Draft:Intergenerational Inequality

Intergenerational Inequality

In a sociological context, intergenerational mobility refers to individuals' or families' abilities to change their social and economic status relative to previous generations. Specifically, it investigates how factors such as (but not limited to) wealth, education, income, and social capital changes are transmitted from one generation to the next, affecting the extent to which individuals can experience upward or downward movement within the social hierarchy. Intergenerational inequality helps us understand how structural inequalities, cultural norms, and institutional barriers may either mitigate or perpetuate unequal socioeconomic disparities across generations, steering phenomena of opportunity and social stratification in society.

Wealth and Intergenerational Inequality

From a Marxist perspective, the wealth gap between the capitalists and workers will constantly be increasing because capitalists make a profit off the workers’ labor and reinvests it into wealth. Wealth is a transformative asset that can change your life chances. It can be turned into education, investments, housing, all of which can in turn increase your income by increasing your human capital or accumulating interests and appreciating in value to compound your initial wealth. Take for example Home Ownership. Shapiro argues that baby boomers bought a house with government aid when the housing market was good but their grandchildren or millennials are less and less likely to own homes in their generation. White families who were systematically more benefited during the housing boom are 80% more likely to help their children buy their first homes while 1 out of 8 black families, who don’t have that build up of wealth from homeownership, help their children. “Sedimentation of Inequality” as Shapiro coined suggests that those who had a further starting point will have a harder time catching up because getting that initial build-up of wealth is very difficult but once you have it, wealth accumulates from generation to generation. For example, around 35% of wealth in the United States is inherited. This wealth of the ultra-rich is kept and accumulated within the elite class through special networks and schooling that only the rich can afford and are part of. Country clubs, golf clubs, gentlemen’s clubs, private boarding schools and so on create a sense of group loyalty among the rich and a common sense of keeping wealth within the group. Wealth of the super rich grows exponentially and is passed down from generation to generation, meanwhile poverty is also passed from generation to generation for the poor.

Types of Intergenerational Inequality

People experience intergenerational inequality in multiple factors of their life, whether this be education, socioeconomic status, rank, power, or racial. Each has changed in its own right over the past hundreds of years. Regardless of the form of inequality experienced, it can have a major impact on the lives of individuals and their families.

Socioeconomic

Socioeconomic inequality covers disparities in income, wealth, and education, passed from one generation to the next. Intergenerational inequality is highlighted in a socioeconomic lens by the limited social mobility and persistence of poverty within families and communities over time In Patrick Sharkey and Felix Elwert’s “The Legacy of Multigenerational Disadvantage,” the authors focus on the idea of neighborhood poverty. They argue that the outcomes of children are influenced not only by the socioeconomic status of their immediate environment but by the neighborhood conditions of their parents and even grandparents. Their research found that over 70% of African American children growing up in the poorest neighborhoods remain in similar conditions as adults. Thus the cycle continues through generations. Such a cycle is tied to inadequate schooling, limiting working opportunities, and generational deprivation. Furthermore, the idea of wealth inequality put forth by Melvin L. Oliver and Thomas M. Shapiro in “Black Wealth/White Wealth,” is a major contributor to intergenerational socioeconomic inequality. Wealth consists of the assets passed within a family from one generation to another. Over time, wealth tends to increase in value and only grow. Thus, the more wealth that one begins with, the better off they tend to be. For this reason, when there exists a disparity in wealth, those who have access to larger amounts of wealth tend to be better off in obtaining quality education and work opportunities. Those with little amassed wealth often lack economic security. Wealth stands as an intergenerational safety net that only benefits some members of society. Due to the scarcity of wealth, intergenerational socioeconomic mobility is only exacerbated.

Educational

Intergenerational inequality in terms of education comes from the disparities in the attainment of education and the resulting outcomes through generations. Numerous studies have been conducted to assess the correlation between education and success, and how this then impacts future generations. In Dirk Krueger, Alexander Ludwig, and Irina Popova’s study, “Shaping Inequality and Intergenerational Persistence of Poverty: Free College or Better Schools,” they found that factors such as parental income, household structure, and educational quality all have effects on the success of a child through and beyond their educational careers.

