According to the statistics of the National Bureau of Statistics, the Gini coefficient of China has been above 0.4 for a long time. International practice regards the Gini coefficient from 0.4 to 0.5 as a big income gap and unreasonable income distribution. The high mobility of intergenerational income indicates equal opportunities, which provides a new perspective for the inequality of income distribution. It can improve the structure of income distribution of residents and conform to the principle of social efficiency and fairness. Recently, the World Bank issued a report on international economic flows, pointing out that poor people in developing countries are trapped in the poverty cycle determined by their origins, unequal opportunities prevent them from climbing the economic ladder, and social mobility in developing countries is poor.
The theory of “uselessness of reading” sprouted in the countryside, and a few rural students were unwilling to go to university and preferred to get employment ahead of time. Influenced by the family’s economic situation, the family could not afford the tuition fees of higher education, the bottom of society was disappointed with education. The government supports compulsory education. The latest proposal is to popularize high school education throughout the country by 2020. The educational concept and system are constantly updated. Children’s educational rights, especially those of poor families, are guaranteed. The improvement of education policy makes more children receive education and the overall cultural quality of residents improves. Can the equality of educational opportunities improve the mobility of intergenerational income, make the children born from poor families out of the poverty trap and change their destiny?
Intergenerational income mobility refers to the dependence of the income of the offspring on the income of the parents. If the income of children is largely determined by father’s income, then the income distribution is unfair and the intergenerational income mobility is low. Intergenerational income mobility is shown by measuring changes in children’s and fathers’ income levels. In a closed traditional society, a person is destined to spend his life in the stratum of his father’s generation as soon as he is born, and there is little intergenerational mobility of income. In an open modern society, the doors of every class and stratum are open, and intergenerational mobility is inevitable. But opportunities for upward mobility between generations are not equal to all people. They are influenced by many personal and environmental factors. The intergenerational income mobility of families is limited by the occupational and educational level of the previous generation, that is, the internal conditions of families play a restrictive role in intergenerational income mobility, which is not transferred by their own will. Higher intergenerational income mobility indicates that individuals have relatively fair opportunities and can achieve corresponding achievements through their own efforts. Intergenerational income mobility is mainly measured by intergenerational income elasticity and income conversion matrix. Becker (1986) estimates that the intergenerational income elasticity of the United States is 0.2  . Solon (1992) uses the multi-year average parental income and controls age and its second term to obtain the intergenerational elasticity coefficient of the United States above 0.4  . In view of the elastic estimation error caused by income measurement, the multi-year average income can be used as the proxy variable of permanent income or corrected according to the source of measurement error. Bjorklund & Jantti (1997) used two-stage least squares estimates with two samples  . Taking the education level and occupation of parents as decisive factors of income, it was found that income mobility in Sweden was higher than that in the United States. Other scholars (Javier I. Nunez  , 2010; Atsuko Ueda  , 2013; Kamhon Kan et al.  , 2015) used it to measure income elasticity.
He Shijun and Huang Guitian (2013) used CHNS database to analyze the temporal trend of intergenerational mobility. After correcting errors in 2000, 2004, 2006 and 2009, the intergenerational income elasticity was 0.8, 0.54, 0.46 and 0.46. The intergenerational elasticity was gradually declining, and the social mobility in China was gradually improving  . Guo Jianjun et al. (2017) combined with CHNS database and CHIP data, and considered the reality of China, the age of birth, education, occupation, urban and rural areas were included in the parental income prediction model. It was found that the intergenerational income elasticity of father, son and mother was 0.49 and 0.51  . Fang Ming and Ying Ruiyao (2010) found that the intergenerational elasticity of urban residents was higher than that of rural residents, the mobility of residents who were in the bottom income and high income is worse  .
Foreign literature studies determine intergenerational mobility by human capital, physiological inheritance, selection of marriage and social network, etc. Domestic literature studies intergenerational income mobility from family size, household registration system, political identity and other aspects combined with the characteristics of our society.
