Trends And Determinants Of Intergenerational Income Mobility In China

The past four decades have witnessed a rapid growth of economy,a deepening degree of marketization,and a remarkable increase of income in China.However,due to urban-rural division,industry monopoly,lagging reform of factor market and welfare system,the efficiency-oriented mode causes imbalance in income distribution.Income inequality receives widespread attention,and people's requirements for maintaining social fairness are increased.Intergenerational income mobility provides a dynamic perspective on income distribution.The degree of intergenerational income mobility affects economic development,people's welfare,and social stability.This thesis investigates the trends and determinants of intergenerational income mobility in China.Relevant literature and intergenerational income mobility models constitute the theoretical basis of this thesis.Our empirical study consists of three parts.Firstly,we investigate the trends of intergenerational income mobility in China.Secondly,based on the intergenerational income transmission process,we sort out the determinants of human capital path,social capital path,and wealth capital path—entrepreneurship,social networks,and house prices,and analyze the effects of these determinants on intergenerational income mobility.Lastly,we summarize the research conclusions and provide public policy recommendations.Based on the literature,this thesis focuses on the following work:1.This thesis builds the research foundation with literature and theoretical models.On the one hand,we review the literature on intergenerational income mobility from the perspectives of measurement,trends,comparison and determinants,and find that this literature is deficient in data processing,measurement methods,determinants,and consistency of conclusions.It is the focus of this thesis to make up for these shortcomings by drawing on foreign experience.On the other hand,combing the relevant theoretical models of intergenerational income mobility,we analyze the basic logic of intergenerational income transfer.There are two main ways for parents to influence their children's income: influencing children's human capital,and then transforming human capital into children's income through the employment process;the power of rent-seeking which directly affects children's income.2.This thesis,from the perspective of birth cohort,examines the trends and causes of intergenerational income mobility in China.We measure mobility with both intergenerational income elasticity and the newly developed approach of the correlation between intergenerational income percentile ranks.Empirical evidence reveals that,different from the downward or unchanged trends of most developed countries,the intergenerational income mobility of China displays the trend of “first decreasing,then increasing”.Namely,the intergenerational income mobility is falling among the pre-1980 birth cohorts,but rising for that of 1981-1987 birth cohort.Our further study demonstrates that the intergenerational income trends are associated with certain social changes in China.The “up to the mountains and down to the villages” movement during the Cultural Revolution,the “college enrollment expansion” reform and “the market-oriented employment” reform,are all important factors in driving intergenerational income mobility of the 1981-1987 birth cohort.3.This thesis examines the effect of entrepreneurship on intergenerational income mobility.We compare intergenerational income elasticity and transition matrices between entrepreneur and non-entrepreneur samples and find that entrepreneurship promotes the mobility of intergenerational income.For children coming from families with different income levels,entrepreneurship has different effects on their intergenerational income mobility.It is difficult for entrepreneurs from the lowest-income families to upgrade their income ranking.Children from middle-income families are more likely to move to higher income levels through entrepreneurial activities.Nonetheless,children from the richest families may downgrade their income ranking through entrepreneurship.Credit constraints,level of education,parental entrepreneurial experience,and market competition are major factors that constrain the effect of entrepreneurship on intergenerational mobility for children from different income levels.4.This thesis investigates the effect of social networks on intergenerational income mobility.We measure intergenerational mobility with the correlation between percentile ranked income between parents and children and define social network from three dimensions: scale,intensity,instrumentality.Empirical evidence reveals that social network promotes intergenerational income mobility.We employ father's family classification during the Cultural Revolution as the instrumental variable to revolve endogeneity,and the conclusions persist with the application of the instrumental variable estimation.Further evidence points towards the significant impact on provinces with less marketization,daughters and low-income families.Social networks promote intergenerational income mobility through the channels of information sharing,credit constraints,and improving children's employment,and the three dimensions of social network play different roles in different channels.5.This thesis investigates the effect of house price on intergenerational income mobility empirically.We measure mobility with both intergenerational income elasticity and the correlation between intergenerational income percentile ranks.Empirical evidence reveals that the increase of house price promotes intergenerational income mobility.We employ land supply share as the instrumental variable to revolve endogeneity,and the conclusions persist with the application of the instrumental variable estimation.Further evidence points towards the significant impact on cities with higher unemployment rate,houseowners and low-income families.The increase of house price promotes intergenerational income mobility through the channels of credit constraints,entrepreneurship,and increasing children's working hours.6.Based on the above analysis,this thesis proposes public policy recommendations to promote intergenerational income mobility in China.Firstly,we suggest adjusting the structure of income distribution and creating a fair starting point,which includes the wage payment security system for employees,the regulation of improper income,the individual income tax system,and the adjustment of the non-market factors.Secondly,government should improve the public service system and promote process equity,which implies promoting education equality,encouraging entrepreneurship and innovation,and enhancing residents' sense of belonging and trust.Lastly,we propose to improve the market economy system and ensure a fair environment,including the competitive market environment,credit constraints and house price regulation.