With socio-economic inequality as 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 new study by Sebastian Braun from the Kiel Institute for the World Economy and Jan Stuhler from the University Madrid which is published in the March 2018 issue of the Economic Journal examines the persistence of socio-economic status over four generations in twentieth century Germany (http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12453/full).The researchers conclude that on average, about 60 percent 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.
“Our 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,” said Sebastian Braun.
At first sight, these results seem at odds with prior evidence, which finds that in most developed countries only around 30–40 percent of socio-economic inequalities are being transmitted from parents to their children—more in particularly immobile countries, such as the United States, and less in others, such as the Nordic countries. These numbers seem to suggest that status differences disappear relatively quickly across generations.
But the contrast can be resolved by the observation that researchers only have 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.
“We now show that by observing more than two generations, this ‘measurement error’ can—under certain assumptions about the structure of intergenerational transmission—be eliminated. Implementing this correction for multiple samples, we find that a persistence rate of about 60 percent is needed to explain the multigenerational pattern observed in German data,” Braun said.
Braun and Stuhler’s findings contribute to a growing body of research studying transmission patterns across more than two generations. In the absence of suitable data sources until now, little had been known about the persistence of socio-economic status beyond the traditional parent-child perspective.
While more evidence is now becoming available, there is not yet a consensus on how persistent inequality really is, and what the observed pattern tells us about the underlying transmission mechanisms.
The new study 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’.
Yet over the next two decades, and with the arrival of better income data, economists found that the estimates underlying Becker’s conclusion were too low, and that inequality was more persistent than he and others believed. “With the increased availability of multigenerational data, we may have to revise our estimates upwards yet again,” Braun said.
“The Transmission of Inequality Across Multiple Generations: Testing Recent Theories with Evidence from Germany” by Sebastian Braun and Jan Stuhler is published in the March 2018 issue of the Economic Journal (http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12453/full).