The persistence of this inequality Krueger et. al. traced to disparities that emerge early in life and up through adolescence. Achievement gaps, they claim, shape the differences in human capital accumulation. This is because they depend on parental inputs such as time and resources, that some simply do not have. The result of said gaps is an income gradient of college attendance: children from wealthier families are more likely to attend college and often a more prestigious college than those who come from poor households.

In David B. Grusky and Kim A. Weeden’s study, “Is Market Failure Behind the Takeoff in Inequality?”, the authors take a different approach to come to a similar conclusion. They use economic theories of supply and demand to tackle what they state is a market failure in the American educational system. The authors write that barriers in supply and demand prevent many children from lower-class families from going to college. In terms of supply, they state that the number of potential college students is lowered because of the lack of strong primary and secondary school training in poor areas. Additionally, the demand for college students is also kept artificially low. This is due to colleges limiting the number of students in their student bodies as a way of maintaining prestige. Rather than expanding, to serve more students, they claim that elite schools stay purposefully small. Because of these reasons in both supply and demand, there is a disproportionate number of students from wealthier families enrolled in university.

The lack of students from low-income families in university means that many children from these backgrounds join the labor force in lower paying jobs. This then leads to a positive feedback loop, where the same poor students then raise children of their own who are more likely to not have the needed resources to get into college. All the while, students from wealthier backgrounds are better prepared to enter university and obtain higher paying jobs in the labor market. For this reason, as generations pass, the segmentation of the population by education only grows, increasing the amount of intergenerational inequality present.

Race

Racial inequality refers to the disparities that arise from systemic discrimination and segregation on the basis of race. In Douglas S. Massey and Nancy A. Denton’s “American Apartheid,” the authors argue that residential segregation is the primary driver of intergenerational racial inequality in America. In spatially isolating Black communities, Black Americans’ abilities to achieve economic mobility was systematically undermined. Residential segregation leads to unequal education and limited access to employment. This causes concentrated areas of poverty that pass from generation to generation. Each generation in turn faces the barriers that come from their environment. Furthermore, the aforementioned Oliver and Shapiro in “Black Wealth/White Wealth,” noted that there also exists a racial wealth gap. This stems from the historical land, ownership, employment, and housing restrictions faced by Black families in America. Because of said barriers, Black families have accumulated (on average) significantly less wealth than White families. Oliver and Shapiro also noted the concept of the sedimentation of racial inequality. This is the idea that the effects of racial inequality continue and are passed from generation to generation.

Power

Intergenerational inequality is also existent in the power and rank of members of society. Those with power possess greater opportunities to exert their own influence. C. Wright Mills explored the idea of power inequality in “The Power Elite.” He focuses on the idea of the power elite, arguing that a small group of leaders in the business, political, and military wield disproportionate control over major institutions. Their elite status, Mills claims, gets passed down through generations, ensuring that power stays concentrated within key families. Not only do children of said power elite inherit wealth and status, but they also have access to higher social circles and opportunity. Such an inequality that spans generations is much attributed for the creation of rigid class structures, preventing the upward mobility of those outside the elite few.

Intergenerational inequality across the world

In some cases, intergenerational mobility can be similar in different parts of the world. For example, absolute mobility has seen to be at its lowest in the world’s richest and poorest countries. For the world’s richest countries, absolute mobility is argued to be low because while resources to overcome the gap between parent and child are abundant, the gap is very large. For the world’s poorest countries, while the gap between parent and child is small, the resources to overcome the gap are very limited. Intergenerational mobility has been also seen to differ across nations. For example, developing countries have been studied to have lower intergenerational mobility in education than in the average high income country. This means that children in developing countries are less likely to go beyond the education level of their parents. Additionally, countries that report higher health rates, lower drop-out rates, redistributive tax policies, lower levels of income inequality and more teachers also report higher rates of intergenerational mobility (World Bank Worldwide Intergenerational mobility study, NIH, Intergenerational mobility around the world). However, countries with higher residential segregation and liberal welfare-state policies are seen to have lower rates of intergenerational mobility (World Bank Worldwide Intergenerational mobility study, NIH).

