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The effect of postsecondary education on intergenerational income inequality

TitleThe effect of postsecondary education on intergenerational income inequality
Year of Publication2012
AuthorsPray, M. Connolly, and Lefebvre P.
Date Published25 Avril
InstitutionHuman Resources and Skills Development Canada (HRSDC)
CityOttawa, ON
Keywordschildren, éducation, family, income, inequality, occupations, parents, postsecondary education, skills, socioeconomic data

In this report, we investigate the intergenerational transmission of education, occupations and income using Statistics Canada's Youth in Transition Survey (YITS). We first find intergenerational elasticities (IGE) of years of education in the 10- to 14%-range for the YITS cohort A (age 25) and in the 8- to 11%-range for cohort B (ages 26 to 28). We also produce a short descriptive study of the transmission of occupations using transition matrices. We then study income transmission using the YITS cohort A. We find an overall IGE of income of 0.147 when using youth earnings at age 25 and parental income at youth age 15, with no other covariates. When controlling for a host of family background characteristics and other controls, the IGE drops to 10.6%. This number is very similar when looking at genders separately. We also find no evidence of a nonlinear relationship along the parental income distribution using fractional polynomial regressions. finally, we exploit a key feature of the YITS cohort A: the availability of PISA test scores in reading and math as indicators of cognitive abilities. Using these, we are able to decompose the total IGE into a part due to cognitive abilities, one due to education, and an unexplained part. Cognitive abilities explain very little of the IGE, mainly because the effect of test scores on youth earnings are not statistically different from zero when other factors are controlled for. For pooled genders, we find that education explains 15 to 18% of the estimated IGE and that 85% of mobility remains unexplained. There are marked gender differences however: education only explains 4 to 5% of the IGE for men, leaving almost all the mobility unexplained. For women, education explains 30 to 38% of the IGE, thus having a positive effect on the intergenerational transmission of income or a negative effect on mobility. Unexplained factors account for 63 to 70% of the IGE for female youth.

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