Louw et al. (2007) found that increased intergenerational income mobility in South Africa between 1970 and 2001 was due to increased access to education for children  . Zhou Bo and Su Jia (2012) used the semi-parametric variable coefficient partial linear model and found that the increase of education expenditure at the county level in China accelerated the intergenerational income flow and contributed to the realization of equal opportunities  . Human capital investment is a necessary factor for the mobility of social strata. In Li Lixing’s and Zhou Guangsu’s (2014) family utility models, children’s education investment is affected by loan constraints, which proves that public education expenditure can alleviate the shortage of human capital investment at the family level and improve the intergenerational mobility of education level  . Sun Wenkai et al. (2007) found that intergenerational income mobility promoted by education level was effective for low-income rural residents, but not significant for high-income rural residents  . Wang Xuelong (2016) believes that the elitist education system reflects the relationship between family background and educational inequality to a greater extent, elite education reduces social mobility, and Chinese education elitism orientation makes it difficult to break the poverty pattern of low-income strata  .
3. Models and Data
3.1. Elasticity Models
Becker and Tomes (1979) first carried out the research on intergenerational income mobility. Based on the utility maximization and human capital theory in micro-economy, layers of promotion and conditional assumptions laid the theoretical foundation for income distribution and intergenerational flow analysis. Then Solon (1992) adjusted the model to broaden its applicability. The elasticity equation of intergenerational income is expressed as follows.
Yci is the permanent income of the offspring, Yfi is the permanent income of the father, and is the error item. Coefficient is the intergenerational income elasticity. is used to measure intergenerational income mobility. Becker’s hypothesis in the model setting is between 0 and 1, which is interpreted as the family’s propensity to invest in children. If we can get the lifetime income of the observer from the database directly, we can calculate the elasticity directly. However, the actual situation is that the years of data survey are limited, and we can only use short-term income to replace long-term income.
Haider and Solon (2006) suggested that fathers and children use age ranges in the middle of their careers, which would more accurately represent lifetime earnings. According to the life cycle theory, considering the trend that income increases first and then decreases with age, assuming that real income equals permanent income plus a quadratic function of age, the equation can be adjusted as follows.
This paper focuses on the impact of children’s educational level on intergenerational income mobility. Referring to the relevant studies of Li Lixing, Zhou Guangsu (2014) and Wang Xuelong (2016), the model is set as follows.
is the years of education of the offspring. The influence of father’s income on children’s income is . When , the influence of father’s income on children’s income will increase with the increase of education level. When , the influence of father’s income on children’s income will decrease with the increase of education level. The control variables include age, health, gender, Political identity, region, occupation and so on.
3.2. Two Sample Two-Stage Least Squares
Angrist & Krueger (1992) and Manuel Arellano and Costas Meghir (1992) confirmed the validity and feasibility of the two-sample study. The current income of fathers and their demographic characteristics were collected in the supplementary sample. The fathers’ income was predicted by the regression of fathers’ characteristics to fathers’ income. CHIP1995 is the parent sample, Dif is a relatively stable demographic variable, Yfi is the real income of the observer in CHIP1995. We express the forecasting equation of father’s permanent income as follows.
The characteristic variable Dif includes education level, occupation type, nature of employment unit and regional factors. Estimates can be obtained by regression of parent data. The CHIP2013 questionnaire of the offspring sample has information about the age, education and occupation of the father of the respondents. Father’s predicted income can be obtained by bringing father’s personal characteristics and estimates into the prediction equation. The predicted father’s income is used to regress the income of the offspring. The specific formula is as follows.
The final regression model of education on intergenerational income flow is as follows.
Double-sample estimation can expand the sample observation. Current micro-survey data don’t have long-term tracking data, permanent income can’t be obtained, and income prediction reduces income measurement errors. Sample data are selected in the age group with stable income and the two generations are in the same life cycle, which is more comparable.
3.3. Data and Variable
This paper chooses the data of household income survey in China in 1995 and 2013 (CHIP1995 and CHIP2013). CHIP2013 is children sample, CHIP1995 is father sample, Calculating Intergenerational Income Elasticity by Two-sample Two-stage Least Squares Method. This data is often used in the research of income distribution, poverty and labor market. The questionnaire is divided into three categories: rural households, urban households and floating population. There is an 18-year difference between 1995 and 2013. If a man has children at the age of 20 or 30 and a child at the age of 30 or 40 in 2013, then in 1995 his father was 30 - 50, reflecting the trajectory of two generations.
