The Son Also Rises Page 13

  Thus in the United States, Tom Hertz shows that just knowing that a family is Jewish predicts a 33 percent higher than average income for children relative to their parents. Knowing just that a family is black or Latino similarly implies that children’s incomes will be 30 percent lower than would be expected from the general correlation of incomes across generations.14 A recent study by the Pew Charitable Trust found that among families with middle-class incomes, black and Latino children were more likely to fall into the bottom 30 percent of the income distribution than white children. For whites the chance was 25 percent, for blacks 37 percent, and for Hispanics 29 percent.15

  What is happening here? One interpretation is that there are still racial barriers in the modern United States that constrain opportunities for blacks and Latinos, for example through their concentration in low-income neighborhoods and underperforming schools.16 But the lack of upward social mobility is observed not just among low-income groups but also among middle-class blacks and Latinos—those who attend racially mixed schools and have benefited from affirmative action programs in universities and employment. And the failure of Jewish or Japanese children to regress to the mean as rapidly as expected is not due to any advantage they gain in U.S. society, where both these groups form small minorities of the population.

  George Borjas earlier found a similar result from looking at immigrant groups in general in the postwar United States, many of whom, such as the Irish, would not be classed as particularly identifiable minorities.17 For fathers with a given level of income or education, the greater the average income or education of men from the same immigrant group, the better were the predicted outcomes for their sons.

  Borjas attributes this effect to the idea that different groups of immigrants to the United States have different levels of ethnic capital. Sons from ethnic groups with high average education levels, for example, do better than would be predicted from the education of the father alone because of spillover effects from the education of others in the community. More highly educated uncles, cousins, and neighbors improve the outcomes for children from these communities through information, help, and example. Such an interpretation could also be applied to the results Hertz finds for Jewish, black, and Latino families. However, there is little or no evidence for these hypothesized community benefits to individuals. The descendants of Japanese immigrants to the United States, as noted, are a group with high average status. Yet this is a small, dispersed community that has integrated strongly into white American society through intermarriage.

  With the simple model of a slowly changing underlying social competence of families, we can explain all the above results without having to invoke racial barriers, ethnic capital, or the importance of social connections.

  Consider, for example, two families with annual incomes of $90,000, one Jewish and the other black. Since median household income in the United States is $52,000, we expect that the children of such families will have incomes lower than their parents’ and closer to the median. However, this income level is close to the median for the Jewish community.18 Thus the random component in this family’s household income, the part that deviates from what we would expect from their underlying social capabilities and is not heritable, will be on average zero. So their children will regress only modestly toward the social mean. In contrast, a black family with a median income of $90,000 has nearly three times the median income of the black community, which is only $35,000. Families who have incomes well above the average of their community typically have benefited from a positive random shock to their income that has placed them above their underlying social status. On average, the random component affecting their family income is substantial and positive. Their true underlying social status is typically lower than their income indicates, and it is this underlying social status that predicts the income of the children in the next generation. So the black children will show, on average, a greater drop in income relative to the parents than the Jewish children.

  With this model, there is no need to invoke racial discrimination, social networks, or ethnic capital to explain such effects. However, this model does leave open the question of why the underlying social competence of the Jewish and Asian communities is higher than that of the black and Latino populations.

  In Summary: The Power of a Single Equation

  Surname evidence shows that all social mobility can essentially be reduced to one simple law,

  xt + 1 = bxt + et,

  where x is the underlying social competence of families. The persistence rate, b, is always high relative to conventional estimates, generally 0.7–0.8. It seems to be little affected by social institutions.

  There thus seems to be a simple law of social mobility, which we explore and test in the subsequent chapters.

  1 In psychometric terms, underlying status is a latent variable.

  2 To keep the mathematics simple, xt and xt + 1 are assumed to have a mean of zero and a constant variance.

  3 This is shown in appendix 2.

  4 A good example of the lower heritability of one aspect of a more general trait is IQ. Overall IQ is much more highly correlated between generations than any specific subcomponent.

  5 Bowles and Gintis (2002) point out that this loose association between IQ and other social outcomes creates puzzles about how these other attributes are inherited as strongly as they are. IQ inheritance cannot be the primary pathway.

  6 For the statistical purists, it is first-order Markov.

  7 Though this notion has gained currency (see, for example, Foroohar 2011), there seem to be no academic studies supporting it.

  8 U.K., Office of National Statistics 2007.

  9 This finding is consistent with the intergenerational correlation in other family studies. See Beeton and Pearson 1899; Cohen 1964.

