Comparable Estimates of Intergenerational Income Mobility in Italy

Transcription

1 Comparable Etmate o Intergeneratonal Income Moblty n Italy Patrzo Prano 1 Unverty o Sena Aprl, 2006 ABSTRACT: Th paper add to the nternatonal lterature on the extent to whch economc tatu paed on acro generaton. Retropectve normaton n the Bank o Italy repeated croecton urvey may be exploted by applyng a two-ample two tage leat quare etmaton. We etmate the ntergeneratonal ncome elatcty or Italy. From an overall comparon, the evdence provded n th paper hnt at Italy n the low-moblty group among advanced ocete n the range o value ound n the US and the UK. The analy o the reult allow a characterzaton o the man pattern n the tranmon o economc tatu n Italy. We nd that only a mall racton o the ntergeneratonal coecent accounted or by the uperor educatonal attanment o rcher chldren. JEL Code: J62; D31 Keyword: Intergeneratonal ncome moblty; two ample two tage leat quare, moblty pattern. 1 [email protected]. I would lke to thank Sam Bowle, Mamo D Matteo, Nathan Grawe and Bob Haveman or valuable advce and Franceca Betto or a contructve and nghtul dcuon. Semnar partcpant at the MEA conerence n Chcago and at IZA n Ammeree provded helpul comment. The paper wa completed when the author wa a vtor at the Inttute or Reearch on Poverty at the Unverty o Wconn-Madon, whch conttuted an excellent reearch envronment. Error are mne. 1

2 1. Introducton A large body o ocal cence reearch ha long quetoned whether all ndvdual have the ame opportunty to acheve ocal and economc ucce rrepectve o ther parent tatu. A rapdly expandng nternatonal lterature ha been nvetgatng the degree to whch oco-economc tatu paed on between generaton. Recent revew o the latet eort by both economt (ee Solon, 2002; Corak, 2004) and ocologt (Breen, 2004; Breen and Jonon, 2005) nd gncant derence n the degree o nequalty pertence acro countre. Economt have tended to chooe ncome or earnng a the preerred dmenon along whch to characterze one poton. The ncreang lterature ha hed lght on a number o problem wth correctly denng and meaurng ntergeneratonal moblty when ocung on th partcular ndvdual dmenon o ocal tatu. One crteron ha been the etmaton o ngle-number expreon or level o moblty, n the orm o degree o aocaton o the economc outcome o an ndvdual wth h/her amly background. Th can be done, or ntance, by tudyng the relatonhp between the economc outcome o member o the ame amly n derent generaton. Whle mot o the lterature regard the Unted State, a number o tude have been devoted to the analy o the tranmon o economc tatu n other countre (among other: Brtan, Germany, Canada, Sweden, South Arca). Internatonal tude are mportant not only or the natural nteret n characterzng an mportant acet o a country ncome nequalty but alo becaue comparon between countre can contrbute to an undertandng o the mechanm underlyng generatonal ncome moblty. How are countre wth derent nttutonal ettng n the labour market, derent educatonal ytem and derent level o cro-ectonal nequalty dong n term o ntergeneratonal moblty? In th perpectve, Italy certanly repreent an nteretng cae or comparon: t labour market condered to be heavly regulated, wth arly centralzed wage-ettng nttuton and a hgh proporton o t workorce covered by collectve barganng; the 2

