Social Mobility and Intergenerational Transfer

The relationship between the income and ability of the parents and their children’s outcomes on an individual level is of course also related to the broader question of intergenerational mobility in the society as a whole. A strong correlation between inequality in the income distribution and immobility in terms of incomes and occupations has been documented (e.g. Ermisch et al, 2012). Furthermore, many of the mechanisms appear to be the same in both cases, notably education and cognitive ability.

Early measures of intergenerational mobility were included in work on human capital theory. Becker and Tomes (1986), for example, calculated an intergenerational income coefficient of 0.15 for the United States. It was thus thought that the US was a highly mobile society, where ‘almost all earnings advantages and disadvantages are wiped out within three generations’ (ibid, p1). However, later developments showed that measurement error was artificially reducing this figure and that the true value was actually much higher. There is now somewhat of a general consensus that the intergenerational income coefficient lies around 0.4 (Esping-Andersen, 2004), which can be interpreted as saying that 40% of the gap in incomes in the parent’s generation is passed down to the children’s generation.

Looking at data for the UK, Dearden et al (1997) use two methods to estimate the degree of intergenerational mobility in Britain using data from

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the 1958 NCDS. Their paper includes a discussion of the difficulties involved in accurately measuring the intergenerational transmission coefficient including the bias introduced by using transitory rather than permanent income, for example, and the fact that parents have children at different ages, introducing the need to control for age effects. They find that intergenerational mobility in Britain is limited, with clear intergenerational correlations between fathers and both sons and daughters regarding labour market earnings and years of schooling. Depending on the methodology used, they estimate an intergenerational mobility parameter of between 0.4 and 0.6 for men and 0.45 and 0.7 for women. They also uncover a further interesting feature, namely that upward mobility from the bottom of the earnings distribution is much more likely than downward mobility from the top.

Although this already indicates a highly immobile society, Blanden et

al (2004) documents a further fall in mobility between 1958 and 1970. Using

data from two of the large British longitudinal surveys - the National Child Development Study (NCDS), where the children were born in March 1958, and the British Cohort Study (BCS), where the children were born in April 1970 – they show that the economic status of the 1970 cohort was much more strongly connected to parental economic status than the 1958 cohort. This fall in intergenerational income mobility is confirmed by both regression and transition matrices approaches. They found, furthermore, that the increased educational attainment of the younger birth cohort is a large contributor to this, due to the fact that a greater share of the rapid educational upgrading of the British population has taken place among people with rich parents.

Whilst the existence of the two longitudinal cohort surveys for 1958 and 1970 make it possible to estimate intergenerational earnings mobility for these years, Nicoletti and Ermisch (2007) supplement this finding by estimating intergenerational mobility for the period 1950 – 1972. Although there is no dataset available for this period which contains information on earnings for two generations, the authors are able to overcome this by using a two sample two stage least squares estimator to impute father’s earnings using the information that is available on their education and

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occupation. They also use various techniques to deal with potential age bias arising from the way earnings change over the life cycle and the fact that fathers have children at different ages. They find that earnings mobility didn’t change substantially over the period 1950 to 1960, but that it declined between 1961 and 1972.

Blanden et al (2013) provided further detail on these trends by contrasting the decline in earnings mobility for these cohorts with the steady figures for mobility relating to social class, where the degree of intergenerational mobility was found to be unchanged between the two cohorts. They test various hypotheses regarding this and find evidence that the permanent component of income that is unrelated to social class is a key driver of this result. The distinction between income mobility and social class mobility permeates the literature, with papers from a more sociological slant often focusing on social class whist from an economics perspective income seems to be the main variable, although there is also overlap between the two areas. The effect of class concepts on mobility was highlighted specifically by Deputy Prime Minister Nick Clegg in a recent speech (in September 2012) where he identified class as a real barrier to mobility (Clegg, 2012).

Looking ahead to future trends in social mobility, Blanden and Machin (2008) predict that mobility is likely to remain close to the low level observed for the 1970 birth cohort. They examine the relationships between parent’s incomes, intermediate outcomes (such as degree attainment, test scores and non-cognitive abilities) and children’s later earnings in the 1958 and 1970 cohorts and note that the decline in mobility between these cohorts was accompanied by a strengthening of the relationship between parent’s income and intermediate outcomes. The earnings of children in the Millennium Cohort are not yet available (as these children are still too young to have entered the labour force). However, since examining the relationship between parents’ income and intermediate outcomes shows no further strengthening between the 1970 and 2000 birth cohorts, the authors predict that the social mobility coefficient is also likely to have remained steady.

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More recent evidence on this is provided in Blanden and Macmillan (2012) which discusses the effects of policies that have been introduced specifically to encourage social mobility in recent years. Policies focusing on the early years, such as Sure Start, have yet to demonstrate a concrete contribution to mobility. For example, whilst results from the National Evaluation of Sure Start (NESS) show some effects on behavioural variables they show no effects on language skills. There has been no overall change in the correlation between early years test scores and family income across the children of the NCDS and BCS cohort members and the MCS cohort, which suggests that society is yet to see the returns, in terms of reducing inequality in outcomes, of the increased investment in Early Years.

Regarding schooling, policies such as increased expenditure in schools, reduced class-sizes and other interventions such as the literacy hour do appear to be reducing educational differences across family backgrounds at age 16 (Gregg and Macmillan, 2010). However, there is no improvement as yet for post-16 attainments - for example, there is no evidence so far of an increase in lower social class groups attaining a degree. AimHigher, a program designed to ensure fair access and support the progression onto Higher Education for young people from non- traditional backgrounds, has shown mixed evidence (qualitative research indicates positive results but there are difficulties in identifying this in quantitative studies), and in any case AimHigher has now been closed down (Passy and Morris, 2010, Emmerson et al, 2006).

Finally, in regards to access to top professions, evidence had shown that when comparing the 1958 and 1970 cohorts, those entering the top professions looked less like the average in terms of family incomes, but more like the average in terms of ability. This was true especially for doctors, lawyers, bankers and accountants. Partly in answer to this evidence, a Social Mobility and Child Poverty commission was established, chaired by Alan Milburn MP and addressing fair access to the professions, among other things. Recommendations included moves towards more transparency regarding internships to address the nepotism that is rife within this practice (Blanden and Macmillan, 2012). To date there are no

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indications of how effective such policies may be in improving social mobility. Blanden and Macmillan (2012) argues that the picture is mixed– with positive change around age 16, but less clarity in the early years, for post-16 qualifications and in access to the professions. The impact improvements in age-16 outcomes will have on future mobility levels depends partly on how the returns to GCSEs change over time and whether or not this improvement feeds through to A-levels results and university access.

2.2.5 Summary

The literature reviewed in this section has shown that there is clear evidence of differences in children’s outcomes when measured according to their family background. This applies from outcomes in the very early years of life, throughout school, and even in the labour market. Literature on two key mechanisms behind this have been explored: the money itself (although evidence on this is still divided); and the intergenerational transfer of ability. Examining trends in social mobility shows that the UK is quite an immobile society and that this is unlikely to change in the near future. In summary, the literature reviewed in this section shows that children’s outcomes are determined to a large extent by their background. The research that follows explores three more specific angles of this relationship. Literature relevant to each of these aspects is included, along with the methodology, results and discussion, in the following chapters.

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3 The Contribution of Debt Aversion to Lower University Participation