THE ECONOMICS OF WORK AND EDUCATION
HOW MUCH MUST
PARENTS PAY FOR GOOD
STATE PRIMARY EDUCATION?
Parents
of young children are paying substantial sums for good state primary schools
through higher house prices in the local area. According to new research by Steve
Gibbons and Stephen
Machin, to be presented at the Royal Economic Society’s Annual Conference
this week, residents of London, the South East and the North of England are
paying as much as an additional 8.8% on property prices for each ten percentage
point improvement in the performance score of local primary schools.
Parents of young children are clamouring to get their
kids into good state primary schools. But high demand for good schools, coupled
with policy that rations admissions to local residents, means that parents who
move close to good schools must pay through higher house prices. How much must
they pay? The amounts are substantial: in London, residents pay around £18,000
for an increase of ten percentage points in the proportion of pupils succeeding
at age 11 tests – say from 65% to 75%
A
25 percentage point performance advantage in London and the South East has a
lifetime value of about £37,000 in year-2000 prices – roughly equivalent to
the cost of a private sector primary education for one child for eight years. In
annual terms, the state sector still works out cheaper: around £3,000 in
additional mortgage payments compared to over £6,000 in prep school fees.
Government
policy has, at least in principle, made parental preference the key factor in
primary school admissions. In practice, demand for places in schools that
perform well outstrips the number of places available. Constraints on class
sizes mean that it is no longer possible to increase school size to accommodate
excess demand. As a result, places must be rationed on the basis of other
criteria – most importantly residential proximity. One of the few ways parents
can increase the chances of admission to school of their choice is to move as
close as possible to it. Indeed, there is lots of anecdotal evidence to suggest
that parents are
prepared to move to try to secure admission to a good school, and that they pay
a high premium for this privilege.
The
researchers measure the price premium attracted by observably better schools
using property price data from the Government Land Registry and primary school
performance tables from the Department of Education and Skills (DfES). This
sample gives near-universal coverage of property transactions and school
performance measures in England from 1996 to 1999.
The
approach is to estimate how property prices change from one neighbourhood to the
next, and over time, as primary school performance changes. A common-sense
interpretation can be placed on the change in household expenditure on property
that proximity to better schools generates: it is the value - in monetary terms
- that a household places on improvements in school performance.
The main results show that households pay between 3.1%
and 8.8% on property prices for each ten percentage point improvement in the
performance score of local primary schools. This score is the proportion of
pupils attaining Level 4 and above in the age-11 Key Stage 2 tests, as appears
in the publicly available school league tables. The estimates in the lower range
probably understate the true premium because they are based on annual
performance measures, whereas parents’ residential choice is based on long-run
school quality. The authors’ preferred estimates put the figure at 8.8% for
the South East and North of England, and 5.3% in the South West and West.
A second empirical approach, which looks at differences
between adjacent neighbourhoods on either side of Local Education Authority
boundaries in the London area, gives similar results: around 5.4% on London
property prices for each ten percentage point improvement. In terms of a
monetary valuation, these figures suggest that the average household is willing
to pay between £59 and £117 per pupil per year for an improvement in school
standards that sustains a one percentage point improvement in the performance
scores.
This sensitivity of property prices to local school
quality implies that there is back-door selection into better performing schools
on the basis of family income. This is clearly inequitable and a barrier to
equality of opportunity. The outcome may also be inefficient and non-meritocratic,
in that some pupils with the capacity to take advantage of better primary
education are excluded on the basis of income or borrowing constraints. If these
issues are of concern, policy-makers may need to consider whether residential
proximity should take such an important role in school’s over-subscription
criteria.
ENDS
Notes
for Editors: ‘Valuing Primary Schools’ by Steve Gibbons and Stephen
Machin will be presented at the Royal Economic Society’s 2002 Annual
Conference at the University of Warwick on Wednesday 27 March. Gibbons is
Lecturer in Economic Geography at the London School of Economics (LSE) and a
member of LSE’s Centre for Economic Performance (CEP). Machin is Professor of
Economics at University College London, Director of the DfES-funded Centre for
the Economics of Education and a CEP Programme Director. During the 2001/2
academic year, he is Visiting Professor of Economics at Massachusetts Institute
of Technology.
