To a substantial degree, America has not been a “land of equal opportunity” with each generation’s economic fate largely self-made for quite a while.
The old consensus said a father’s economic advantage all but vanished in three generations. But Bowles and Gintis summarize the line of work that established that that belief was a measurement error-caused statistical illusion: the true intergenerational persistence of income is roughly three times higher than the old consensus. Becker and Tomes’s (1986) claim that the father-son income correlation was 0.15 is simply wrong. Think, instead: an intergenerational correlation of 0.4, and intergenerational elasticities of 0.7 for consumption, 0.5 for wealth, 0.4 for income, 0.35 for earnings, and 0.3 for school years.
IMPORTANT!: The belief is false that “smarts” and the genetic transmission thereof, at least as measured by IQ, is key to the intergenerational transmission of income inequality. Thus the argument that inequality is not a problem because the smart deserve to be rich does not fly. It is parental wealth, race, and “noncognitive personality traits” that do most of the work here. But the intergenerational transmission of economic status remains “a black box”: as the standard human-capital smart parents → smart, well-schooled kids → high earnings accounts for at most three-fifths of it, and the genetic inheritance of IQ accounts for almost none.
This line of research has always been very bad news for the caliper-measurers:
The results are somewhat surprising: wealth, race and schooling are important to the inheritance of economic status, but IQ is not a major contributor, and, as we have seen above, the genetic transmission of IQ is even less important.
Yet they still bring out the calipers at every opportunity.
<https://pubs.aeaweb.org/doi/pdfplus/10.1257/089533002760278686>
People differ markedly in their views concerning the appropriate role of government in reducing economic inequality. Self-interest and differences in values explain part of the conflict over redistribution. But by far the most important fault line is that people hold different beliefs about why the rich are rich and the poor are poor. Survey data show that people—rich and poor alike—who think that “getting ahead and succeeding in life” depends on “hard work” or “willingness to take risks” tend to oppose redistributive programs. Conversely, those who think that the key to success is “money inherited from family,” “parents and the family environment,” “connections and knowing the right people” or being white support redistribution (Fong, 2001; Fong, Bowles and Gintis, 2002). Handing down success strikes many people as unfair even if the stakes are small, while differences in achieved success may be unobjectionable even with high stakes, as long as the playing field is considered level.
How level is the intergenerational playing field? What are the causal mechanisms that underlie the intergenerational transmission of economic status? Are these mechanisms amenable to public policies in a way that would make the attainment of economic success more fair? These are the questions we will try to answer.
No one doubts that the children of well-off parents generally receive more and better schooling and benefit from material, cultural and genetic inheritances. But until recently, the consensus among economists has been that in the United States, success is largely won or lost in every generation. Early research on the statistical relationship between parents’ and their children’s economic status after becoming adults, starting with Blau and Duncan (1967), found only a weak connection and thus seemed to confirm that the United States was indeed the “land of opportunity.” For example, the simple correlations between parents’ and sons’ income or earnings (or their logarithms) in the United States reported by Becker and Tomes (1986) averaged 0.15, leading the authors to conclude: “Aside from families victimized by discrimination... [a]lmost all earnings advantages and disadvantages of ancestors are wiped out in three generations.” Becker (1988) expressed a widely held consensus when, in his presidential address to the American Economics Association, he concluded (p. 10): “[L]ow earnings as well as high earnings are not strongly transmitted from fathers to sons.”
But more recent research shows that the estimates of high levels of intergenerational mobility were artifacts of two types of measurement error: mistakes in reporting income, particularly when individuals were asked to recall the income of their parents, and transitory components in current income uncorrelated with underlying permanent income (Bowles, 1972; Bowles and Nelson, 1974; Atkinson, Maynard and Trinder, 1983; Solon, 1992, 1999; Zimmerman, 1992). The high noise-to-signal-ratio in the incomes of both generations depressed the intergenerational correlation. When corrected, the intergenerational correlations for economic status appear to be substantial, many of them three times the average of the U.S. studies surveyed by Becker and Tomes (1986).