The dependent variable is the income of children, the main independent variable is the father’s income and the years of education of the offspring. Income is an individual’s annual wage income. Although personal income is not limited to wage income, wage income is a reflection of individual’s ability to compete in the labor market. Income will be adjusted based on 1995 to eliminate the impact of price indices. In the parent sample, the educational variables used in the father’s income prediction equation are educational level. With illiterate and semi-illiterate as a reference, they are divided into five categories: primary school, junior high school, senior high school/secondary vocational school/technical school and college or above. In the intergenerational elastic regression equation, the educational variable of the offspring is the educational years of children.
The control variables include occupational type, gender, health, political identity, regional variables, etc. According to the classification of Li Chunling (2005) and Li Chao (2019), the occupations are classified as agricultural labor force, Ordinary workers, service personnel, professional and technical personnel and managers, with agricultural labor force as the reference. The virtual variable of gender was set to 1 for males and 0 for females. Health is classified into two categories, good health is set at 1, the rest is 0. The political status of Party members is set as 1, while the other are set as 0. According to the level of economic development, the eastern, central and western regions are divided.
The influence of age on income is inverted U-shaped1, so the selection of age is very important for estimating intergenerational elasticity. According to the life cycle theory, the age of the parents is 30 - 55 years old, and the age of the children is 29 - 41 years old. The age of the two generations should consider the stable period of income. The income in the early and late stages of entering the labor market will deviate from the mid-term stage. Considering the actual fertility situation in China, if a man has a child at the age of 20 or 30, the child is in the adolescent period in 1995, which is an important stage of family investment and the accumulation of personal human capital, and has an important impact on the later personal income.
4. Empirical Results
4.1. Sample Description
CHIP1995 is a sample of fathers. Men are in a strong position in society. Fathers play a decisive role in family income and domination. The offspring refer to the son or daughter, the head of household and his spouse in CHIP2013. Delete the main variables missing objects, delete outliers, delete their two generations of income for tailing treatment, income is logarithmic, and eventually match 2470 pairs of urban samples, 1986 pairs of rural samples.
Table 1 describes the education and occupational status of father. In the rural sample, half of the education level is concentrated in junior middle school, and the number of highly educated people is very small. The nature of employment units is mainly divided into five categories: state-owned (government institutions), collective enterprises, private enterprises, Sino-foreign joint ventures and wholly foreign-owned enterprises, and other five categories. More people are engaged in agricultural labor in the rural parent sample. In the urban sample, the education level is obviously higher than that in the rural area, with 37% and 29%
Table 1. Sample variable description of father.
of the high school and college students respectively. The proportion of state-owned enterprises in employment units is the highest. The proportion of professional technicians and managers who are mainly engaged in mental work is 29%, and that of service workers is 31%. Compared with urban and rural samples, urban parents are superior to rural in terms of education and occupational conditions.
Table 2 shows the education and occupation of children. In the rural sample, with 66% of junior middle school students and few people receiving higher education. The proportion of service industries and Ordinary workers is larger, 32% and 40% respectively. In the sample of urban, nearly half of the people are college graduates or above. 49% of the office worker, business and service, the change of policy environment and strong support for the tertiary industry, Business and service industry is booming.
4.2. Full Sample Regression
Father’s Income Prediction Equation (4) based on CHIP1995 Database, we bring the characteristics variables of father recalled by the neutron generation in the sample of 2013 into the Prediction equation, and get the corresponding father’s income. The regression results of the whole sample are shown in Table 3.
According to the regression results of Equation (5), in column (1), the intergenerational income elasticity of Chinese residents is 0.369, the intergenerational mobility of Chinese residents is not strong. In column (3), the intergenerational income elasticity of Chinese residents is 0.342 when the control variable is added, and the income of their offspring depends heavily on the income of their parents. The results of intergenerational elasticity coefficient are inconsistent in domestic literatures, which may be caused by macro-environmental changes, or
Table 2. Sample variable description of children.
Table 3. Full sample regression.
Standard errors in parentheses. *p < 0.10, **p < 0.05, ***p < 0.01.
different databases or estimation methods, we can’t accurately compare them. However, most scholars believe that the intergenerational mobility in China is lower than that in high-welfare and high-income countries such as Australia, Canada, Germany and Finland, also lower than some low-income countries.
The influence of education on intergenerational income mobility is illustrated by the multiplier between the years of education of the offspring and the income of the father. Because of the strong correlation between the transfer item and the father’s income, the decentralization of the multiplier solves the collinearity problem. According to the regression result of Equation (6), the basic regression result in column (2) (4) (5), the coefficient of education years is significantly positive, and the coefficient of the multiplier is negative. The educational years of the children are significant at the level of 1%. With the increase of the educational years for one year, the personal income will rise by 6.2%. The educational background as a market signal enlarges the probability of the individual gaining high income. The multiplier is −0.011. The longer years of education, the higher mobility of intergenerational income.