3 chool ytem extremely centralzed and egaltaran; the level o cro-ectonal ncome nequalty lower than n the Unted State but hgher than mot Wetern European countre (Brandoln and Smeedng, 2005). Beng notably characterzed by lmted avalablty o data, Italy ha receved relatvely lttle attenton n the economc lterature. Lack o data ha contraned prevou tude to ocu on meaure o oco-economc condton uch a occupatonal cla or educatonal attanment. In a wdely quoted tudy, Checch et al. (1999) nd that ntergeneratonal moblty between occupaton and between educaton level n Italy lower than n the Unted State. Internatonal comparon by ocologt ndcate that Italy dplay low level o ntergeneratonal moblty n term o ocal ludty (Breen, 2004). Takng advantage o recently developed emprcal method ued to overcome mlar data lmtaton n a number o other countre (Bjorklund and Jannt, 1997; Dunn, 2004; Ferrera and Veloo, 2004; Grawe, 2004; Leranc and Trannoy, 2005), we are able to produce new nternatonally comparable etmate o the degree o ntergeneratonal moblty n Italy. The evdence eem to conrm the extence o conderable ntergeneratonal economc pertence. The magntude o the etmate are wthn the range o value ound n the leat moble advanced countre (Brtan and Unted State) and notceably hgher than thoe etmated n the Scandnavan countre. 2 The ret o the paper proceed a ollow. Secton 2 preent the bac econometrc model o the ntergeneratonal tranmon o economc tatu and outlne the emprcal method ued or the etmaton. Secton 3 decrbe the data and the proce o electon o the obervaton nto the nal ample. Secton 4 preent and dcue the etmate. Secton 5 conclude. 2 The ndng o hgh pertence corroborated n a contemporaneou and ndependent work by Mocett (2006), who nvetgatng ntergeneratonal moblty n Italy ung method mlar to thoe preented n th paper. The preent paper tll unque n the drect comparablty o the ample ued to thoe o other tude, the analy o tranton probablte among ncome clae, and the aement o the educaton channel n the tranmon o economc tatu. 3

4 2. Meaurement Iue and Methodology 2.1 Econometrc Model and Prevou Lterature When attemptng an emprcal analy o the degree o ntergeneratonal economc moblty, a large number o economc reearche have looked at meaure that ummarze n a ngle number the jont dtrbuton o ncome at two pont n tme. I meaure o the long-run economc tatu o on and ather, then the ntergeneratonal relatonhp can be peced a: Y a Y the correpondng value or Y = α + βy + ε (1) From whch t evdent that β can be nterpreted a a ummary meaure o the degree o ntergeneratonal pertence. Converely, 1 β can be thought o a a ummary meaure o ntergeneratonal moblty. 3 In order to etmate the relatonhp, a meaure o the long-run economc tatu a well a a combnaton o repreentatve o two derent generaton needed. Mot author ue ncome or earnng a preerred meaure o economc tatu, whle ather and on are predomnantly choen to repreent the two ucceedng generaton. The tandard lnear equaton (1) the bae o mot emprcal work n the economc lterature. Typcally, a regreon o a logarthmc meaure o on ncome on a logarthmc meaure o ather ncome perormed. Then, the coecent β termed the ntergeneratonal ncome elatcty etmated by applyng ordnary leat quare (OLS). By contructon, the elatcty β wll ndcate the percent derence n on ncome oberved or each 1 percent derence acro the ncome o the ather. Concevably, any real number could be obtaned rom the etmaton o equaton (1); a negatve value would ndcate a tuaton where chldren o parent who were hgh n ther dtrbuton o ncome tend to be low n ther own generaton dtrbuton. On the contrary, a potve value would ndcate ntergeneratonal pertence o ncome where 3 See Bowle and Gnt (2002) or a poble dervaton o the above ormulaton. Note that the elatcty β der rom the ntergeneratonal correlaton coecent r. The correlaton the regreon coecent multpled by the rato o the tandard devaton o ncome n the two generaton: r = β (σ / σ ). 4