The higher consensus estimates of the intergenerational transmission of economic success has stimulated empirical research. The relevant facts on which most researchers now agree include the following: brothers’ incomes are much more similar than those of randomly chosen males of the same race and similar age differences; the incomes of identical twins are much more similar than fraternal twins or non-twin brothers; the children of well-off parents obtain more and higher quality schooling; and wealth inheritance makes an important contribution to the wealth owned by the offspring of the very rich. On the basis of these and other empirical regularities, it seems safe to conclude that the intergenerational transmission of economic status is accounted for by a heterogeneous collection of mechanisms, including the genetic and cultural transmission of cognitive skills and noncognitive personality traits in demand by employers, the inheritance of wealth and income-enhancing group memberships, such as race, and the superior education and health status enjoyed by the children of higher status families.
However, the transmission of economic success across generations remains something of a black box. We find that the combined inheritance processes operating through superior cognitive performance and educational attainments of those with well-off parents, while important, explain at most three-fifths of the intergenerational transmission of economic status. Moreover, while genetic transmission of earnings-enhancing traits appears to play a role, the genetic transmission of IQ appears to be relatively unimportant.
It might be thought that the black box is an artifact of poor measurement of the intervening variables relative to the measurement of the income or earnings of parents and offspring. But this does not seem to be the case. Years of schooling and other measures of school attainment, like cognitive performance, are measured with relatively little error. Better measurements will of course help; but we are not likely to improve much on our measures of IQ, and recent improvements in the measurement of school quality have not given us much illumination about what’s going on inside the black box. The fundamental problem is not that we are measuring the right variables poorly, but that we are missing some of the important variables entirely. What might these be?
Most economic models treat one’s income as the sum of the returns to the factors of production one brings to the market, like skills, or capital goods. But any individual trait that affects income and for which parent-offspring similarity is strong will contribute to the intergenerational transmission of economic success. Included are race, geographical location, height, beauty or other aspects of physical appearance, health status and personality. Thus, by contrast to the standard approach, we give considerable attention to income-generating characteristics that are not generally considered to be factors of production. In studies of the intergenerational transmission of economic status, our estimates suggest that cognitive skills and education have been overstudied, while wealth, race and noncognitive behavioral traits have been understudied…
[…]
One of the transmission channels deserves special attention not only because of its prima facie plausibility, but also because of the extraordinary attention given to it in popular discussions of the subject. This is the genetic inheritance of cognitive skill. The similarity of parents’ and offsprings’ scores on cognitive tests is well documented. Correlations of IQ between parents and offspring range from 0.42 to 0.72, where the higher figure refers to measures of average parental and average offspring IQ (Bouchard and McGue, 1981; Plomin et al., 2000). The contribution of cognitive functioning to earnings both directly and via schooling attainment has also been established in a variety of studies that estimate determinants of earnings using IQ (and related) test scores….
Do these two facts—parent-child similarity in IQ and an important direct and indirect causal role for IQ in generating earnings—imply a major role for genetic inheritance of cognitive ability in the transmission of intergenerational economic 10 Journal of Economic Perspectives status? One way to formulate this question is to ask how similar would parental and offspring IQ be if the sole source of the similarity were genetic transmission. Also, how similar would the incomes of parents and offspring be if there were no other transmission channel?….
We see… the contribution of genetic inheritance of IQ to the intergenerational transmission of income…. If the heritability of IQ were 0.5 and the degree of assortation, m, were 0.2 (both reasonable, if only ballpark estimates) and the genetic inheritance of IQ were the only mechanism accounting for intergenerational income transmission, then the intergenerational correlation would be 0.01, or roughly 2 percent the observed intergenerational correlation. Note the conclusion that the contribution of genetic inheritance of IQ is negligible is not the result of any assumptions concerning assortative mating or the heritability of IQ: the IQ genotype of parents could be perfectly correlated and the heritability of IQ 100 percent without appreciably changing the qualitative conclusions. The estimate results from the fact that IQ is just not an important enough determinant of economic success…
[…]
Conclusion: Recent evidence points to a much higher level of intergenerational transmission of economic position than was previously thought to be the case. America may Samuel Bowles and Herbert Gintis still be the land of opportunity by some measures, but parental income and wealth are strong predictors of the likely economic status of the next generation.
