13/12/2016

Opinion

Only Half Of Children Earn More Than Their Parents - But Is Inequality Really To Blame?

#Economy

DEC 10, 2016 @ 12:41 PM

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Only Half Of Children

Earn More Than Their
Parents - But Is
Inequality Really To
Blame?
Tim Worstall, CONTRIBUTOR
I have opinions about economics, finance and
public policy. FULL BIO
Opinions expressed by Forbes Contributors are their own.

Continuedfrompage2
However, I would argue at least a little bit
about whether it is inequality driving this.
For I would point to two other things
which would produce the same result. The
first is the purely cyclical issue that we've
just had a whacking great big recession.
The worst of modern times in fact, by a
long way. This is obviously going to have
an effect upon incomes and it's going to be
incomes of the young, those starting out
on careers, which will be hardest hit.
That's just the way these things work.
Given the severity and length of that
recession the earnings capabilities of those
who were in their 20s during the
aftermath, that is the last 8 or so years of
their series, are going to be depressed.
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Only Half Of Children Earn More Than Their Parents - But Is Inequality Really To Blame?

That doesn't change their figures in the

slightest, it's just an explanation for some
of it.
The other thing is a structural change in
how careers are organised these days.
those born in 1940 entered the workforce
(hmm, perhaps working age population is
better) in 1958, when some 10% of men
had college degrees (that's of the total
population)
and 6% of women. Those born

in 1985 or so, and thus near the last part of
their data set, entered the workforce in
2003, when 30% of men did and 25% of
women. And there's a basic stylised fact
about professional as opposed to blue
collar careers. It takes longer to reach peak
earning potential but that peak is higher.
It does though come later in life.

So, if we have a working population that

generally starts work at 18, and works in
blue collar occupations, then we compare
it against a college educated population,
generally working in white collar
occupations, then we would expect the
earnings peak to be both higher and later
in life in that second population. This is
true if we divide one age cohort into those
two groups or if we look at populations
separated by time. And I would absolutely
insist that there is some influence of this
in the numbers Chetty etal are studying.
How much, as I say, I don't know, no one
does at present.
Finally, the thing that makes me very
nervous indeed of accepting the inequality
argument as the only explanation is this:

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Recommended by Forbes

Silicon Valley Is
Hard At Work
Solving The
Wealth
Inequality
Problem

Recessions
Reduce
Inequality Says
OECD - So Why
Not Have
Recessions To
Reduce...

That's household income, not individual,

it's market income and so doesn't reflect
how we've changed welfare over these
years. But still, I find it very difficult to
believe that a 10 percentage point change
in the Gini is going to lead to a 40%
change in the number of children who
outearn their parents. I don't really see
how one can lead to the other. I can see
how one can and will lead to part of the
other, sure, but that mismatch makes me
think there's something else at work here
to. Like either or both of the above ideas
and no doubt some others that I'm not
bright enough to think of.
Perfectly willing to agree that inequality is
part of this story, finding it very hard to
believe that it's all of it.
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