Intergenerational Persistence in Income and Social Class: The impact of within-group inequality

1. Intergenerational Persistence in Income and Social Class: The impact of within-group inequality Jo Blanden (University of Surrey) Paul Gregg (University of Bristol) Lindsey Macmillan (Kennedy School of Government, Harvard)

2. Introduction • A policy consensus developed in recent years that intergenerational mobility in Britain is ‘low and falling’. • This is partly driven by our findings of falling income mobility in Britain (1958 to 1970 cohorts). • There is a long history of work on ‘social fluidity’ in the UK. • This measures relative mobility between classes using (usually) a 7 category class schema. • Results on social class mobility in our two cohorts do not show a strengthening of persistence in social class (Goldthorpe and colleagues). • The aim of this paper is to seek to reconcile these results and offer a fresh perspective on both approaches.

3. Measuring intergenerational income mobility

4. The relationship between permanent income, current income and social class

5. Investigating permanent income in the BHPS

6. Decomposing measured income mobility

7. Summary of hypotheses There are 4 possible explanations for the divergence in the results between income and social class • The relationship betweenincome andsocial class has changed (perhaps due to the changing contribution of Mums?). • The permanent component of income that is predicted by other characteristics became a better predictor of sons’ earnings. • The residual permanent component of income became a better predictor of sons’ earnings. • Results are simply generated by measurement error (of one kind or another). This is E&G’s assertion.

8. Data • 1958 NCDS cohort and 1970 BCS cohort. • All those born in a particular week who have been followed up a number of times. • Parental income measured at age 16 • Sons’ earnings in early 30s. • Fathers’ social class measured at ages 11/10 sons’ social class measured at the same time as earnings. • Xs – parents: education, employment, lone parenthood, free school meals, financial difficulties, housing tenure. sons: education, employment history, housing tenure, car ownership, pension contribution.

9. The headline results • The intergenerational correlation rises from .176 to .290 with a sample of around 2000 sons in each cohort. • We focus here on children with both parents present but this does not affect the results. • Cross tabulations of origin and destination social class do not reveal any change in social mobility. • Results for class mobility do not change when the sample is limited to those with valid income reports. • Findings are confirmed by using log-linear modelling which find a stronger association between 5 category social class than 5 category income (much weaker for 1958 cohort). • E&G make a lot of this, but we don’t see the comparison as legitimate.

10. Decomposing income mobility 15% of rise comes from terms associated with father’s social class 30% of total rise is explained by income predicted by Xs. 55% is a consequence of residual terms.

11. Upper and lower bounds • Lower bound: We have shown that 45% of the increase in r is attributable to hypotheses 1 and 2. This is nonetheless a significant change. • But what about the rest? • Hypothesis 3 states that residual permanent income could also have increasing persistence, but we can’t identify this element. • Upper bound: Assume that the change in persistence in residual permanent mirrors that of other components and the relative size of the variance follows the BHPS. This explains 100% plus of the change we find. • The alternative hypothesis is that the other 55% is generated by error and there is no increase in persistence through epsilon.

12. Is there more error in the NCDS? • Three-day week. No difference between β for incomes measured during and after three-day week. • Income distributions are compared with FES for relevant years, nothing obvious. • The relative size of beta and r indicate no measurement problem. • No evidence of more variance in residual income in first cohort. • Erikson and Goldthorpe (2009) notice that fathers’ social class explains less of the variation in family income in the 1958 cohort. G&E find 9% v 22%. • There is evidence of a similar pattern from the GHS in these years.

13. Changes in transitory income? • In a previous paper we showed that transitory error in men’s earnings had declined. • If this was also true for family income then it could explain some of the change in persistence. • However, we don’t know that it is. • The persistence of the within-class component of income has also expanded, implying that class may have become a poorer measure of permanent income. • The jury’s out on this question, the impact of transitory variation is less clear-cut than is proposed by E&G.

14. Conclusions • Decomposing the intergenerational persistence of income shows clearly that the increase in persistence between cohorts is not entirely due to differential measurement error. • Under reasonable assumptions all of the change can be shown to be a consequence of increased persistence of within group inequality. • E&G say “in any event, it would appear that the class mobility regime more fully captures the continuity in economic advantage and disadvantage that persists across generations.” • We disagree, social class explains a very small amount of the variation in permanent income, and will be worse as families increasingly differ from the breadwinner model.

15. Other quotes • E& G - class position would appear to be a better proxy than at least the one-shot measures of current income that Blanden et el. have to use for the concept of ‘economic status’. • BUT E&D produce no real evidence for this. • Because social class fluidity does not change much ‘it would appear more relevant if it were on class mobility rather than income mobility that the long-running political debate should focus’ • This does not seem to be a good argument.