5 hgher parental ncome aocated wth hgher chld ncome. In act, all emprcal tude n the rch countre have ound β to le between zero and one. Wthn th range, regreon to the mean occur, but at a rate nverely proportonal to β. The extng evdence can be broadly plt nto two major wave. The earler tude on the ue reulted n etmate o β at around 0.2, leadng to the concluon that advanced countre were characterzed by trong moblty. It well recognzed that the earler lower etmate rom thee tude were baed downward by two major problem (Solon, 1999). Frt, they reled on ngle-year meaure o ather ncome whch, becaue o both repone error and trantory luctuaton, repreent an erroneou proxy or permanent tatu. The econd major problem o ome earler tude depended on the ue o partcularly homogeneou ample whch naturally tended to underetmate the degree o ntergeneratonal pertence. Aware o thee two problem, emprcal tude n the 1990 baed ther analy on longtudnal ample and ued repreentatve data. By averagng ather earnng over more than only one year (generally ve year) thee tude reported etmate o the elatcty contently above the prevou one (Table 1). An alternatve trategy or dealng wth meaurement error n ncome to reort to ntrumental varable (IV) etmaton. Th approach cont o ung one or more varable to ntrument or ather ncome or earnng (the mot common varable are occupatonal tatu and educaton). Preence o meaurement error n the ntrument doe not ntroduce ncontency n the IV etmaton, a long a the meaurement error uncorrelated to the error term n the regreon equaton. A eparate problem concern the poblty o ntrument beng correlated to on economc tatu ndependently o ather ncome (e.g. ather educaton). A ormally detaled n Solon (1992), the ntrument have a eparate potve mpact on the dependent varable an upward ba n the IV etmator wll derve. Etmate o the ntergeneratonal elatcty alo vary wth the age at whch economc tatu or both ather and on oberved (le-cycle ba). In partcular, there eem to be a downward ba or thoe etmate baed on meaure o on earnng taken at early tage o ther career and on mature ather rather than young ather (Grawe, 2006; Revlle, 1995). Th due to the act that ndvdual wth hgher long-run earnng wll experence a ater growth o ther earnng compared to thoe wth lower 5

6 long-run earnng. Thereore, there wll be greater dperon n ncome later n the le cycle. Keepng the varance n ather earnng contant, the reultng on varance wll be maller n earler year o ther career, caung a downward eect on the ntergeneratonal elatcty etmate. Smlarly, when conderng mature ather, a larger varance n ather earnng mut explan the ame varance n on earnng and the etmated degree o pertence all. Table 1. Selecton o nternatonal tude ung longtudnal data Country Study Elatcty Etmaton Method Unted State Solon (1992) Solon (1992) OLS IV Son age (average or range) Father age (average or range) UK Dearden et al. (1997) 0.58 IV Germany Wegand (1997) 0.34 OLS Canada Corak and Hez (1999) 0.23 OLS Sweden Oterberg (2000) 0.13 OLS Fnland Oterbacka (2001) 0.13 OLS Source: author electon rom the revew n Corak (2006) or the countre havng a longtudnal data et. Stude are choen on the ba o meaurement error correcton (mult-year meaure o ather ncome or ntrumental varable) and age range Methodology ued or etmatng β n Italy The procedure by whch the reult n Table 1 are obtaned are not drectly applcable to the cae o Italy. Lke mot countre, Italy doe not have a long enough ntergeneratonal panel that permt the explct obervaton o ather-on par. However, repeated cro-ecton rom houehold urvey can repreent a good alternatve, n that one can explot retropectve normaton on parental background by on. Among the parental charactertc reported by on t common to nd occupatonal tatu, level o educaton and other demographc charactertc. Thee varable can be ued to ner ncome rom a ample o older men (peudo ather) and thereby to etmate 6

7 ntergeneratonal correlaton. Th procedure a pecal cae o the two ample ntrumental varable (TSIV) technque examned n Angrt and Krueger (1992) and Arellano and Meghr (1992). Bjorklund and Jantt (1997) rt appled th methodology to ntergeneratonal moblty etmaton (wth Swedh and US data). They perormed a two tage regreon baed on two ample: a ample o on who have reported ther ather oco-economc charactertc and a ample o adult men (peudo ather) whoe age content wth that o the actual ather. Once the ample are elected, the tep requred or th emprcal trategy are the ollowng: () etmate an ncome equaton rom the older ample; () ue the etmated coecent to predct ather ncome on the ba o on report; () regre on ncome on the predcted ather ncome. gven by: Let the relaton between ather current ( Y ) and permanent ncome ( Y t ) be Y = Y + e (2) t t where Let et nclude both meaurement error and trantory luctuaton n current ncome. X be a vector o tme-nvarant charactertc o ather a recalled by ther on and conder ather permanent ncome a determned by the ollowng relaton Y = λ X + υ (3) wth υ and X ndependent. Subttutng nto equaton (2) gve Y = λ X + υ + e (4) t t SnceY t cannot be drectly oberved rom the ample o on, an etmate o λ obtaned by regreng equaton (4) ung the dtnct ample o peudo ather. The coecent λˆ thu obtaned wll permt a predcton o ncome or the actual ather, 7