For
Further Information: contact Steve Gibbons 07968-312477 (office: 020-7955-6245;
home: 020-8374-2900; email: s.gibbons@lse.ac.uk);
Stephen Machin on +1-617-452-3388 (office) or +1-617-547-8212 (home) before 24
March or after 28 March (24-28 March: 07979-916702) and email s.machin@ucl.ac.uk or machin@mit.edu); or RES Media Consultant
Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).
HAVE
EDUCATIONAL STANDARDS FALLEN IN UK UNIVERSITIES?
A generation ago, about one third of all degrees
awarded at British universities were first or upper second class degrees. Now,
slightly more than a half of all degrees fall into these classes. What does that
say about standards? Is ‘grade inflation’ responsible, or are universities
becoming more efficient at teaching their students? Are students becoming more
highly motivated, or has the increase in numbers staying in education led to an
improvement in the calibre of universities' intake of students?
The difficulty of separating out these effects has
meant that the popular perception has been one of rampant grade inflation and
falling academic standards. New research by Professors Geraint Johnes and Bob McNabb,
economists at Lancaster and Cardiff Universities, reveals that the true
situation is much more complex. They reported their findings at the Royal
Economic Society’s Annual Conference on Wednesday 27 March, showing that:
·
Grade inflation was responsible for an increase of about 13
percentage points in the proportion of good degrees awarded during the
mid-1980s. Since then, there has been no significant further grade inflation.
The timing of this shift slightly predated the rapid expansion of higher
education that began in 1988.
·
Meanwhile, the efficiency with which universities teach their
students has not changed much over the last quarter century. There is, however,
some evidence to suggest that efficiency increased during 2000, the final year
for which the researchers have data. This could indicate that policy reforms in
higher education are finally starting to work, but it is too early to make this
call.
·
Other than the grade inflation of the mid-1980s, the main
driver for the change in degree results has been a gradual change in the
personal characteristics of the typical student. These include such factors as
gender mix: more women go to university now than did a generation ago, and they
tend to get better degrees than men. But once these characteristics have been
controlled for, there is no evidence to suggest that students' motivation has
improved over time.
ENDS
Notes
for Editors: ‘Academic Standards in UK Universities: More for Less or
More for More?’ by Geraint Johnes and Bob McNabb was presented at the Royal
Economic Society’s 2002 Annual Conference at the University of Warwick.
Johnes is Professor of Economics at Lancaster
University Management School; McNabb is Professor of Economics at Cardiff
Business School.
For
Further Information: contact Geraint Johnes on 01524-594215 (fax: 01524-594244;
email: G.Johnes@lancaster.ac.uk);
Bob McNabb on 02920-875210 (fax: 02920-874419; email: McNabb@cf.ac.uk); or RES Media Consultant
Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).
WHY
STUDENTS MIGHT DROP OUT UNIVERSITY
Since December 1999, the UK
government has published university performance indicators based on statistics
such as dropout rates from higher education institutions. A focus on university
withdrawal rates reflects widespread concern with evidence of a rising dropout
rate among university students. This has occurred during a period of time in
which government policy has succeeded in expanding the size of the university
student population in concert with strategies both to shift the financial burden
of study on to students and their families and yet to widen access to higher
education. Both of these strategies are likely to affect the university student
dropout rate.
New research by Wiji
Arulampalam, Robin
Naylor and Jeremy
Smith, reported at the Royal Economic Society’s Annual Conference on
Wednesday 27 March, explores what influences university student dropout. In
particular, it asks whether the probability that a student will drop out of
university is influenced by their A-level performance, by their A-level
performance relative to their peers, by the variation in prior performance among
students on the same degree course (the heterogeneity of the class in terms of
A-level results) and by their gender.
Analysing the first-year undergraduate dropout
behaviour of UK students from administrative data for full entry cohorts between
1984-5 and 1992-3, the research shows that:
·
For male students, the predicted probability of dropping out
is related strongly to the in-class rank group to which the individual belongs,
with the weaker students more likely to drop out. This is as one might expect.
·
For female students, the results are similar with the
exception that the very strongest students are more likely to drop out than are those close to the median. One
possible explanation for this is that the strongest students are likely to have
better outside options. In particular, they are more able to switch to a
university degree course with higher average levels of prior attainment, which
may enhance their labour market prospects.
·
Dropout probability is significantly affected by the degree
of in-class heterogeneity of students with respect to levels of prior
attainment. For both male and female students close to the centre of the
in-class distribution by prior attainment, the probability of dropping out of a
degree course falls the greater the heterogeneity. This is as predicted:
intuitively, the greater the extent of in-class variation by prior performance,
the less at risk of failure are the median-ranked students for any given failure
rate.