Research/ Models About Intergenerational Mobility and its Stagnation

There are a few interesting models widely used in academic research, offering a framework to understand and quantify how socioeconomic outcomes are passed across generations. Here are a few models and methodologies.

Intergenerational Income Elasticity (IGE) Model

This model measures the relationship between parents’ income and children’s income. We use parents’ income (Y_p) as an independent variable to predict the dependent variable (Y_i). 𝛽 is the intergenerational elasticity of income (IGE), and this captures how closely children’s income is tied to about their parents. Intuitively, a positive number indicates positive correlation, while a negative number indicates negative correlation.

log(Y_i) = α + 𝛽 log (Y_p) + ε

One classical example is the work of Gary Solon (1992), who found that the US has a relatively high IGE, indicating lower mobility compared to other developed nations. Solon used improved data sources and methodologies to estimate the relationship between parents’ and childrens’ incomes. His research found that intergenerational mobility in the US was lower than previously thought, with a higher elasticity of around 0.4 to 0.5. This suggests that about 40% to 50% of the differences in parents' income levels are passed down to their children. This number is a significant increase compared to earlier estimates that suggested an elasticity of around 0.2. While for other developed countries like Canada, Denmark, and Sweden, this high IGE reflects a lower opportunity across generations.

Solon’s research used more reliable data from PSID (Panel Study of Income Dynamics), which is a longitudinal study that tracks individuals and their families over time. This made it mode reliable compared to previous students which had often relied on less reliable data (e.g. only one year of income data), and thus underestimating the level of income persistence across generations.

Sibling Correlation Models

This model estimates the extent to which siblings socioeconomic outcomes (income, education, occupation) are correlated. The high-level idea is that if siblings’ outcomes are highly correlated, it suggests a stronger family and environmental influence, and thus lower mobility.

Corr (Y_i, Y_j) = ρ

Y_i and Y_j represent the incomes of siblings and ρ is the sibling correlation coefficient.

One example is the work of Bhashkar Mazumder (2005). Bhashkar focused on the correlation of earnings and socioeconomic outcomes between siblings to measure the impact of family background on economic mobility. His studies found that sibling correlations in income are higher than previously estimated. Bhashkar also used PSID and longitudinal analysis, indicating that the mobility is lower than what the IGE Model has suggested one decade ago.

The sibling correlation approach differs from the parent-child elasticity model by focusing on family-wide factors rather than just parental income. By controlling for parental income, the model captures the combined factors including education environment (access to good schools), social capital (family network and connections), neighborhood effects (growing up in wealthy or poor areas).

The result is that sibling correlations in income were 0.43 to 0.5, meaning that 43-50% of the variation in income among individuals is explained by factors shared by siblings.

Markov Transition Matrix

This approach uses a transition matrix to show the probability of moving between different income or social class quintiles across generations. Each cell in the matrix represents the likelihood of a child moving from a parental income quintile to their own income quintile in adulthood.

P(i,j) = n (i,j) / n_j

P(i,j) is the probability of a child from the jth income quartile (parents) moving to the ith quintile (child). n(i,j) is the number of individuals who move from quintile j to quintile i and n_j is the total number of individuals in the jth quintile.

One example is the work of Blanden, Gregg, and Machin (2005). They used a transition matrix to analyze intergenerational income quality in the UK. Their findings revealed how low mobility in the UK. especially for the children from the highest and lowest income quintiles. Their data sources include British Cohort Studies (BCS) and also income data. To categorize income quintiles, they divided the parent’s income distribution into five groups (20% each).

The study showed that children from the top income quintile had a strong likelihood (approximately 40%) to remain in the top quintile, while the children born into the bottom income quintile had a high 35% chance of remaining in that quintile.