8 Y ˆ = λˆ X. The tandard lnear ntergeneratonal regreon then perormed on ather predcted ncome Y t = α + βyˆ + ω (5) t where ω = ε + + βυ + βx ( λ ˆ λ) t e. 4 t The tude o ntergeneratonal moblty that have ued th approach (ee Table 2), provde etmate o β baed on the etmaton o equaton (4) and (5) rom eparate ample. Inoue and Solon (2005) reer to th procedure a a computatonally convenent two ample two tage leat quare (TS2SLS) varant o Angrt and Krueger etmator. By analyzng the properte o the two etmator, they how that the commonly ued TS2SLS etmator more aymptotcally ecent than the TSIV etmator becaue t mplctly correct or derence n the emprcal dtrbuton o the ntrumental varable between the two ample. Table 2. Extng nternatonal tude ung two-ample procedure Country Study Elatcty Son age (average or range) Father age (average or range) Unted State Bjorklund and Jantt (1997) a Sweden Bjorklund and Jantt (1997) France Leranc and Trannoy (2005) Brazl Dunn (2004) Ferrera and Veloo (2004) (wage) Source: tudy data rom Corak (2006) and ndvdual paper. a Lower etmate obtaned not controllng or age o both ather and on Equaton (5) reult rom equaton (1), (2) and (3) aumng that current and permanent ncome are related n a mlar way or on. 8

9 Lke the tandard IV procedure, the method mot vulnerable one o the predctor o ather' ncome tel a predctor o on' ncome. Bjorklund and Jantt (1997) compare ther two ample two tage etmate or the US wth the value ound by averagng ather earnng over ve year on a data et n whch they alo have real ather. The US elatcte between on current earnng and the ve-year average o ather earnng are very cloe to thoe o Solon (1992) and are lower than the TS2SLS etmate ( compared to ). They ugget nterpretng thee two meaure a lower and upper bound, repectvely, o the true value o the ntergeneratonal elatcty. However, Mazumder (2005) how that even a ve-year average o ather ncome can tll caue a erou downward ba n the etmated value, uggetng that the true value o the parameter or the US about 0.6 (when averagng ather ncome over the longet perod, 16 year). On the ba o h tudy, we cannot conclude that the procedure ued n th paper overetmate the true value o the ntergeneratonal coecent n Italy. The etmated value n Table 2 conrm the derence n moblty level between Sweden and the US hown n the prevou table, and pont at France a a ort o ntermedate cae. Alo, the reult or Brazl are content wth the conjecture o tronger ntergeneratonal pertence n le developed countre (ee Solon, 2002). 5 An alternatve etmator obtaned by predctng ncome or both ather and on. That, one can run the regreon Y = θ Z + υ + e (6) t t and then ue the predcted value rom the ollowng equaton Y ˆ = θˆ Z to calculate the ntergeneratonal coecent Yˆ = α + β Yˆ + ψ 1 (7) 5 Alo Grawe (2004) apple a two-ample method n h eort to provde rt evdence on our countre o the le developed world: Ecuador, Nepal, Paktan and Peru. Snce thee countre only have a ngle cro-ecton urvey, he propoe a dvon o t accordng to the age o repondent o that two ample can be ormed: one wth ather and one wth on. 9