·
The same intuition lies behind the converse prediction that
the dropout probability for relatively weak students increases the greater the
extent of in-class heterogeneity: relatively poorly qualified students might
feel themselves under particular pressure to drop out in the company of
significantly better qualified students. This prediction is consistent with the
data on male students, but not supported by the evidence for female students.
·
For the stronger students, the probability of dropping out
increases the greater the extent of in-class heterogeneity. This is consistent
with the view that the over-riding effect of increasing heterogeneity for these
students is to increase their incentives to switch to a university degree course
with a higher prior-qualification average score. It is easy to imagine that
relatively well-qualified students might want to transfer elsewhere to improve
their academic CV.
·
To what extent are differences in the predicted dropout
probabilities by gender and over time attributable to differences in
characteristics? The results imply that differences by gender are largely
unexplained by gender differences in characteristics. They also show that the
changes in predicted probabilities over time are attributable entirely to
improvements in characteristics and, in large part, to improvements in prior
qualifications.
ENDS
Notes for Editors: ‘Effects of In-class Variation and Student Rank on the Probability of Withdrawal: Cross-section and Time-series Analysis for UK University Students’ by Wiji Arulampalam, Robin A. Naylor and Jeremy P. Smith was presented at the Royal Economic Society’s 2002 Annual Conference at the University of Warwick. The authors are in the Department of Economics, University of Warwick, Coventry CV5 6DZ.
For
Further Information: contact Dr Robin Naylor on 024-76-523529 (fax:
024-76-523032; email: robin.naylor@warwick.ac.uk;
website: http://www.warwick.ac.uk/fac/soc/Economics/naylor/);
or RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095
(email: romesh@compuserve.com).
GAYS’
PAY IN THE UK
Homosexual
men face pay discrimination in the UK labour market, according to new research
by
Reza Arabsheibani, Alan
Marin and Jonathan
Wadsworth, presented at the Royal Economic Society’s Annual Conference on
Wednesday 27 March. Their analysis of Labour Force Survey data on ‘those who
live with same-sex partners’ in comparison with heterosexual couples
reveals that:
·
Gays earn more than other groups. But this does not prove the absence of
discrimination let alone ‘reverse discrimination’, mostly because gays are,
on average, more educated. The study allows for such effects.
·
Compared
to all couples, gays are discriminated against. Currently, they earn 20.5% more
than non-gay couples. But in the absence of discrimination, if they were paid
according to non-gay groups’ pay structure, this gap would be 23%. That
represents a 2.5% increase over their current pay.
·
Discrimination
is mainly against homosexual men. They earn 9% more than non-gay men living with
a partner. In the absence of discrimination, this would have been about 14.5%.
This means that they would experience a pay rise of nearly 6% over their current
pay if their pay were comparable to non-gay men with similar education etc.
Lesbians have a pay advantage compared to heterosexual women.
Economic discrimination
against minorities has long been a subject of interest to economists as well as
to policy-makers. In the UK, discrimination is prohibited on racial, gender and
marital status grounds. Moreover, Northern Ireland bans discrimination on
grounds of religious beliefs.
But there is currently no
legislation to ban discrimination on the basis of sexual orientation. An attempt
was made in 1998 to pass the Sexual Orientation Discrimination Bill, but due to
insufficient parliamentary time, it did not become law. As a result, homosexuals
do not have equal rights, for example, with respect to marriage rights and
pension rights. And until 2001, homosexuals were banned from becoming members of
the armed forces if their homosexuality was known.
By the end of 2003, all members of the European Union
must have legislation in place to safeguard the rights of homosexuals. This is
what makes this study important, not only to economists, but also to politicians
and the public. It deals with the question of whether homosexuals currently
suffer from discrimination in pay, and therefore whether there is scope for
legislation to make a difference.
The study identifies homosexuals from the answer to the marital status
question in the Labour Force Survey (LFS): gays are ‘those who live with
same-sex partners’.
Pooling 20 quarters of the LFS
reveals 630 gays who also work and provide information on variables crucial to
the study. Of course, this leads to a different problem. It is not possible to
identify gays who either do not disclose or who are gay but do not live with a
‘same-sex partner’. The gays that are identified are those in a stable
relationship and therefore, they are compared with heterosexual couples (married
or not married, living with a partner).
