The Transmission of Inequality Across Generations

Universidad Carlos III de Madrid - Departamento de Economía (ECO-UC3M)

With socio-economic inequality a major public concern, researchers have long been interested in measuring how persistent inequalities are between generations. Do the descendants from successful families tend to remain successful? Or is there ‘intergenerational mobility’, such that an individual’s origin is not a prime determinant of his or her socio-economic status?

A study by Jan Stuhler from the Economy Department (ECO-UC3M) of the University Carlos III of Madrid and Sebastian Braun from the Kiel Institute for the World Economy examines the persistence of socio-economic status over four generations in twentieth century Germany.

The researchers conclude that, on average, about 60% of socio-economic prospects were transmitted from one generation to the next, irrespective of whether socio-economic success is measured in terms of educational or occupational advantages.

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Mother and child playing. Does the socio-economic starting point determine social position later in life?

These findings imply that socio-economic inequalities do not disappear quickly but can persist over several generations. In other words, your great-grandparents’ socio-economic status still predicts your status today.

At first sight, these results seem at odds with prior evidence, which finds that in most developed countries only around 30-40% of socio-economic inequalities are being transmitted from parents to their children. This happens even more so in particularly immobile countries, such as the United States, and less in others, such as the Nordic countries. The found numbers seem to suggest that status differences disappear relatively quickly across generations.

But the contrast can be resolved by the observation that researchers have only approximate information about an individual’s socio-economic status. As a consequence, parents and children may appear less similar than they would be if we had more precise measurements of their characteristics and prospects (i.e. the socio-economic status). Braun and Stuhler show that by observing more than two generations, this ‘measurement error’ can – under certain assumptions about the structure of intergenerational transmission – be eliminated.

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Researchers Jan Stuhler (Barcelona GSE) and Sebastian Braun (Kiel Institute for the World Economy).

Implementing this correction for multiple samples, they find that a persistence rate of about 60% is needed to explain the multigenerational pattern observed in German data. Their findings contribute to a growing body of research studying transmission patterns across more than two generations, which suggests that socio-economic inequality is more entrenched than previously thought.

In the late 1980s, economics Nobel laureate Gary Becker concluded that ‘abilities and other endowments that generate earnings are only weakly transmitted from parents to children’. With the arrival of better income data, economists found that Becker’s estimates were too low, and that inequality was more persistent than he and others believed. With the availability of multigenerational data, we have to revise those estimates upwards yet again.

 

Image credits:

Frontpage image picture of the motion picture “The Kid” (featuring Charles Chaplin), is in the public domain and was downloaded from Wikipedia.

Other pictures and graphs were kindly provided by ECO-UC3M.

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