Looking at the impact of the control variable on income from column (5), the coefficient of Party member is 0.109. The male and health variables were positive to income, coefficient is 0.373 and 0.233. Women’s job suitability is narrow, family affairs need to be taken into account, and men’s income level is higher than women’s. Good physical quality is also the guarantee of our work efficiency and performance. Leaders and Professional technicians have the highest wages among career variables.
The above regression results confirm the positive role of education in promoting intergenerational income mobility. Therefore, to improve intergenerational income mobility from the perspective of education is to ensure the equity of educational opportunities and play its role in guaranteeing basic social equity. The reform of the education system aims at guaranteeing the individual’s right to education, ensuring the fairness of educational opportunities. Knowledge changes destiny, improve the income gap and increase intergenerational mobility. At present, there is also the theory of uselessness of reading. The main reason is that the income of education has not reached expectations, and graduates with high educational background are also facing employment difficulties. Therefore, the government should also pay attention to the fairness of the labor market while guaranteeing the equality of educational opportunities, so as to make the education signal obtain the corresponding value in the labor market.
4.3. Sample Regression of Urban and Rural
Although the state emphasizes the integration of urban and rural development, the urban-rural dual structure still exists objectively. On the basis of the full sample analysis, it is further discussed by dividing urban and rural samples.
The results of urban and rural regression are shown in Table 4. The intergenerational income elasticity of rural areas is 0.363. The intergenerational income elasticity of the whole sample is basically the same. The intergenerational income elasticity of urban areas is 0.447. The intergenerational income transferability of urban areas is higher than that of rural areas. Educational years of rural residents
Table 4. Analysis of urban-rural differences.
Standard errors in parentheses. *p < 0.10, **p < 0.05, ***p < 0.01.
play a greater role in improving income than that of urban residents. The coefficient of transfer and multiplier is −0.023 and −0.018 respectively. The improvement of educational years has an effect on the improvement of intergenerational mobility between urban and rural areas, but the effect of education on rural residents is greater in terms of the coefficient. Education is still the main way for rural residents to get rid of the current situation and move to the upper strata of society. Education can guide individuals to set up correct values by value concept. The accumulation of knowledge and the cultivation of quality and ability can improve their competitiveness in the market. It is necessary for the government to attach importance to education at all stages and improve policies.
The regression results show that the intergenerational elasticity coefficient of rural residents is smaller than that of urban residents, and the income transmission of urban residents’ parents to their children is stronger, which may be different from our assumption. To explain this phenomenon, first, urban residents have strong transmission of human capital to their children, high-quality school education and off-campus training, higher quality of education than rural areas, and higher returns from education in the market. Second, there are abundant social resources such as career and interpersonal relationship in urban, extensive information channels and job-hunting paths affect the employment of their descendants. The reason for the increase of intergenerational income mobility in rural areas is that the state pays close attention to the development of agriculture, farmers and rural areas. Farmers are no longer confined to agricultural operations, and new income channels are widened. Observing the occupation description of the offspring sample, 40% of the production equipment operation and transport workers, rural surplus labor force working in cities, higher income than agricultural operation, gradually improve their own economic conditions. With the joint efforts of various subjects, the intergenerational income mobility of rural residents in China is higher than that of urban residents.
Opportunity inequality is not conducive to social equity, resulting in the continuation of the gap between the rich and the poor, and the social bottom can’t change its social and economic status. The improvement of individual education is the accumulation of their own cultural capital, which is the capital for residents to increase their income. Therefore, an important measure to achieve equal opportunities is to ensure the equity of education. The role of education in intergenerational mobility can be divided into three stages. The government should ensure the fairness of education in every link.
Firstly, family education investment stage, family investment in children’s human capital is the link of intergenerational income elasticity research. Poor families have insufficient economic capacity to invest in education, and the values and preferences of social strata will also affect decision-making. The government should publicize the role of education, guide society and families to pay attention to education, and be willing to invest in children. The development of financial subsidy policy and education loan system can effectively alleviate the constraints of residents’ borrowing, help families with financial difficulties to enter school smoothly, and guarantee every child’s right to education. Higher education costs are relatively high. At present, China’s funding system mainly includes student loans, scholarships, grants, work-study programs and other relief, so as to improve the repayment mechanism and the evaluation mechanism of grants.
