Explaining intergenerational income persistence

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Explaining intergenerational income persistence

• Jo Blanden
• Paul Gregg
• Lindsey Macmillan

Family Background and Child Development The
Emerging Story CMPO/CASE 18th July 2006
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Intergenerational Mobility in socio-economic
circumstances

• Literature has mostly been concerned with
  measurement, i.e. the strength of the correlation
  between income across generations.
• More recently comparisons across countries and
  across time have begun to emerge
• 2 interesting findings
• UK relatively immobile
• Mobility in UK has declined between 1958 and 1970
  birth cohorts
• But why?

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Possible explanations

• Those characteristics influenced by parental
  income that lead to higher earnings in later
  life.
• Several avenues are suggested by the literature.
• Physical Health (birth weight, obesity, childhood
  height etc.)
• Cognitive skills
• Behavioural and Non-cognitive skills
• Education
• Labour market experience

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Plan of the Paper

• Consider the routes through which income persists
  for the 1970 (BCS) cohort. The objective is to
  understand the level of persistence.
• Analysis is restricted to sons at this stage.
• Make comparisons between the 1958 (NCDS) and 1970
  cohorts in an attempt to understand why
  intergenerational transmissions have
  strengthened.

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Modelling approach (1)
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Modelling approach (2)

• Measure relationship between all mediating
  factors and family income.
• Measure returns to these characteristics in an
  earnings equations.
• Estimating sequential earnings equations enables
  the relationships between the mediating factors
  to be made clear.

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Data British Cohort Study (1)

• Parental income data available at ages 10 and 16,
  average these.
• Sons earnings at age 33.
• Cognitive tests at age 5 and 10.
• Mother reports on behaviour age 5.
• Teacher reports on behaviour and self-reported
  measures at age 10.
• Detailed education information including exam
  results.
• Work history records from age 30 enable the
  construction of number of months unemployed and
  out of labour force.

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Data British Cohort Study (2)

• Cognitive tests
• Age 5 copying and english picture vocab test
• Age 10 reading, maths, British ability scale
• Non-cognitive measures
• Mum, age 5 neurotic, anti-social
• Teacher, age 10 application, clumsiness,
  extroversion, hyper-activity, anxious.
• Child, age 10 locus of control, self-confidence.
• Child, age 16 malaise.
• All cognitive and non-cognitive measures are
  normalised to mean 0, standard deviation 1.

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Family income relationships
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Earnings Equations
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Understanding persistence in the 1970 cohort (1)

• Estimated beta is .320.
• All the mediating factors have a strong
  relationship with family income.
• A number of non-cognitive traits are strongly
  related to earnings.
• Cognitive tests also affect earnings, cognitive
  and non-cognitive skills predict earnings in a
  similar way.
• Main impact of cog and non-cog is through
  education.
• Education extremely important in determining
  earnings.
• Labour market attachment also important.

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Understanding persistence in the 1970 cohort (2)

• On their own non-cognitive skills explain 22
  percent of intergenerational persistence. Locus
  of control and application contribute the lions
  share of this.
• Adding cognitive tests explains 30 percent.
• Education important, especially achievement at
  age 16. Cog and non-cog measures work through
  helping kids get better education.
• Intermittent early labour market attachment of
  poorer kids contributes about 10 percent.
• All factors taken together can account for more
  than half of total persistence.

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Decompositions
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Decompositions
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Data Cross cohort comparison

• Income is only available at age 16 in NCDS.
  Earnings are from age 33.
• Cognitive tests for reading, maths and general
  ability at 11, similar to BCS.
• Non-cognitive tests are different between the
  cohorts, use Bristol social adjustment scales for
  NCDS.
• unforthcoming, withdrawn, depressed, anxious for
  acceptance adults, hostile to adults, writing
  off adults, anxious for acceptance kids,
  hostility to kids, restless, inconsequential
  behaviour, misc.
• For both cohorts mother reports generate two
  measures from rutter scales at age 10,
  internalising and externalising.
• Concerns about attrition and non-response in both
  cohorts, no evidence that this is responsible for
  cross-cohort differences.

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The change in intergenerational mobility
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Comparative family income relationships (1)
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Comparative family income relationships (2)
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Comparative analysis

• Stronger relationships in the second cohort
  between family income and non-cognitive skills,
  education and unemployment.
• Not much change for cognitive ability.
• Suggests possible explanations for the rise in
  persistence.
• How traits impact on intergenerational mobility
  depends also on their changing returns in the
  labour market. Results mixed on this.
• To see how changes affect intergenerational
  mobility need to look at decompositions.

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Comparative decompositions (1)
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Comparative decompositions (2)
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Findings from decompositions

• Non-cognitive traits explain more of
  intergenerational relationship in the second
  cohort, due to their stronger relationship with
  family income.
• Education is also more important for the same
  reason (some of this is explained by non-cog).
• The strengthened relationship between early
  unemployment and family income also has a role to
  play in higher intergenerational persistence.
• Can explain .066 of the .086 rise in the
  intergenerational coefficient. 3/4 of the
  change.

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Policy implications

• Fall in mobility is explained by growing
  relationship between family income and
  non-cognitive skills, education and early
  unemployment.
• Not due to IQ or cognitive skills.
• 3 possible policy routes
• Close gap in non-cognitive skills (especially
  personal efficacy and concentration).
• Educational performance at age 16 and beyond.
• Help in early career (policies to avoid NEET).