ENDS
Notes
for Editors: ‘Gays’ Pay in the UK’ by G. Reza Arabsheibani, Alan
Marin and Jonathan Wadsworth was presented at the Royal Economic Society’s
2002 Annual Conference at the University of Warwick.
Marin and Wadsworth are at the London School of
Economics; Arabsheibani is at University of Wales Aberystwyth.
For
Further Information: contact G. Reza Arabsheibani on 01970-622213 (email: rea@aber.ac.uk); Alan Marin on
020-7955-7507 (email: a.marin@lse.ac.uk);
Jonathan Wadsworth on 020-7955-7063 (email: j.wadsworth@lse.ac.uk); or RES Media
Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).
CAUSES
AND CONSEQUENCES OF STRESS AT WORK
Among
OECD countries, Britain has relatively low levels of work-related stress. But
British employees do not take their stress lightly, which has damaging
consequences for individual firms and the wider economy: the percentage of
highly stressed employees in Britain who are absent from work or intend to leave
their jobs in the next 12 months is among the highest in Europe. These are the
central findings of new research by Dr Rannia Leontaridi and Dr Melanie
Ward, presented at the Royal Economic Society’s Annual Conference on
Tuesday 26 March.
Their study of work-related stress uses data from the
International Social Survey Program on 15 OECD countries: Britain, West Germany,
France, Switzerland, Italy, Spain, Portugal, Norway, Sweden, Denmark, Hungary,
the Czech Republic, Poland, Canada and Japan. Each respondent is asked to rank
the level of stress they experience at work. A five-point ranking is used with
possible responses ranging from ‘always stressed’ (5), ‘often stressed’
(4), ‘sometimes stressed’ (3), ‘hardly-ever stressed’ (2) to ‘never
stressed’ (1). The research reveals that:
·
36% of
British employees work more than 40 hours a week and eight out of ten report
being stressed at work. One in four stressed employees plans to leave their work
in the next 12 months while one in two report being absent from work for more
than one day.
·
The main
cause of work-related stress is long working hours. Those working between 20 and
40 hours a week are 10% more likely to experience work-related stress that those
working less than 20 hours. For those working more than 40 hours a week, the
corresponding figure is 45%.
·
Demanding
job content or dangerous work conditions play the second largest role in
aggravating job stress levels. Conversely, good working relations with
colleagues and/or management and non-pecuniary advantages, such as an
independent, interesting or ‘useful to society’ job, reduce stress levels
significantly.
·
Stress has a significant impact on absenteeism and people’s
intentions to leave their work. Individuals who report at least some stress in
their current position are 25% more likely to intend to quit than those without,
with the probability of intending to quit increasing with successively higher
job stress levels. Moreover, those individuals reporting at least some stress in
their current job are also overall 25% more likely to have taken periods of
absence from work than those without.
·
The implication is that policy initiatives that shifted all
individuals who report being ‘always stressed’ or ‘often stressed’ to
experiencing only ‘some job stress’ would stop 530,000 employees being
absent from work and retain nearly 1.3 million employees who would have left
their jobs otherwise. Since certain working conditions are stressful to most
people, there is therefore a case for greater emphasis on improving working
conditions and for job redesign in general as the key solutions in a primary
stress prevention strategy.
·
On
average, women report higher stress levels than men.
·
French, Canadian and Swedish workers are unambiguously the
most stressed among the 15 OECD countries. The Czechs, Danish and Swiss are
those with the least stress while one in seven Portuguese report being always
stressed; the corresponding number for Britain is one in 14.
Co-author of the research Dr Rannia Leontaridi
commented:
‘What employees and
government must come to realise is that work-related stress could inflict
serious financial damages on individual firms and the economy in general. The
emerging evidence indicates that work-related stress is a serious noxious
characteristic of the working environment impairing employee performance through
staff turnover and absenteeism. Its sources are intrinsic to the job itself, and
individual’s role in an organisation, as well as employee relations with
co-workers and management.’
ENDS
Notes
for Editors: ‘Dying to Work? An Investigation into Work-related
Stress, Quitting Intentions and Absenteeism’ by Rannia M. Leontaridi and
Melanie E. Ward was presented at the Royal Economic Society’s 2002 Annual
Conference at the University of Warwick. Leontaridi is at Stirling University
and CELMR; Ward is at IZA and CEPR.