10 Note that Z repreent the vector o obervable oco-demographc charactertc ued a predctor o ncome n the ample o on. Typcally the coecent β 1 rom equaton (7) wll der rom β obtaned by etmatng equaton (5). β 1 wll meaure the degree to whch the oberved component n the permanent ncome o ather ( X ) and on ( Z ) are aocated. We expect β 1 to be maller than β n the preence o a potve aocaton between ather oberved charactertc and the unpredcted part o on ncome. Dearden et al. (1997) and Bjorklund and Jantt (1997) do ndeed nd lower value o the ncome elatcty when ung the predcton approach. 6 Fnally, Italan data alo permt to perorm a drect OLS etmaton relyng on contemporaneou ncome report by co-redng ather and on. Obvouly, th ample wll be maller and le repreentatve o all ndvdual, pobly leadng to dplay a derent ntergeneratonal ncome aocaton than would a more repreentatve ample. Generally, the ue o ngle-year meaure o ather ncome, the obervaton o relatvely younger on and o older ather wll tend to underetmate the true ntergeneratonal coecent. For co-redng par, we regre the natural log o on ncome on the natural log o ather ncome wth control or age and age quared or both ather and on, a hown by equaton (8). Y t α β Y α age α ageq α age α ageq + ε = t (8) I wll nterpret the etmate obtaned rom th procedure a provdng a lower bound to the true ntergeneratonal ncome elatcty. 3. Data and Sample Selecton In th paper, we ue data rom the Bank o Italy Survey on Houehold Income and Wealth (SHIW), a natonally repreentatve houehold urvey baed on a random ample 6 They alo provde a ormal dcuon o the two etmator. 10

11 o approxmately 8,000 houehold per year that avalable rom 1977 annually and at odd year ater The SHIW the only ealy acceble ource o mcro data on ncome that pan over th long perod. Brandoln (1999) decrbe Italan data ource and conclude that the SHIW tll repreent the bet ource o ncome dtrbuton n Italy. In order to enhance comparon over tme, the Bank o Italy ha contructed a Htorcal Databae, elaboratng data rom the 1977 urvey and addreng the numerou change the SHIW quetonnare ha undergone over the year (D Aleo and Gallo, 1997; D Aleo, 1997). In the recent wave o the urvey, head o houehold are aked to report ome charactertc o ther parent when they were the ame current age o the repondent among whch there are year o brth, educatonal qualcaton and employment tatu. All ncome recorded net o taxe and ocal ecurty contrbuton, wth eparate record or each recpent along wth bac ndvdual charactertc uch a age, ex, educaton, work tatu and employment ector. In what ollow, we wll ue annual dpoable peronal ncome rom the htorcal databae. Th nclude earned ncome rom wage, alare, and el-employment and other cah ncome rom property, but doe not nclude ncome rom nancal aet. Th ncome denton narrower than total market ncome (dened a beore tax ncome rom all market ource), and broader than earnng Sample electon The ample o ather taken rom the urvey conducted n 1977, whch the oldet wave o the SHIW avalable. The electon o ather nto the nal ample tre to ollow the tandard procedure adopted n mot o the mlar tude o economc moblty. We conder employed male who are head o houehold and ather o at leat a co-redent chld. We nclude all ather aged 30 to 50 (.e. born between 1927 and 1947). Followng the majorty o prevou tude, ndvdual who report a non-potve ncome are excluded, or a nal rt-tage ample o 953 ndvdual. 7 Prevou tude have ound evdence o hgher ntergeneratonal coecent or broader ncome concept, a predcted by theory. See Mullgan (1997), Corak and Hez (1999) and Mazumder (2005). 11

