? Some Evidence from Australia

This paper analyses the intergenerational earnings mobility in Australia for all combinations of mothers, fathers, sons and daughters. We find that mobility is highest between parents and children of the opposite sex. Daughters are more mobile than sons with respect to fathers' earnings, but there is no statistical difference between the sexes' mobility with respect to mothers' earnings. We also consider how differing levels of mobility between the sexes may be related to the education level of the children. It was found that the father–son elasticity increases with son's education level and that the difference between son–father and daughter–father mobility may be associated with the higher levels of education obtained by females from less affluent backgrounds.     

Two‐sample nonparametric estimation of intergenerational income mobility in the United States and Sweden

We estimate intergenerational income mobility in the US and Sweden, using a new nonparametric approach. The approach addresses several empirical issues raised in the literature and applies when other estimators are infeasible. We argue that previous estimates of income mobility conceal the heterogeneous nature of the transmission mechanism by keeping mobility constant across families. The striking differences we find between mobility patterns across family backgrounds, captured by father's education, lead us to question the conventional result that intergenerational transmission of earnings is weaker in Sweden than in the United States, for important parts of the population.     

School Choice and the Intergenerational Poverty Trap

This paper formulates a dynamic altruistic model of parental choice of school quality and intergenerational social mobility. It shows that when there are many school qualities, the earnings of children as a function of parental schooling investment is a non‐concave function, which leads to multiple steady‐state equilibria. The paper studies the intergenerational dynamics of parental schooling investment and gives conditions on the rate of return from parental schooling investment under which some families are stuck in an intergenerational poverty trap. The policy implications are also discussed.     

Assessing the Equalizing Force of Mobility Using Short Panels: France, 1990–2000

In this paper, we document whether and how much the equalizing force of earnings mobility has changed in France in the 1990's. For this purpose, we use a representative three-year panel, the French Labour Force Survey. We develop a model of earnings dynamics that combines a flexible specification of marginal earnings distributions (to fit the large cross-sectional dimension of the data) with a tight parametric representation of the dynamics (adapted to the short time-series dimension). Log earnings are modelled as the sum of a deterministic component, an individual fixed effect and a transitory component which is assumed first-order Markov. The transition probability of the transitory component is modelled as a one-parameter Plackett copula. We estimate this model using a sequential expectation-maximization algorithm.
We exploit the estimated model to study employment/earnings inequality in France over the 1990–2002 period. We show that, in phase with business-cycle fluctuations (a recession in 1993 and two peaks in 1990 and 2000), earnings mobility decreases when cross-section inequality and unemployment risk increase. We simulate individual earnings trajectories and compute present values of lifetime earnings for various horizons. Inequality presents a hump-shaped evolution over the period, with a 9% increase between 1990 and 1995 and a decrease afterwards. Accounting for unemployment yields an increase of 11%. Moreover, this increase is persistent, as it translates into a 12% increase in the variance of log present values. The ratio of inequality in present values to inequality in one-year earnings, a natural measure of immobility or of the persistence of inequality, remains remarkably constant over the business cycle.     

Identifying Earnings Assimilation of Immigrants under Changing Macroeconomic Conditions

Failure to account for differences between immigrants and natives in their responsiveness to changes in macroeconomic conditions may bias estimates of assimilation effects on immigrant earnings. Using Norwegian register data from 1980 to 1996, we first establish that earnings of immigrants from non‐OECD countries exhibit greater sensitivity to local unemployment than do earnings of natives. The empirical analysis further reveals that standard methods of estimation—which fail to consider differential immigrant and native responsiveness—understate earnings growth and overstate cohort differentials among non‐OECD immigrants. These biases are attributable to trends in macroeconomic conditions over the sample period.     

Pricing Personal Services: An Empirical Study of Earnings in the UK Prostitution Industry

The hedonic pricing method is used to investigate the way in which the prices of prostitutes' services are determined. The data used in the analysis are extracted from an internet site, each observation being based on a report submitted by a client. The factors affecting price are identified in a regression framework, and combined with other information to provide estimates of the earnings, both aggregate and individual, for a sub‐sector of this underground service industry in the United Kingdom. Comparison of these earnings' estimates with data on earnings from alternative employment then allows us to estimate the compensating wage differential, and also to verify the theoretical prediction that prostitutes' earnings are positively related to earnings from alternative employment.     

Lifetime Earnings, Discount Rate, Ability and the Demand for Post–compulsory Education in Men in England and Wales

Human capital theory suggests educational investments are made based on expected returns over the lifetime. Most other work in this field, particularly using British data, is based on demand models estimated in reduced form, with no earnings measures, or crudely constructed earnings measures, based on one or two earnings observations per individual.
We present a structural model of demand for educational investment which includes estimates of earnings paths for educational options as determinants of educational choice. This provides us with directly interpretable parameter estimates. The discount rate is also determined within our demand model.
Ability controlled earnings profiles are estimated by matching individuals from the General Household Survey to individuals in similar occupations from the National Child Development Survey (NCDS).
Our results show that expected earnings profiles vary according to observed ability and educational choice. Results from the demand model show that expected lifetime earnings have a significant impact on educational choice.
Other socio–demographic factors, particularly social class, also exhibit significant influences on the education decision. We estimate the discount rate to be lower than reported in other studies.     

Accounting for United States Household Income Inequality Trends: The Changing Importance of Household Structure and Male and Female Labor Earnings Inequality

Using a shift‐share analysis on March CPS data, this paper estimates the degree to which changes in labor earnings, employment, and marriage patterns account for household income inequality growth in the United States since 1979. The factors contributing to the rapid rise in income inequality in the 1980s differ substantially from those contributing to its slower increase since that time. Unlike findings for the 1980s when changes in the correlation of spouses' earnings accounted for income inequality growth, this factor is no longer a major contributor toward its continued increase. Additionally, the 2000s business cycle is the first full business cycle in at least 30 years where changes in earnings of male household heads accounted for declines in income inequality. Instead, the continued growth in income inequality in the 2000s was accounted for primarily by increases in female earnings inequality and declines in both male and female employment.     

Intergenerational Income Persistence in Urban China

Intergenerational income elasticities are estimated using samples for urban China (covering many cities) for the years 1995 and 2002 and compared with results from other studies. We find that the income relation between the pairs—sons and fathers, sons and mothers, and daughters and mothers—are in 2002 all similar in magnitude. In contrast the relation between daughters' and fathers' income is weaker. The income relationship between offspring and mothers was weaker in 1995 than in 2002. Our preferred estimates of income persistence for the son/father pairs of 0.47 for 1995 and 0.53 for 2002 are higher than those which have been reported in the literature for several high‐income countries with large welfare states. The strength of the income link between sons and fathers in urban China appears to be not very different from what has been reported for countries such as Brazil, Chile, and the U.S.