Our main objective has been to assess the extent of intergenerational transmission and the mechanisms accounting for it. Table 3 summarizes our best estimates of the relative importance of the main causal channels we have been able to identify. The only entry not previously explained is the first, which is an estimate of the correlation between parental income and child IQ multiplied by our estimate of the normalized effect of IQ on earnings, conditioned on, among other things, years of schooling. The estimates for IQ, schooling and personality in the income column are simply those in the earnings column adjusted to take account of the effect of earnings differences on income differences, suitably normalized as described in Bowles and Gintis (2001). Thus, we do not take account of the way that these earnings determinants may affect the rate of return to one’s wealth. By contrast, we assume that the race effect is of the same magnitude in determining the returns to both human capital and conventional wealth (if the race effect on incomes worked solely via an effect on earnings, its contribution to the intergenerational earnings correlation would be significantly greater).
While the estimates in Table 3 are quite imprecise, the qualitative results are not likely to be affected by reasonable alternative methods. The results are somewhat surprising: wealth, race and schooling are important to the inheritance of economic status, but IQ is not a major contributor, and, as we have seen above, the genetic transmission of IQ is even less important.
A policymaker seeking to level the playing field might use these results to design interventions that would loosen the connection between the economic success of parents and the economic prospects of their children. But does a level playing field entail no correlation between parental and child incomes (Swift, forthcoming)? There are important values of family life and privacy that would be compromised by any serious attempt to disconnect the fortunes of parents and children completely. Rather than pursuing an abstract (and to our minds unattractive) objective of zero intergenerational correlation, a better approach might be to ask which mechanisms of intergenerational transmission seem unfair, and to direct policies accordingly. The role of race in transmitting status from generation to generation is clearly unfair. Many people regard the strong correlation between parental income and child health as morally suspect, and many feel the same way about high levels of wealth inheritance. Large majorities favor policies to compensate for inherited disabilities. Other mechanisms of persistence—the genetic inheritance of good looks, for example—strike most people as unobjectionable and not an appropriate target for compensatory policy interventions. Even if some consensus could be formed on which of these mechanisms are morally suspect, the policy implications would be far from clear. For example, the possible incentive effects on parental behaviors of reduced parental influence on child success would have to be estimated and considered
.<https://pubs.aeaweb.org/doi/pdfplus/10.1257/089533002760278686>
- Brad DeLong back again*: As I said last year, there are a great many people—the people whom Richard Rumbold back in 1685 denounced from the scaffold after being captured during Argyll’s Rising against James II Stuart—who fervently and with every fiber of their being search diligently for some reason to believe that most people “come… into the world with a saddle on his back… [with others] booted and spurred to ride…” It used to be that our natural rulers were such because of their family traditions of blood and courage, or blood and honor. Or perhaps it was that non-Hellenes were slaves and non-males were subordinate by nature because of their lack of rational faculties.
Later on, it was an enterprising spirit, as set forth by Andrew Carnegie:
The law of competition… may be someimes hard for the individual, [but] it is best for the race, because it insures the survival of the fittest…. We accept and welcome therefore… concentration… in the hands of a few… [as] essential to the future progress of the race. There must be great scope for the exercise of special ability…. Objections to the foundations upon which society is based are not in order, because the condition of the race is better with these than it has been with any other which has been tried…
And now the air among the TechBros on the other side of San Francisco Bay is that the magic fairy dust that gives you a legitimate right to extraordinary wealth and power is IQ. Inherited IQ. Genetically-driven inherited IQ.
This debate matters because people’s views on redistribution turn on one belief: whether the rich are rich because they earned it and so deserve it, or inherited it such a way tha…