The stage of campus education is the stage of knowledge accumulation, and the learning of skills is the basis for the corresponding value return of the labor market in the later period. Stage tests and selective examinations of education in schools divide students into different groups and assign them to different fields or schools for study, such as elite schools and ordinary schools. Educational system, teaching quality and arrangement of teaching content may play an important role in improving students’ abilities. Therefore, we should prevent the operation of hidden boxes to ensure equal educational opportunities.
Through the first two stages of paving the way, the transfer process is completed with individual gains in the labor market. As a signal, education level should obtain corresponding value in the labor market, eliminate market discrimination, open and transparent recruitment rules and promotion system, adopt the same standard for people with the same educational background and ability, and ensure equal social opportunities.
5. Conclusions and Recommendations
The conclusions of this study are summarized as follows.
Firstly, the intergenerational income elasticity of Chinese residents is 0.369, which has strong intergenerational transmission, and the intergenerational elasticity of urban residents is higher than rural residents. The inter-generational elasticity of urban residents is 0.447, and that of rural residents is 0.363. Urban residents can provide their children with better educational resources, which makes the rate of return on education higher. Vocational and social relations can also give children more convenience and information, which makes the inter-generational transmission of urban residents higher.
Secondly, the increase of educational years can accelerate the intergenerational income mobility, and the role of rural education is greater than that of urban. Intergenerational income mobility in rural areas is higher than that in urban areas. Strengthening education has a positive impact on improving the income of rural residents. The accumulation of human capital promotes the intergenerational income mobility of rural residents.
The empirical results show that the equity of educational opportunities can effectively solve the problem of intergenerational income flow. Therefore, the government should publicize and popularize the correct concept of family education, abandon the idea of useless reading, continue to improve compulsory education and popularization of high school education, improve the funding system of higher education. Higher education investment is large, low-income families are difficult to bear the cost, the government funds to protect poor students’ access to education. Define and refine the amount of poverty assistance, grant different amounts of assistance according to specific conditions, improve the repayment mechanism of student loans, flexible and diverse repayment mechanism to alleviate the economic pressure of students with difficulties.
Increase farmers’ income and narrow the gap between urban and rural areas. The government guarantees peasants’ rights of possession, use and income of contracted land, as well as the right of use of homestead and distribution of collective income according to law, and broadens the channels of peasants’ property income such as rent, dividend and dividend. Accelerate the adjustment of agricultural structure, form large-scale cultivation and breeding, improve marketing network, enhance the degree of agricultural industrialization, and promote farmers’ income. Accelerate the construction of characteristic industrial bases, promote the renewal and replacement of agricultural products, increase the added value of products, and broaden the employment space and income channels of farmers. We will accelerate the transfer of surplus rural labor and increase the wage income of farmers.
This article regards the years of children’s education as the proxy variable of educational opportunity equity, and analyses how to improve intergenerational income mobility. While paying attention to the quantity of education, we may study intergenerational income mobility from the quality of education. Faced with the reality of the gap between the rich and the poor, the government achieves fair distribution through the rational design and arrangement of social system, promotes equal opportunities and narrows the class gap. Based on the economic development and social system in China, scholars can analyze intergenerational income flow from other systems to ensure equal opportunities. Combining research with other disciplines, such as parents’ personality characteristics, the environment of residential communities and so on, to study the impact of intergenerational income mobility.
1The income trajectory of a lifetime follows a single peak pattern, with lower income in youth, then rising, reaching its peak in middle age, and finally declining.
 Nunez, J.I. and L. Miranda. (2010) Intergenerational Income Mobility in a Less Developed, High-Inequality Context: The Case of Chile. The B.E. Journal of Economic Analysis & Policy, 10, 33.
 Kan, K., Li, I.H. and Wang, R.-H. (2015) Intergenerational Income Mobility in Taiwan: Evidence from TS2SLS and Structural Quantile Regression. The B.E. Journal of Economic Analysis & Policy, 15, 257-284.
 Louw, M., Berg, S.V.D. and Yu, D. (2007) Convergence of a Kind: Educational Attainment and Intergenerational Social Mobility in South Africa. South African Journal of Economics, No. 3, 548-571.