  10 Since the estimated standard error of the difference of mean ages at death is 0.68, this difference is highly significant statistically.

  11 See, for example, Long and Ferrie 2013; Lindahl et al. 2012; Boserup et al. 2013.

  12 The other studies of intergenerational correlations between grandparents and grandchildren all find a stronger than expected correlation, consistent with an underlying intergenerational correlation in the range 0.5–0.7.

  13 This prediction is detailed in appendix 2.

  14 Hertz 2005.

  15 Arcs 2011, 14.

  16 This is the explanation favored by Hertz himself.

  17 Borjas 1995.

  18 US Census Bureau 2010; Pew Forum on Religion and Public Life 2008, appendix 1, 78.

  SEVEN

  Nature versus Nurture

  THE PRECEDING CHAPTERS EXPLAIN why social mobility is lower than traditionally measured. But why are mobility rates seemingly constant across very different social regimes? Here I conjecture that this is because status inheritance is indistinguishable in form from the inheritance of genetically controlled attributes. This is not to say that social status is determined genetically. But whatever drives it is, on the tests performed here, indistinguishable from genetic inheritance. Status may or may not be genetically inherited, but for all practical purposes, nature dominates nurture.

  Discussion about the mechanisms that drive the inheritance of social status has been limited. The standard approach in economics assumes that social status is transmitted through three channels: genetic transmission of underlying abilities from parents; transmission of cultural traits within families; and transmission of abilities through parental investment of time and resources in child rearing (in economic parlance, investment in “human capital”).

  Economists assume that because higher-ability parents have higher incomes, they can create more human capital in their children through education, ensuring a greater persistence of status than stems from the biological and cultural connections alone. Nature and nurture both matter. The paths of transmission envisioned by economists are shown in figure 7.1.1 There is an independent causal effect of family income in the parent
generation on income in the next. This model of inheritance implies that the observed correlations across generations for earnings, wealth, and education are greater than predicted by the correlation of underlying abilities. This is because education and nurture investments are correlated with underlying abilities.2

  FIGURE 7.1. Economists’ conception of intergenerational earnings links, where 0 indicates the parent generation.

  The economists’ conception seems intuitive and is shared by many people. Differences in innate talent are magnified by differences in individual families’ income and resources.

  This picture of mobility mechanisms also implies that the intergenerational correlation of outcomes in the free-market economy is higher than is socially desirable. Children with the same innate abilities do not get equal chances in life. Those from higher-income families do better. Children of parents of modestly lower innate abilities become adults with substantially poorer outcomes because they receive fewer resources from their parents. Assuming that education and nurture investments by higher-income families are productive, the state should intervene to subsidize such investments in poorer families and promote equality of opportunity.

  The further implication of this proposed mechanism is that windfall gains to a family will raise the next generation’s social status. Conversely, unexpected losses will depress it. Also, the more extensive the government’s provision of educational investments, the higher social mobility rates will be.

  However, suppose that even half of the variation in this generation’s income is caused directly by the variations in income in the parent generation and the effects of those family-income variations on investments in training and education. That is, assume that parent income matters as much as children’s abilities in determining outcomes. Those conditions preclude the pattern of correlations of measures of status across multiple generations that researchers are now finding. The correlations in measures like income should decline quickly over multiple generations.3 To get slow long-run mobility at the same time as fast short-run mobility, the great majority of outcomes must be attributed to underlying abilities. Income can play only a very modest direct role in producing outcomes if the process is to describe the low long-run mobility we observe.

  If family characteristics are to account for observed dynastic connections in status across as many as ten generations, they must be much more persistent between generations. The persistent element cannot be earnings, income, or wealth, because these have been demonstrated to be fluid across generations within individual families. This is not to imply that resource investments in children have no effect on the outcomes of the next generation, but that effect must be modest.

  There are multiple ways to test the claim that resource transfers between parents and children are only modest determinants of status inheritance. The first is to examine the variation across societies in the effect of parental investments on children’s outcomes. Where the state provides extensive educational support for all children, parental investments will matter less, and the rate of social mobility should be higher.

  Another implication of this theory is that, other things being equal, elite families with larger numbers of children should see faster regression to the mean. With a finite stock of family resources, the greater the number of children parents must provide for, the less each child gets. By the same reasoning, lower-status families with fewer children should regress upward to the mean more rapidly.

  This chapter considers two tests of the idea that parental resources explain a small minority of the inheritance of status. Other tests are discussed in chapter 15. These include the relative roles of biology and rearing in determining outcomes for adopted children, and the effects of windfall gains—chance additions to wealth—on outcomes for future generations.

