Pakistan Journal of Social Sciences (PJSS) Vol. 39, No. 2 (2019), pp. 377 –389 Intergenerational Income Mobility: Evidence from Pakistan Imran Abbas Ph.D. Scholar, School of Economics, Bahauddin Zakariya University, Multan Email: [email protected] Karamat Ali Director ORIC, NUML, Islamabad. Email: [email protected] Sumaira Batool Lecturer, Department of Economics, The Women University, Multan. Email: [email protected] Abstract: Intergenerational transmissions have significant economic implications not only for a family but for society as a whole. The concept of intergenerational mobility has been constantly under discussion among social scientists since 1960 to find out the ways through which socio- economic status of parents gets transmitted to their offspring. The study attempts to measure intergenerational income mobility in Pakistan. The paper uses field survey data of 2000 households, 1000 each from two generations to calculate intergenerational income mobility. The estimation results indicate that intergenerational mobility is low in Pakistan, which proves the fact that children from different income groups do not have equal opportunities to improve their socio- economic status. The continuation of socio-economic status across generations causes income inequality. The study will enable the government for future planning. Keywords: Intergenerational Mobility, Socio-economic Status, Human Capital, Education, Health, Generation, Pakistan. I. Introduction Intergenerational mobility indicates the level to which a person’s childhood circumstances get mirrored in the achievements of his later life. It tells about the link of socio-economic statuses of parents and their children. It can also be said that intergenerational mobility shows the level to which a person can make his life through his talent and luck. The measurement of intergenerational mobility has been a topic of research for both sociologists and economists. Sociologists are more concerned with intergenerational occupational mobility and economists are more concerned with intergenerational income mobility. Sociologists and statisticians measure mobility in a pure sense while economists try to judge and evaluate intergenerational mobility from a welfare-based perspective (Bernasconi & Dardanoni 2005). The incomes are transmitted across generations through direct and indirect channels. Parents invest time and money for the future of their children which enhances 378 Pakistan Journal of Social Sciences Vol. 39, No. 2 children’s earning capacity. Through direct channel, the parents can transfer money to the children and through indirect channel; they invest in education and health of the children to develop their human capital. Parents, earning high incomes, have ample resources for investments to expand their children’s human capital both quantitatively and qualitatively, while parents, earning low incomes, cannot do this. The children of low- income households have more probability to attain lower educational levels (Duncan et al. 1998). As a result, their earnings in adulthood are lower than the children of high- income families (Sigle-Rushton 2004). Not only parental income, but education is also a key contributor to the intergenerational income mobility (D’Addio 2007). Education rewards an individual by increasing his productivity, resulting in better wages. Another important element of human capital; health, also contributes largely to the income mobility across generations. Good health also rewards an individual in the forms of increased productivity, which results in high wages. As health outcomes are often transmitted from one generation to the other, poor health limits earnings’ capacity across generations (D’Addio 2007). Parents with high-income earnings also transmit to their children some other advantages like social skills, confidence, behaviour and motivations, which positively affect child’s capability to earn more as an adult (Corak 2006). Parental characteristics are not the only determinant of a child’s adult income because market and social institutions, which establish the impacts of education on earnings and a part of genetic ability don’t depend on parental attributes (D’Addio 2007). The following figure shows Solon’s model of intergenerational mobility. The figure shows the mechanism through which incomes of children are affected from their previous generation. Figure: 1 Investment in children’s human capital Parents’ Children’s income Learned and inherited traits income Parents’ consumption Other environmental influences Economists started the measurement of the links between an individual’s socio- economic status and his parents’ i.e. intergenerational mobility after the work of Becker and Tomes in 1979. The motivation behind this interest in the transmission of socio- economic positions across generations is based on desire to find out the degree of equality of opportunities for all segments of population in a country (Comi 2003). In a society, the level of intergenerational mobility is considered as a degree of the equality of economic opportunities for all sections. A high degree of intergenerational mobility indicates comparatively equal opportunities in the society, making the next generation healthier, more educated and skilled and wealthier and not pre-decided by their parents. Children from different families have equivalent opportunities to invest for the Imran Abbas, Karamat Ali, Sumaira Batool 379 development of their human capital to increase their future earnings (Behrman and Taubman, 1990). The objective of the study is to measure intergenerational income mobility in Pakistan through logistic regression analysis. The study also aims to provide regional results as well. Section 2 discusses data and methodology. The estimation results have been discussed in section 3. The study is concluded and policy recommendations are suggested in section 4. II. Data and Methodology This study is based on a multi-topic household survey data, conducted by the author. The questionnaire based survey was conducted in urban and rural areas of all four federating units of Pakistan and Islamabad Capital Territory (ICT). The data were collected through direct questioning of the head and other members of the household. Total sample size is 2000 household; 1000 households from each generation. As the data was collected from eight districts/cities of the country, the number of respondents was selected on the basis of population of 1998 census. Out of 1000 households, 556 households were selected from Punjab province (Lahore 369, Vehari 122 and Rajanpur 65), 230 respondents were selected from Sindh province (Karachi 200 and Sukhar 30), 134 from Peshawar (KPK) and 50 from Quetta (Baluchistan). As per population data, 6 households should have been selected from Islamabad and 24 from FATA. It was not possible to collect data from FATA due to poor law and order situation. 6 households from Islamabad were a low number, so the share of FATA was included in the share of Islamabad and survey from 30 households of Islamabad was conducted. A number of studies are available in literature, which have been conducted to find appropriate method to measure intergenerational mobility (Solon 1999). Usually two methods are used for the measurement of intergenerational mobility; income elasticity approach (log-linear regression model) and transition matrices approach (Dearden et al.1997). In some recent studies, another regression technique, logistic regression analysis has been used to measure intergenerational mobility. We have used log-linear regression model for the measurement intergenerational income mobility. This model provides relatively simple method to measure intergenerational income mobility. In simple linear regression model, the logarithm of adulthood income of the child depends on the logarithm of the parent’s income. Ychild denotes the log of son’s/daughter’s economic/income status and Yparents denotes the log of his/her parent(s)’ economic/income status. Ychild = α + β Yparents + ε Intergenerational earnings elasticity, a fraction of income, transmitted from parent to child on average, measures intergenerational mobility. A number of studies confirm the notion that the parents’ economic status gets transmitted to the succeeding generation to a certain extent (Osterberg 2000, Corak 2004, and Piraino 2007). Becker and Tomes (1979), Atkinson et al. (1981), Peters (1992), Lefranc and Trannoy (2004), Dearden (1997), Comi, S. (2003), Machin (2004), Leigh (2007), Blanden & Machin (2007) and Moonen & Brakel (2011) have used log-linear regression model approach for the measurement of intergenerational mobility. There are two methods for the selection of income data. A single year’s income and average of some years (usually five years) are used as proxy for permanent income (Solon 1992). For permanent income, the income of a single year has been used a proxy in earlier work on this topic. But the problem is that 380 Pakistan Journal of Social Sciences Vol. 39, No. 2 this creates a downward bias estimation of β because parents and children are not observed at the same point of time in their life. Though the use of five year average will reduce the bias, however, it will not be eliminated completely. If different periods of the stage of life are taken to measure incomes, the results of intergenerational income mobility can be biased (Grawe 2006). To overcome the problem, the questionnaire for this study was got filled for the same points