The time that parents invest in their children when they''re pre-school explains almost half the low intergenerational mobility in the United States. That is the main finding of research by Minchul Yum, to be presented at the Royal Economic Society''s annual conference in Brighton in March 2016.
The results suggest that effective ways of improving intergenerational mobility should focus on reducing discrepancies in the quantity and quality of parental time investments in early periods of children''s lives rather than facilitating access to college.
It is now well documented that US social mobility is low, with many people staying in the same social class and income bracket as their parents. By looking at the time spent by parents on their children before they are old enough for school, the new study finds that nearly 40% of this persistence across generations can be explained by parental attention.
By giving their children more attention and support before even starting school, parents help encourage their offspring to go to college and give them the skills they need to succeed in life. The author comments:
''While improving access to college by lowering costs helps, it doesn''t guarantee social mobility across the generations. Instead, universal pre-school care would be more helpful in reducing inequality.''
It has been well documented that intergenerational mobility in the United States is low. Understanding which factors are most relevant and through what mechanisms such factors affect mobility is essential in guiding policy interventions meant to improve intergenerational mobility.
This study investigates the role of parental time investment prior to formal schooling as a channel through which human capital is transmitted from parents to children, and studies how this channel affects intergenerational income mobility. The author finds that the early parental time investment channel is responsible for nearly 40% of the observed intergenerational income persistence in the United States.
The key mechanisms behind this result are that:
• First, despite their higher market wage, it is parents with high human capital who choose to invest more time in their young children, amplifying intergenerational persistence of human capital.
• And that second, parents tend to invest more in a child with relatively low human capital endowments, moving their child closer to their own socioeconomic position.
The policy experiments in the study suggest that effective ways of improving intergenerational mobility should focus on reducing discrepancies in the quantity and quality of parental time investments in early periods rather than facilitating access to college.
The analysis is based on a model in which altruistic parents can invest their time in their children. The quality of such time investments varies depending on the long-term family characteristics such as parents'' skills. Parents can also transfer assets, which affect their child''s college decision later.
As credibility of the quantitative results depend on how reasonably the model behaves, the author evaluates the model as a quantitative theory of intergenerational mobility by examining whether it can replicate detailed patterns of intergenerational persistence of income. The model indeed captures the fact that intergenerational persistence of income is considerably higher in the bottom and the top income quintiles than in the second, third and fourth quintiles.
Specifically, in US data, the probability of children being in the bottom quintile when parent''s income in the bottom quintile is 34% while the probability of children staying in the top quintile when their parent''s income belong to the top quintile is 37%. In the model, these probabilities are 35% and 36%, respectively. By contrast, the probability of intergenerational income staying in the second, third, and fourth quintile are 22-24% in the US data and 21-23% in the model.
Somewhat surprisingly, the policy experiments suggest that while facilitating access to college by lowering college costs or relaxing borrowing limits end up raising college completion rates, they do not guarantee greater intergenerational mobility. Because those who decide to go to college even before the policy change tend to have higher pre-college human capital as well as higher returns to college than marginal students, college education does not move up the marginal students in a relative sense.
The model implies that children born with high human capital endowments to parents with low human capital get even less parental time investments than the average child in such families despite their potential to accumulate human capital quickly and move up the income ladder.
The research finds that a flat subsidy to parental time investments can improve intergenerational mobility because it disproportionately increases time investment in children whose parents have low market wage.
Finally, a policy that approximates universal pre-school programmes is found to lead to even greater intergenerational income mobility than the parental time investment subsidy by decreasing discrepancies not only in the quantity but also in the quality of time investment in early periods.
Parental Time Investment and Intergenerational Mobility