For
Further Information: contact Dr Rannia Leontaridi on 01786-467480 (mobile:
0797-154-1247; email: m.r.leontaridi@stir.ac.uk);
or RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095
(email: romesh@compuserve.com).
THE
UK MINIMUM WAGE: NO ADVERSE IMPACT ON EMPLOYMENT
Prior to its introduction, gloomy predictions were
made in many quarters about the likely employment effects of the minimum wage.
But new research by Professor Mark
Stewart of the University of Warwick, presented at the Royal Economic
Society’s Annual Conference on Wednesday 27 March shows that many of these
forecasts have proved very wide of the mark. Careful examination of three large
nationally representative data sets reveals that the minimum wage has had no
significant adverse effects on employment.
The standard textbook treatment of minimum wages says
that the introduction of a minimum above the wage floor that would pertain in an
unregulated labour market will cause employers to reduce their demand for labour.
In other words, jobs will be lost.
A range of alternative analyses – based on
‘monopsony’ employers (monopoly purchasers of labour), ‘efficiency
wages’ and job search - have been suggested by economists, in which a minimum
wage may not lead to a decline in employment and employment may even increase.
While the simple demand curve from the introductory
economics textbook may explain what would happen in the market for potatoes, the
market for labour is much more complex. The purchaser of labour services is
faced with a more complicated process than the purchaser of potatoes. Even after
recruitment is complete, there are still costs associated with training,
motivating and retaining the workers hired. The introduction of the minimum wage
may reduce recruiting costs (more applicants attracted by the higher wage),
reduce staff turnover and hence cut training costs, and improve employee morale
and hence increase productivity. Once these factors are brought into the
picture, the effect of the minimum wage on employment is up for grabs.
Professor Stewart’s study uses longitudinal data
from three contrasting individual-level data sets: matched Labour Force Surveys,
the British Household Panel Survey and matched New Earnings Surveys. From these
data, he estimates the impact of the introduction of the UK minimum wage - in
April 1999 - on the probability of subsequent employment among those whose wages
would have needed to be raised to comply with the minimum.
A technique known as a ‘difference-in-differences’
estimator is used, based on employees’ position in the wage distribution. The
employment outcomes of those whose wages prior to the introduction of the
minimum are below the level of the minimum are compared with those initially
slightly above, and this difference is compared over time - pre- and post- the
introduction of the minimum wage - to net out other differences between the
groups. This ‘difference-in-differences’ is further adjusted for individual
differences in characteristics that might influence subsequent employment
prospects.
No significant employment effects are found for any of
the four demographic groups considered - adult men, adult women, young men and
young women - or in any of the three data sets.
ENDS
Notes
for Editors: ‘The Impact of the Introduction of the UK Minimum Wage on
the Employment Probabilities of Low Wage Workers’ by Mark Stewart was
presented at the Royal Economic Society’s 2002 Annual Conference at the
University of Warwick.
Stewart is Professor of Economics at the University of
Warwick.
For
Further Information: contact Mark Stewart on 024-7652-3043 (email: Mark.Stewart@warwick.ac.uk);
or RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095
(email: romesh@compuserve.com).
EVIDENCE
FROM IRELAND ON THE IMPACT OF A MINIMUM WAGE
The introduction of a minimum
wage in Ireland has at worst reduced employment by 5,000. But taking account of
the fact that low-wage workers in some firms would have experienced a wage
increase even in the absence of the legislation – ‘wage drift’ – the
minimum wage has had a larger negative effect on employment growth.
These are the key findings of new research by Donal
O’Neill, presented at the Royal Economic Society’s Annual Conference on
Tuesday 26 March. The results suggest that while the introduction of the minimum
wage may not have had significant effects on aggregate employment, it may have
reduced employment for the small number of firms most severely affected by the
legislation.
Prior to April 2000, minimum wages in Ireland were set
by Joint Labour Committees. But the wages specified in these agreements were
often quite low and covered less than a quarter of the workforce. Furthermore,
the level of enforcement was quite weak. On 1 April 2000, the Irish government
introduced a national minimum wage of £4.40 per hour for all adult workers aged
18 years or older, with a lower sub-minimum rate for those under 18 or in
training. At the time it was proposed, the national minimum wage corresponded to
approximately two-thirds of the median wage and estimates indicate that it would
directly affect about 15-20% of the
workforce.
