In this research spotlight, a study about a child’s likelihood of winding up on the same income rung as her parents sheds light on countervailing trends.
Children of high-income parents tend to become high-income adults, while children of low-income parents tend to become low-income adults. This widely observed phenomenon is called intergenerational income persistence. Societies with high levels of persistence have low levels of mobility — few children moving up or down the income ladder — and strong links between parents’ incomes and their children’s incomes as adults. Societies with low levels of persistence, in contrast, are fluid; the incomes of adults are not strongly linked to their parents’ incomes.
One of the key factors that drives intergenerational income persistence is education, which plays out in several ways. Educational inequality, for example, arises because high-income parents are more likely than low-income parents to be able to raise highly educated children, while educational returns arise because childhood education helps determine adult income, placing highly educated children on a more lucrative path than their less-educated peers. In other words, education contributes to intergenerational income persistence because high-income parents tend to raise highly educated children (reflecting educational inequality), and highly educated children, in turn, tend to obtain high incomes as adults (reflecting educational returns).
In the United States, both educational inequality and educational returns have grown in recent decades — not only have the children of high-income parents increased their educational attainment more than the children of low-income parents, but they have also garnered increasing economic rewards from the escalating payoff to education — leading scholars to predict that intergenerational income persistence would also rise. However, persistence has remained stable. A study published in the American Sociological Review by Stone Center Affiliated Scholar and University of Michigan Professor Deirdre Bloome, along with University of Michigan doctoral student Shauna Dyer and Harvard University Professor Xiang Zhou, investigates this puzzle.
Their analysis suggests a reason for why persistence hasn’t increased. The researchers drew on National Longitudinal Surveys of Youth data and used new methodological tools to quantify, for the first time, the multiple roles that education plays in intergenerational income persistence.
What is keeping intergenerational income persistence in check, the researchers found, is a combination of two trends. One is the increasing percentage of people who complete college, known as educational expansion. Completing college helps low-income children move up the income ladder as adults; in this way, it reduces intergenerational income persistence. Yet because education has expanded among children from both low- and high-income backgrounds in recent decades, it has not been sufficient on its own to keep persistence in check.
The second trend that, along with educational expansion, has stabilized persistence is the increasing unpredictability of income among people with the same level of education. For example, the incomes of college graduates are less predictable from their parents’ incomes today than they were decades ago; the same is true for the incomes of high-school graduates. This rising unpredictability is possibly the result of the lengthening transition to adulthood, increasing income volatility, and increasing insecurity in employment. Not all college graduates are guaranteed a spot toward the top of the income ladder, even though rising educational returns mean that the average college graduate is relatively better off today than she used to be.
The study captures the opposing ways that education affects intergenerational income persistence and it has implications for policymakers who are seeking to reduce inequalities of opportunity. “’College for all’ reforms (aimed at expanding the share of people with post-secondary education) are unlikely to be sufficient to equalize opportunity,” the researchers write. “Instead, reforms must reverse the trend toward rising educational inequality by promoting the education of low-income children. In other words, to reduce intergenerational persistence, policies should focus less on how many people complete college and more on who completes it.”