Explaining intergenerational income persistence Jo Blanden Paul Gregg Lindsey Macmillan Family Background and Child Development: The Emerging Story CMPO/CASE 18 th July 2006

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?

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

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.

Modelling approach (1)

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.

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.

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.

Family income relationships

Earnings Equations

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.

On their own non-cognitive skills explain 22 percent of intergenerational persistence. Locus of control and application contribute the lion’s 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. Understanding persistence in the 1970 cohort (2)

Decompositions

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.

The change in intergenerational mobility

Comparative family income relationships (1)

Comparative family income relationships (2)

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.

Comparative decompositions (1)

Comparative decompositions (2)

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.

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).