intergenerational earnings mobility: changes across cohorts in britain cheti nicoletti and john...
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Intergenerational earnings mobility:
Changes across cohorts in Britain
Cheti Nicoletti and John ErmischISER, University of Essex
ESRC Research Methods FestivalOxford, 2nd July 2008
Motivation
• Studies on intergenerational (im)mobility examine the association between children’s and parents’ socio-economic outcome (usually income, earnings, occupational prestige or class).
• It is believed that low intergenerational mobility is indicative of unequal opportunities between people born in advantaged and disadvantaged families and that policy should improve opportunities for those from disadvantaged backgrounds.
Motivation
• Notice that two societies could have the same level of inequality in earnings within a generation but a completely different level of intergenerational transmission of earnings.
• A society where the relative position of a person in the earnings distribution is exactly inherited from the parents’ one is considered unfair.
Intergenerational mobility equation
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Comparing Intergenerational across cohorts in Britain
• Comparing measure of intergenerational mobility across children (sons) born in different cohorts is very difficult because of data comparability and data availability issues.
• It is for example difficult to observe earnings for both children and their parents for very long cohort period
• Blanden, Gregg, MacMillan (2007, The Economic Journal) compare NCDS1958 and BC1970 (but the two datasets have a lot comparability issues) and find a negative trend in mobility
• Ermisch and Francesconi (2002) use the BHPS to estimate intergenerational mobility in occupational prestige and find a positive trend
• Breene and Goldthorpe (2001, European Sociological Review) and Goldthrope and Jackson (2007, British Journal of Sociology) study class mobility and find little change across the two generations when considering measures of exchange mobility, in contrast to the negative trend in mobility found in Blanden et al. (2004, 2007)) using the same two cohorts.
Estimating intergenerational earnings mobility in Britain
for the period 1950-1972
We would like to estimate and ρ in Britain and check whether there is a trend
PROBLEM: Absence of British surveys with information on both sons’ and fathers’ earnings covering a long period.
We use the BHPS
PROBLEM: We can observe both sons’ and their fathers’ earnings only if they have been living together in at least 1 wave during the panel. This is possible in 12% of the cases in our sample.
SOLUTION: we use a TS2SLS estimator which combines two separate samples from the BHPS
The two-sample two-stage least squares (plim TS2SLS = plim
TS2SIV)The TS2SLS estimator combines two separate
samples from the BHPS:1st dataset (Full sample) containing information
on sons’ earnings, and fathers’ education and occupational characteristics when sons were 14 years (collected through retrospective questions to sons);
2nd dataset (Supplemental sample) containing information on earnings and occupational characteristics of potential fathers.
References 2SIV: Angrist and Krueger (1992), Arellano and Meghir (1992), Ridder and Moffitt (2005), Inoue and Solon (2005)
Two-sample two-stage least squares estimator
(TS2SLS) Combining the two samples• Estimation of the log earnings equation for
fathers using the supplemental sample (imputation regression)
x=Z+v• Estimation of the main equation using the
full sample and replacing (imputing) x
xPxpZx zpp lim̂
Previous studies on intergenerational mobility using TS2SLS estimator
The choice of IV in previous studies is quite often wasdictated by the few variables available:• Bjorklund and Jantti (1997) use education level and
occupation in Sweden,• Fortin and Lefebvre (1998) use 16 occupational groups
in Canada• Grawe (2004) uses education levels for Ecuador,
Nepal, Pakistan and Peru. Our potential IV are instead given by:
Hope-Goldthorpe index; the Cambridge scale; dummies to distinguish occupations in professional, managerial and technical, skilled non-manual, skilled manual and unskilled; 19 dummies for socio–economic groups, education level and age. (similarly to Lefranc A, Trannoy A. 2005)
How to choose the instruments for the imputation in the first step
• The well-known rule for the choice of the instruments in the instrumental variable estimation based on a single sample applies to the TS2SLS estimation too.
• Instruments should be chosen among the ones with the least correlation with the error in the main equation and with maximum multiple correlation with the variable to be instrumented, the fathers’ earnings.
Data requirement
• We need to observe a long run permanent measure of earnings for both fathers and their children
• Earnings observed at too young or too old ages are not a good proxy of permanent earnings
Life cycle bias
• Controlling for sons and fathers age in the intergenerational mobility equation can help in reducing the measurement error bias. But this correction is not enough if the earnings growth is heterogeneous across individuals.
