Evan Soltas
Mar 21, 2013

Intergenerational Inequality

Here's some food for thought, in chart form. All of the data is from the General Social Survey.**

If your father didn't graduate high school, then you are 8 times more likely not to graduate high school than if your father did. If your father graduated college, then you are 3 times more likely to graduate college than if your father didn't.

You would think this would be a result of income inequality. Fathers who don't graduate high school, with children who don't either, tend to be much poorer than fathers who have, with children who have. That's true.

But you'd be wrong to think that this effect is largely explained by income. It's not. Intergenerational inequality in educational attainment persists after adjustment for income inequality.

Here's a graph of educational attainment by real income. Sorry about the x-axis labels; I can't figure out how to fix that. The scale runs from zero to approximately $180,000, with income rising steeply in the fourth quartile. Let's just stop for a minute to observe the graph. Notice that college graduation rates are approximately 10 percent until the midpoint -- and the high school dropout rate is close to 50 percent -- that's the $20,000 mark, roughly speaking. The peak of high school degrees occurs at the 75 percentile -- that's the $50,000 mark. Note how concentrated college degrees are at the top end of the income distribution.

OK, here's the terrifying part about intergenerational inequality. I'm going to divide the sample which you see graphed above into three groups: (1) people whose fathers did not graduate high school; (2) people whose fathers did graduate high school but not college; and (3) people whose fathers graduate high school and college.

What I want you to observe is the striking difference in educational attainment regardless of income level. And what you should realize is that inequality is, on balance, way more of an intergenerational phenomenon than one determined by current-generation income.

Group 1: People whose fathers did not graduate high school

Group 2: People whose fathers did graduate high school but not college

Group 3: People whose fathers graduate high school and college

The data suggest inequality is a problem of families, not of individuals. Even among the poor, basically every person whose father graduated college graduates high school themselves, and 40 percent or so graduate college. Whether your father graduated high school is much, much more predictive of whether you have than how much you make.

Without tempting the Lucas critique,* I would suggest that these results can be exploited by policy.  The value of a high school or college degree is not just the value of that person holding the degree. It's the geometric sequence of that person and all of the succeeding family members who earn degrees because of him.

Here's why that math is important. The high school dropout rate among people whose fathers were dropouts is 22.2 percent. The dropout rate with high-school-grad fathers is 2.9 percent. Let's assume that the social value of a high school degree is $30,000 per graduate; that's roughly the difference in average income between non-grads and grads. Public policy that supposes they are helping one person assesses the value of that degree at $30,000, obviously. Public policy that supposes they are helping an infinite succession of people assesses the value of that degree at $819,000.

(For math people, that is the difference in the sums of the geometric sequences of 30,000 * .971^n and 30,000 * 0.88^n, plus 30,000 for the original degree. The intuition here is that "one degree" is not really one degree, but 27 degrees because of the effect on the likelihood of future degree holders.)

We'd do a lot more on education policy margin, clearly, if we thought that the value of a degree was $819,000 rather than $30,000.

I know, I know -- intergenerational inequality is a very uncomfortable subject for Americans. But we need to talk about it more. Only when we recognize that the Dream is largely hollow can we begin to do something about it. Progressive taxation is no substitute for real policies to address intergenerational inequality. We need to have a conversation about how we achieve increases in the high school graduation rate and the college graduation rate, as well as all of the variables which impact those rates, such as household breakup, crime, lead, etc.

* The reason I'm not running into Lucas critique territory is because I think these results are micro-founded. My view is that education actually changes the expected utility functions of the agents to favor education.

** For the people who want to do more research, the relevant database queries are DEGREE, PADEG, and CONINC.