In this study, O’Neill evaluates the impact of the
national minimum wage on wages, employment and non-employment outcomes using
data collected from a new survey of firms carried out before and after the
introduction of the minimum wage. The panel survey contains detailed information
on the employment structures and work practices of approximately 800 firms, as
well as subjective questions relating to the company’s attitude towards
minimum wage laws. The data span the introduction of the minimum wage
legislation and therefore make it possible to examine the consequences of the
legislation on wages, employment and work practices.
The survey results indicate that the vast majority of
firms seem to be complying with the legislation. In 1999, 21% of all workers
were being paid less than £4.50 an hour. But by the start of 2001
(approximately eight months after the legislation) only 4% of workers were
receiving wages at or below this level and some of these would have fallen under
the terms of the legislation.
To analyse the impact of the
minimum wage on employment, O’Neill began by looking at firms who were in
business prior to the minimum wage but who went out of business in the year
following its introduction. While it is clear from the data that these firms
were experiencing difficulties for several years prior to closing down, there
does not seem to be any relationship between the probability of closing down and
the firms’ exposure to the minimum wage legislation. In fact, the firms who
went out of business were over-represented among high wage firms and
under-represented among low wage firms.
For firms that remained in business, it is possible to
compare their employment patterns before and after the legislation. Comparisons
of employment growth of firms with and without minimum wage workers again
suggest that the introduction of the minimum wage had little effect on
employment over this period. At worst, the minimum wage is estimated to have
reduced employment by less than 5,000.
But these simple comparisons fail
to take into account the significant growth in wages that was occurring in
Ireland during this period. Low-wage workers in some firms would have
experienced a wage increase even in the absence of the legislation - wage drift.
It may not be appropriate to consider these workers as ‘minimum wage
workers’ even though their initial wages might indicate otherwise.
Adjusting the analysis to take
this into account reveals that the minimum wage has had a larger negative effect
on employment growth. This suggests that while the legislation may not have had
significant effects on aggregate employment, it may have reduced employment for
the small number of firms most severely affected by the legislation. This is an
important finding and is the first attempt to account for wage drift in minimum
wage analysis.
ENDS
Notes
for Editors: ‘Evaluating the Impact of a National Minimum Wage:
Evidence from a New Survey of Firms’ by Donal O’Neill was presented at the
Royal Economic Society’s 2002 Annual Conference at the University of Warwick.
O’Neill is in the Economics Dept, NUI Maynooth, Co.
Kildare, Ireland.
For
Further Information: contact Donal O’Neill on +353-1-708-3555 (fax:
+353-1-708-3934; email: donal.oneill@may.ie);
or RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095
(email: romesh@compuserve.com).
INTERGENERATIONAL MOBILITY IN BRITAIN HAS FALLEN
Where you come from matters more now than it did in the past, according to
new research by Jo
Blanden,
Alissa Goodman, Paul Gregg and Stephen Machin.
Their study of changes in intergenerational mobility, presented at the Royal
Economic Society’s Annual Conference on Tuesday 26 March, flatly contradicts
the common view that anyone can make it in modern Britain. Indeed, rather then
weakening, the link between an individual’s earnings and those of his or her
parents has strengthened. And an important part of the explanation is that the
expansion of higher education has benefited people from rich families much more
than those from poor families.
Connections between
children’s and parents’ economic success and failure have been studied in
many different ways and continue to attract widespread attention. It is
commonplace to see children of successful parents entering the same occupations
themselves (and usually doing less well than their parents). At the same time,
the ‘rags to riches’ stories of successful people from deprived backgrounds
remain newsworthy.
But little is known about
how these connections have altered through time. Sharp increases in educational
attainment and rises in earnings (and living standards in general) in more
recent generations mean that many observers seem to think that we now live in a
more mobile, meritocratic society than in the past. Contrary to this, this
research seems to show that where you come from matters more now than in the
past. It appears that the extent of intergenerational mobility has actually
fallen.
The research uses unique
data that follow two cohorts of children (one born in 1958, one born in 1970)
through childhood and into adulthood. The latest data, collected in 2000, make
it possible, for the first time, for researchers to get a good measure of the
adult earnings of the second cohort. The key findings are:
·
The connection between earnings and parental income has
strengthened for the more recent cohort. Estimates of the relationship between
childhood family income and son’s adult earnings show that for the 1958
cohort, a son from a family with twice as much income as a second family will
earn about 13% more in his early thirties than a son from the second family. In
the 1970 cohort, the same figure is 25%. Therefore, the degree of
intergenerational transmission has risen by 12 percentage points. Results for
daughters are very similar.