• Imposing and upper and a lower bound for sons and fathers age can be a solution (ex. Blanden et al 2004 and 2007, 30-33; Gershuny 2002, 34-36; Ermsich and Nicoletti 2007, 31-45).
• Lee and Solon (2005) suggest to estimate an intergenerational mobility equation using sons observed at any age but allowing the elasticity to vary across cohort and son’s age. (See for example Ermsich and Nicoletti 2007)
BHPS 1991-2003
• The full sample is given by all men, sons, born between 1950 and 1972 self-employed or in paid employment, responding and with a labour income in last month greater than zero in at least one wave of the panel and aged 30-45.
• The supplemental sample is then given by all men born between 1930 and 1946.
Variable Coeff S.E. Variable Coeff S.E.
Log (Hope-Goldthorpe score) cohort 1930-38 0.510 0.123
Manager, cohort 1930-38 0.737 0.106
Log (Hope-Goldthorpe score) cohort 1939-46 0.452 0.112
Manager, cohort 1930-46 0.313 0.078
Education1, cohort 1930-38 0.126 0.073
Foreman/supervisor cohort 1930-38 0.437 0.11
Education1, cohort 1939-46 0.079 0.058
Foreman/supervisor cohort 1939-46 0.078 0.081
Education2, cohort 1930-38 0.395 0.145
No managerial duties cohort 1930-38 0.459 0.089
Education2, cohort 1939-46 0.256 0.096
No managerial duties cohort 1939-46 0.108 0.071
Cohort 1939-46 0.565 0.611 Age 0.259 0.097
Constant -1.599 2.537 Age2 -0.003 0.001
Number of observations 896
R2 0.259 Adjusted R-squared 0.246
First step
Intergenerational earnings mobility
(sons 31-45 and fathers 31-55)
Second step: y= + x + u
y = son’s log earnings; x = father’s log earnings; , and are coefficients; u is i.i.d (0, σ2)We estimate separately for rolling cohort
groups1950-55, 1951-56, 1952-57, …, 1967-1972
Elasticities and correlations for single year earnings
-0.2
00
0.0
00
0.2
00
0.4
00
0.6
00
0.8
00
1950 1955 1960 1965cohort
Elasticity CorrelationLower CI Upper CI
Elasticities and correlations for average earnings
-0.2
00
0.0
00
0.2
00
0.4
00
0.6
00
0.8
00
1950 1955 1960 1965cohort
Elasticity CorrelationLower CI Upper CI
Testing for the presence of a linear trend
• Without any control for sons’ age (neither considering sons’ age and age square, nor bounding the sons’ age range) the trend is negative, significant and weak
y= + x + x*coh δ +u for sons 18-53
• This result is in line with Ermisch and Francesconi (2002) and Prandy et al (2002) who do not limit the sons’ age range
20
Variables 1 3
Coeff SE Coeff SE
x 0.277 0.034 0.323 0.063
x* cohort/10 -0.019** 0.004 0.020 0.014
ages 0.117 0.052
ages2 -0.001 0.001
agef -0.110 0.055
agef2 0.001 0.001
coh 50-57 0.135 0.142
coh 58-65 0.136 0.086
cohf 18-30 -0.068 0.125
cohf 31-38 0.018 0.077
_cons 5.387 0.243 4.754 1.372
R2 0.025 0.031
N. Obs. Son’s age
967319-53
641331-45
21
Comparing results with those inBlanden et al (2004)
Variable Coeff S.E. Variable Coeff S.E.
x 0.282 0.085 x 0.331 0.070
x cohort/10 0.067 0.024 x*cohort/10 0.019 0.012
Ages 0.031 0.124 Ages 0.018 0.008
Ages2 0.000 0.001 Ages2 -0.001 0.001
Agef -0.004 0.013 Agef -0.009 0.010
Agef2 0.002 0.001 Agef2 0.002 0.001
_cons 4.978 0.607 _cons 4.971 0.493
Cohort period 1960 1972 Cohort period 1956 1972
R2 0.042 0.038
N. obs. 3509 5292
Conclusions
• The intergenerational mobility does not seem to have changed much over the cohort period 1950-1972.
• The trend does not seem to be linear. • But when imposing a linear trend
between the 1958-1970 we find that it is significant and negative as in Blanden et al (2004, 2006)
Extensions for future research
If the intergenerational transmission differs at different points of the earnings distribution, it could be interesting to estimate different quantile regressions instead of the mean regression.
The relationship between trend and changes in the education system across cohorts requires investigation.