Why Inequality Is a Generational Problem
- January 12, 2023
- CBR - Inequality
Researchers studying economic inequality and social mobility have established a strong link between economic outcomes for parents and children. But traditional measures may still understate the role of intergenerational dependence by as much as 50–100 percent, according to research by University of Chicago postdoctoral scholar Sadegh Eshaghnia, UChicago’s James J. Heckman, Rockwool Foundation’s Rasmus Landersø, and University of Wisconsin PhD student Rafeh Qureshi.
Their findings may help explain why economic inequality is so persistent. Eshaghnia, Heckman, Landersø, and Qureshi argue that intergenerational mobility—movement within or between social classes from one generation to the next—isn’t happening at levels that previous research had estimated.
Traditional measurements of social mobility derived over decades of research have relied heavily upon income averages of fathers and sons measured over the same age intervals. But the researchers say that this gives an incomplete picture of economic mobility, especially when it comes to children from disadvantaged families. They took a more nuanced look, refining the measures of resources and well-being passed from parent to child.
To study this issue, they turned to Denmark, a country known for its generous social programs and, by established estimates, its high rate of intergenerational mobility. The researchers analyzed a data set about the entire population including income, assets, and liabilities, and layered in other information such as educational attainment, exam scores, number of children, and spending. Looking at the adult population from 1980 to 2019, the researchers were able to measure lifetime resources of parents and children.
The power of generational wealth
In an analysis of data from Denmark, researchers using lifetime measures of intergenerational dependence find that parents’ resources influenced children’s economic outcomes more than traditional measures would predict. The finding suggests that social mobility may be lower than indicated by previous studies.
The traditional snapshot of parent-child income averages fails to capture the economic welfare that an individual can expect to have over a life span, the research suggests. In the past 50 years, Danish people have attained higher levels of education and have married and had children later in life. As their life, career, and educational trajectories have changed, their income profiles have changed too and now differ significantly from those of earlier generations, the study finds.
And the timing of parents’ ability to invest in their children’s lives matters. A number of studies, including some involving Heckman, have established that because early developmental skills are the foundation for later learning and skills, enriching activities in a child’s earliest years enhance lifetime prospects. This insight about timing, coupled with that about changing life-cycle dynamics, calls for an approach that goes beyond averaging incomes, the researchers argue.
The study demonstrates that despite government-sponsored social supports in Denmark, intergenerational dependence remains strong. And it argues that more accurate measures of parents’ expected lifetime resources and of parents’ capacity to invest in their children at crucial developmental ages offers a clearer picture of social mobility—and a better understanding how governments or other institutions can structure family supports to reduce inequality.
Further, other areas of a person’s life—such as a grade point average, educational attainment, participation in crime, and likelihood of a teenage pregnancy—may also be more closely tied to their parents’ resources than previously understood.
While the researchers find that intergenerational mobility is lower than previously calculated, they also argue that today’s children, especially those from affluent families, are still better off than their parents in absolute terms, because they gain more education and have greater access to credit.
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