  Public Support for Education

  The amount of human capital that parents can develop in their children should vary across societies. In some societies, richer parents can do much more to improve their children’s relative education, income, and social status than in other societies. Where the return to such investments is high, rich parents invest more resources in children, and the persistence of status is greater. Where the social landscape reduces the benefits from such familial investments, this connection between parents and children should be weaker, with status transmitted only through biological and cultural channels. Thus in the preindustrial world, largely without public education, we would expect the gains from parental investment to be large and persistence correspondingly great.

  In modern societies such as Sweden and the United Kingdom, a lot of human-capital investment is publicly financed. Elementary, secondary, and even university education is provided free of charge. Often even the living costs of university students are covered.

  Sweden, in particular, offers extensive state support for education. From age 6 through tertiary education, tuition is free, and for younger children, schooling includes free meals. All students in postsecondary education are eligible to receive student aid, in the form of grants and loans, to finance up to five years of study. The statement of the Swedish National Agency for Higher Education is that “the Swedish system of student finance is designed so that higher education is accessible to all those who can benefit from it regardless of socioeconomic background. … As tuition at higher education institutions in Sweden is free-of-charge … student finance is intended to cover living expenses and the cost of study material. Everyone below the age of fifty-four has the right to apply for student finance for a maximum of 240 weeks.” Student finance consists of grants and loans.

  Those age 16–20 attending higher secondary schools are eligible for student aid for living expenses. For the youngest children, municipal governments are responsible for providing preschool places at a modest price, with meals always included. In 2009 the tuition cost for preschool in Sweden was a maximum of $200 per month, a modest amount for most parents.

  In a society like this, what contribution can parental spending make to the human capital of children? Some parents choose private schooling for their children at institutions that yield strong academic results, such as the Internationella Engelska Skolan (IES). But the overwhelming majority of these private schools emerged after 1992, when the government began paying an equivalent to the state-school tuition cost to private schools. In return, these schools have to admit students tuition-free and on a first-come, first-served basis. They are thus popularly referred to as “free schools” and now enroll one in ten students.

  So what can a highly resourced Swedish family do to increase the human capital of their offspring that a poorer family cannot? Some families might hire private tutors to supplement public-school instruction, but if children are attending well-organized schools, the gain from each kroner spent in this way will be minimal. That is why, if human-capital investments by parents are an important contributor to status persistence, Sweden should be the society with the lowest persistence, or the highest social mobility rates.

  England has less extensive public support for education than Sweden and thus a potentially higher return to private investments to increase children’s human capital. Education is tuition-free in state schools from age 3 to age 18. From 1962 to 1998, tertiary education was also free, and maintenance grants were available to lower-income students to offset living costs.4 Since 1998, students have paid tuition fees for higher education (recently raised by many universities to £9,000, or about $14,000 annually), but they can borrow to finance these fees. Students can also get grants and loans to cover their living costs.

  Private schooling paid for by parents is much more extensive in England than in Sweden: 7 percent of all elementary and secondary students attend such schools, with the figure rising to 18 percent for students age sixteen and above. Fees for such schools range from $4,000 to $48,000 annually, the highest fees being for boarding schools.

  Such private schools on average have much better academic results than state-supported sc
hools. Their graduates are three times as likely as state-school graduates to be admitted to Oxford or Cambridge. So it is more advantageous for parents to transform their resources into enhanced human capital for their children in England than in Sweden.5 But even many of the private schools provide extensive scholarship aid for poorer students who pass their qualifying exams, so the gains from such investment are again modest.

  Certainly contemporary England should, on the basis of returns to human capital investment, display much less status persistence than England before 1870. Schooling in the earlier period was entirely a private matter, with parents paying for schooling or relying on charity schools.

  In comparison to Sweden and England, the United States has many more children attending privately financed primary, secondary, and tertiary institutions. From kindergarten through twelfth grade, 15 percent of children are privately educated at fee-charging schools. In areas like the Northeast, these schools can be very expensive, charging as much as $45,000 annually for day students.6 Thus it is easily possible to spend as much as $600,000 on a child’s elementary and secondary education.

  At the tertiary level, the United States again has a much larger private sector, with 27 percent of students attending private institutions. Most state institutions also charge tuition fees. Net of discounts and grants, nineteen million tertiary students paid $53 billion in tuition in 2009.7 In addition, they had to cover their living costs while attending college. The ability to attend a selective college depends much more on the financial resources of parents in the United States than in Sweden or the United Kingdom. Consequently, the United States is the society where parental resources should be able to do the most work and should thus be the society with the greatest persistence of status.