·
Part of the fall in mobility across generations is due to
the fact that the expansion of the higher education system has benefited people
from rich families much more than those from poor families. This is particularly
the case for daughters.
The results show that
differences in educational attainment across family background have led to a
decline in equality of opportunity. This is despite the large expansion in
post-compulsory schooling that occurred between the two cohorts. This may be
unexpected to some observers, who see great gains in education and earnings from
one generation to another and leave the story there.
But these gains have been
unequally distributed across society. The majority of beneficiaries have been
children from families who were already doing well. If, as seems to have
happened, able children from lower income families are excluded from the
expansion of education, this will lower national productivity and income in the
longer run.
The implication for
government policy is clear. If equality of opportunity is a serious goal of
government, it can be facilitated in a way that can enhance economic welfare via
policies directed at high ability children whose parents are doing less well.
ENDS
Notes for Editors: ‘Changes in
Intergenerational Mobility in Britain’ by Jo Blanden, Alissa Goodman, Paul
Gregg and Stephen Machin was presented at the Royal Economic Society’s 2002
Annual Conference at the University of Warwick.
Blanden is a member of the Centre for Economic
Performance (CEP) at the London School of Economics (LSE). Goodman is at the
Institute for Fiscal Studies. Gregg is at the Centre for Market and Public
Organisation at the University of Bristol. Machin is Professor of Economics at
University College London, Director of the DfES-funded Centre for the Economics
of Education and a CEP Programme Director at the LSE. During the 2001/2 academic
year, he is Visiting Professor of Economics at Massachusetts Institute of
Technology.
For
Further Information: contact Jo Blanden on 07881-953950 (office: 020-7955-7800;
home: 020-8674- 7917; email J.Blanden@lse.ac.uk);
Stephen Machin on +1-617-452-3388 (office) or +1-617-547-8212 (home) before 24
March or after 28 March (24-28 March: 07979-916702) and email s.machin@ucl.ac.uk
or machin@mit.edu); or RES Media Consultant
Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).
‘JUST LIKE
DADDY’:
To what extent to graduates in the UK follow in their
fathers’ footsteps when choosing a career and what impact does this have on
their earnings? New research by Arnaud
Chevalier, to be presented at the Royal Economic Society’s Annual
Conference this week, provides some facts and figures:
·
About 10% of UK graduates are in the same occupation as their
father 6 or 11 years after graduation.
·
The intergenerational link is even stronger for farmers - 35%
- and health professionals - 20%.
·
More generally, a graduate whose father was a professional or
an entrepreneur is between 20% and 30% more likely to be in the exact same
occupation as his or her father. This strong relationship holds for both sons
and daughters.
·
Men whose fathers were in the same occupation earn between 5%
and 8% more than other individuals in the same occupation. The gains from this
pay premium are the highest for legal professionals and financial professionals,
but not for farmers or health professionals. And there is no pay premium for
women.
·
As the pay premium for men increases with labour market
experience, it seems to stem from intergenerational transmission of human
capital rather than pure nepotism.
Chevalier notes that, to date, research has focused
on documenting intergenerational mobility in earnings - the relationship between
one generation’s earnings and the earnings of their offspring. This
relationship is usually found to be quite strong in the UK. Educational choice
has been thought has being the main driving force behind the intergenerational
mobility in earnings. But as Chevalier argues, the choice of occupation made by
the two generations may also have a significant influence.
Frequently, it is observed that children are in the
same occupation as one of their parents. These dynasties are observed across
time and countries and are more common in some occupations, such as politician,
entertainer, doctor, entrepreneur or farmer.
Three hypotheses can explain the choice of occupation
made by the offspring:
·
Nepotism, where the parents use their position in order to
obtain advantages for their children.
·
Reduced set-up costs when creating a new business.
·
Parents may transmit their ability to their children either
genetically or by transmission of human capital.
Chevalier uses data from a 1996 survey of individuals
who graduated from higher education institution in the UK in 1985 or 1990. These
individuals have been out of university for up to 11 years and can therefore be
considered to be in their ‘career’ occupation. Information is also available
on the occupation of the father when the respondents were 14.
