Population,Government Policies And Intergenerational Mobility In China

This thesis consists of three essays on intergenerational mobility and inequality.It focuses on the largest developing country,China,and examines historically and currently some demographic characteristics and government policies.In recent years there is an increase in the macroeconomic research on income inequality.There is a growing awareness in this field because of its social and economic importance.Income inequality has consequences on economic growth.Population distribution of any country has a significant effect on its economic growth.Similarly,some deliberate government policies also have impact on economic growth.This study is in three parts and provides findings to the effect of aging population,illiteracy campaign and heavy industry-oriented policy on intergenerational mobility.First,aging society has both positive and negative consequences on the society.Income inequality persists as a severe social problem.Many factors bring about income inequality.It is estimated by the United Nations that,by the year 2050,the aged population around 60 and above in the world will reach an estimation of about 2 billion.With these increasing numbers of the aged population around the globe,policy makers are concerned about the possible negative impact on the growth of the economy and the hardship it will put on countries to provide assistance for their elderly populations especially less developed countries.In a situation like this,there will be economic hardship because the aged in the society are less productive as compared to the younger.This would bring about a situation where by economic gains in the past will be higher than the present.In the long run,the older generation will be a burden unto the younger generation because the younger generation needs to care for,and pay for the support of the elderly population.This situation if not checked can be worse especially in China where the elderly population depends on the younger population and the vice versa.According to the UN projections,nearly over 30%of the population is expected to be age 60 or older in 2050.This has created a matter of serious concern to the government of China.It is expected that the benefits China enjoyed from its population structure in the last few economic boom decades will decline as a result of the rate at which the population ageing is increasing.This is happening becausethere is a possibility of economic growth when labor force is large in size as compared to the dependent population;andthe opposite of this scenario could conceivably bring economic difficulties.With these facts as a guiding principle the first paper titled "Ageing population and intergenerational Mobility:Evidence from China" presents consideration of intergenerational mobility and income inequality.According to the human development theory,Children cannot obtain an education investment from their parents if the parents are poor.However,children that are raised by rich parents have a high probability of becoming skilled workers because of sufficient education investment without expending a large amount of effort The available literature suggests that,not only education subsidies,but also postponing retirement timing and an increase in pension benefit increase the effort to become a skilled laborer.Therefore,the intergenerational mobility from poor to the rich is increased.This paper presents an examination of the effects of an aging population on intergenerational mobility.This part of the study provides enough facts in the research into intergenerational mobility.First the study establishes intergenerational mobility by running a simple linear regression of parent’s income on offspring income in China.The result indicates that there is a strong and positive relationship between the parent income and the income of the child.Second,the study finds that child’s income is negatively influenced by the aged population.To buttress the findings,the paper identifies the channel through which aged share affects child’s income.Business ownership was used as component to establish whether aging population can affect intergenerational mobility.The share of business is one of the mechanisms through which age share affect intergenerational mobility.The finding shows that there is a negative correlation between aging and the share of businesses owned.That is the age share negatively affects intergenerational mobility via share of business ownership.By exploiting the effect of aged population on business establishment,we find that the more aged the population is the lesser the ability to establish business.The result is robust after the addition of more control variables.That is for every one-year increase in the share of aged population,the share of businesses owned consequently reduces by approximately 0.002 units.The results show that an increase in the aging population hinders or impede the establishment of businesses(business ownership).This finding is consistent with the existing literature which identifies age as a major attribute influencing the propensity of individuals to become entrepreneurs.Lastly,to estimate the heterogeneity in the effect of age share on child’s income,the study computes the correlation coefficients.We find that there is heterogeneity across provinces in intergenerational mobility.The results show that,parental income has a larger effect of increasing child’s income in the lower half than in the upper half.That is there is income inequality.The second paper in the thesis looks at "Illiteracy Campaign and Intergenerational