The research first compares these two variables and
finds that 10% of graduates are in the same occupation as their father. The
intergenerational link is stronger for farmers (35%) and health professionals
(20%). More generally, a graduate whose father was a professional or an
entrepreneur is between 20% and 30% more likely to be in the exact same
occupation as his or her father. This strong relationship holds for sons and
daughters.
In a second step, the question of interest is whether
children who go into the same occupation as their fathers obtain some financial
gains. For women, there are no differences between individuals in the same
occupation one of whom followed in her father’s footstep and one who did not.
In contrast, men whose fathers were in the same occupation earn between 5% and
8% more than other individuals in the same occupation. The gains are the highest
for legal professionals and financial professionals, but not for farmers or
health professionals.
Finally, the research provides some tentative evidence
that these gains stem from similarities in the human capital of the fathers and
sons, explaining the similarities of their decisions rather than in nepotism.
ENDS
Notes
for Editors: ‘”Just Like Daddy”: The Occupational Choice of UK
Graduates’ by Arnaud Chevalier will be presented at the Royal Economic
Society’s 2002 Annual Conference at the University of Warwick on Tuesday 26
March. Chevalier is a researcher at the Institute for the Study of Social
Change, University College Dublin and at the Centre for the Economics of
Education, London School of Economics.
For
Further Information: contact Arnaud Chevalier on +353-1-716-4616 (email: a.chevalier@lse.ac.uk); or RES Media
Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).
FATHERS AND SONS: EARNINGS MOBILITY IN THE
In the United States, it has become less likely that
a son of a rich father will be rich or that a son of a poor father will be poor.
New research by Professor Angela Fertig
of Princeton University reveals that the extent to which an American father’s
economic status is transmitted to his son has declined within a single
generation. She presented the findings at the Royal Economic Society’s Annual
Conference on Tuesday 26 March.
Professor Fertig finds that a fall in a father’s
earnings, say because of a spell of unemployment, had a less detrimental effect
on a son’s adult earnings for those who lived in their father’s household in
the late 1970s than in the early 1970s. In particular, for the average son, if
the father experienced a 20% drop in average earnings while his son was living
at home in the early 1970s, his son’s average earnings 17 years later would be
10% lower than if the drop in average earnings had not occurred. But if the son
were living at home in the late 1970s, the 20% drop in the father’s average
earnings would only result in 4% lower average earnings for the son 17 years
later.
Although the transmission of economic status is
greater among the poor, this decline has been more dramatic for the poor than
for the rich. This means that the change in the effect of a drop in father’s
earnings on the son’s earnings was greater for those at the bottom of the
earnings distribution than at the top. The changing transmission of economic
status for the rich and poor is also apparent when comparing the estimated
probabilities of sons achieving their father’s status or better:
·
Sons of fathers who earned in the top 20% of the population
and who lived at home in the early 1970s had a 46% chance of earning in the top
20% of sons, while those who lived at home in the later 1970s had only a 44%
chance of doing the same.
·
On the other hand, sons of
fathers who earned in the bottom 20% of the population and who lived at home in
the early 1970s had a 48% chance of earning in the top 80% of sons, while those
who lived at home in the late 1970s had a 57% chance of achieving a higher
status than their father.
The findings provide two important insights:
·
First, just like the son of an exceptionally tall father is
likely to be shorter, particularly high or low earnings tend to move to average
levels across generations. The findings of this work indicate that the number of
generations over which the effect of an extremely high or low earner disappears
is decreasing.
·
Second, the weakening association between fathers’ earnings
and sons’ earnings implies that the transmission of inequality through
families was not the mechanism by which earnings inequality grew in the United
States. In other words, over the period in which inequality rose, the variation
in earnings became more dependent on other factors, like skills and job turnover
rates, and less dependent on fathers’ earnings.
What these results do not tell us is what is behind
this change. Growing equality of opportunity might have caused the change or the
change might be a signal of a declining influence of the family in the United
States.
ENDS
Notes for
Editors:
‘Trends in Intergenerational Earnings Mobility’ by Angela R. Fertig was
presented at the Royal Economic Society’s 2002 Annual Conference at the
University of Warwick.
Fertig is at Princeton University.
For
Further Information: contact Angela Fertig on +1-609-897-0691 (email: afertig@Princeton.edu); or RES Media
Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).
Last updated 12th April 2002