Mobility:The case of China".Human development is a catalyst for economic development and education plays a fundamental role.The low degree of intergenerational mobility alongside the high level of income inequality raises a serious concern.It is a worrying concern that,the current gap in income inequality has the potency to cause social instability and conflicts as well as economic issues.It is evidently clear that education is considered to play a critical role in the degree of intergenerational income mobility.It is well-known that educational attainment embodied in a worker is a major determinant of his or her lifetime earnings.The available literature suggests that the Parents’educational investment in children is a major means to improve their children’s future earnings.The bottom line is the parents’ ability to invest in the education of their children depends on their income and education levels.It is more likely that the more-educated and high-income parents have the more resources to invest in their children than less-educated and low-income parents do.Hence,it is likely that parents’ education has significant influence on children’s education.All over the world governments are now making efforts to tackle unequal income distribution and its persistence across generations,but there is a probability that some of the populist politics result in unproductive and undesirable economic outcomes.Some of these policies by government are the introduction of illiteracy campaigns in China.These were aimed at reducing illiteracy.This paper sought to find out whether the illiteracy campaign introduced by the Chinese government in the 1940’s had any effect on intergenerational mobility.A major factor that contributes to the distribution of education among household is the possibility of the parents passing over their educational outcomes to their children.This has a direct consequence on income distribution among households.Illiteracy campaign has direct consequence on the society.First,we look at the effect of illiteracy campaign in China on intergenerational mobility at the provincial level.We find that relative intergenerational mobility is negatively influenced by the illiteracy campaign which suggests an unintended consequence.Second,by exploiting the effect of illiteracy campaign on the education outcome of the beneficiaries,we find that the illiteracy campaign has a positive effect on it.The negative regression coefficient might reflect the fact that the campaign did not distribute opportunity to people equally.This finding confirms the assertion of the China National Institute for Education Research that,the offspring of workers and peasant farmers could not further their education to the universities or even the lower schools because emphasis was placed on ’higher standards’.On the other hand,the illiteracy campaign has positive effect on the education outcome of the offspring of the beneficiaries.This effect was as a result of the fact that the policy had a direct effect on the income of the beneficiaries.An assertion established by this paper.Third,the paper conducts two heterogeneity tests.In the first test the study grouped the provinces into two based on their intergenerational coefficients(bottom half and top half using the midpoint).While the second heterogeneity test grouped the provinces based on their GDP per Capita values.The first heterogeneity test the paper finds that there is heterogeneity across provinces in intergenerational mobility.It is revealed that,illiteracy campaign has a significantly negative impact on intergenerational mobility of provinces in the top half.However,the study fails to ascertain a significant relationship between illiteracy campaign and intergenerational mobility for provinces in the bottom half.On the other hand,the second test finds a significant negative effect of illiteracy campaign on intergenerational mobility across both halves(the top and bottom halves of provinces).The study of the relationship between industrialization and intergenerational mobility has been in an existence over fifty years.The heavy industry policy of China was capital intensive.Considering the strategic and sensitive nature of this industrial policy,the government had to invest more capital and technology.This policy was direct opposite of the capitalist economy where industrial policy provides enabling environment to establish new industries which will result in upward mobility because labor will move out of agriculture into a new area of manufacturing.To protect Chinese industries from foreign attack,the government relocated industries to mountainous regions and other secured places.To trace the impact of the policy using provincial level data and show that the heavy industry-oriented policy has negative effect on intergenerational mobility.The study also establishes a possible channel through which heavy industry-oriented policy can affect intergenerational mobility.The result indicates that the policy has negative effect on business ownership.To test for heterogeneity across provinces,the study grouped the provinces into two based on their intergenerational coefficients(bottom half and top half using the midpoint).After the heterogeneity test was done,the paper finds that there is heterogeneity across provinces in intergenerational mobility.It is revealed that,the heavy industrialization policy has a significantly negative impact on intergenerational mobility of provinces in the top half.It shows that mobility reduces as people in higher socio-economic groups were hard hit as a result of the heavy industry-oriented strategy.