12 The ample o on taken rom the 2002 SHIW. They are male head o houehold aged 30 to 45, whoe ather were born between 1927 and Content wth tude o moblty n other countre, we conder employed ndvdual wth potve ncome and a report o ther ather oco-demographc charactertc or a nal ample o 612 on. Table 3 report decrptve tattc or both ample and the magntude o ample excluon n the populaton under conderaton. We note that once the tandard ample excluon are made, ndvdual eem to mantan mlar charactertc compared to the reerence group. Selected on appear to have hgher level o ncome wth repect to all male n the ame age range, but the derence are not tattcally gncant. Table 3. Decrptve tattc or elected ather and on Peudo-Father (1977) Son (2002) All Male n 1977 Selected ample All Male n 2002 (whoe ather were born b/w ) Selected ample N mean age (4.99) (4.99) (4.13) (4.13) mean log ncome 9.65 (0.53) 9.69 (0.50) 9.87 (0.56) 9.93 (0.47) Note: Standard devaton n parenthee. Income n 2002 Euro, delated by the conumer prce ndex Frt tage varable To perorm the rt two emprcal etmaton decrbed n ecton 2, we need a et o obervable varable rom the recall normaton n 2002 that we can ue n the rt tage ample or predctng ather ncome. We ue the ollowng categorcal varable: educatonal attanment; work tatu; employment ector and geographc area. 8 Inormaton on educaton n term o maxmum educatonal achevement. There are x categore: no chool (le than one year o choolng); elementary (ve year); lower 8 Mot mlar tude have ued one or more o thee varable. 12

13 econdary chool (eght year); hgh chool (thrteen year); bachelor (eventeeneghteen), and pot graduate tude (more than eghteen year o educaton). Contrary to mot mlar tude, the occupatonal categore are not recoded ollowng a ocal cla chema. A noted by Checch and Dardanon (2002) the SHIW data doe not provde a detaled clacaton o occupatonal tatu, makng t dcult to contruct a rankng o occupaton baed on ocal pretge or any other ocal gradng. Furthermore, the detal o normaton on work tatu and ector o actvty n the ather ample doe not perectly match wth the charactertc on are aked to report n In order to perorm the analy, we rearrange the more daggregated normaton on work tatu reported by the chldren to be comparable wth the avalable clacaton or parent. A mlar rearrangement eectuated or the varable employment ector where on report are le detaled than the normaton drectly oberved rom ather. A a reult, baed on the avalable normaton, we obtan our work tatu categore (blue collar, oce worker/teacher, manager/proeonal/entrepreneur, el-employed) and our ector o employment (agrculture, ndutry, publc admntraton, prvate ervce). The lat varable a geographc dummy, whch ndcate whether the ather wa redng n the South. 9 The relatonhp between the obervable charactertc and ncome n the peudo ather ample aumed to be vald or the true ather. Snce th cannot be vered, we check the dtrbuton o the charactertc el-reported n the 1977 ample content wth the dtrbuton o the charactertc reported by the on. Table 4 compare ather own reported charactertc wth on report. The dtrbuton appear to be content. The extng derence are o the ame nature ound n prevou tude that ue th technque. In partcular, peudo-ather have, on average, hgher choolng and more klled occupaton than the actual ather. Typcally, thee dcrepance are acrbed to derental chldbearng accordng to 9 We nclude th varable n order to account or the well-known geographc dparte n Italy. Conderng a larger et o geographcal area only ha a mnor mpact on etmate. Whle we can oberve drectly the area o redence n the ample o peudo-ather, we do not have the ame normaton or the actual ather. We ue on place o brth a a proxy or the geographc area where the on were manly lvng when they grew up. 13

14 occupaton and educatonal attanment. 10 Inoue and Solon (2005) note that the TS2SLS etmator correct or derence between the two ample n the dtrbuton o the obervable charactertc. Table 4. Decrptve tattc or ather and peudo-ather. Mean Age Educaton Son report o ather charactertc (5.18) Father own report o ther charactertc (4.98) None Elementary lower econdary hgh chool Bachelor Work Statu blue collar oce worker & teacher manager/proe/entrepr el-employed Work ector agrculture ndutry publc admntraton prvate ervce Area north/centre outh Note: All requence are weghted ung amplng weght 10 To the extent that ather wth many on are over-repreented n the ample o on, the derence are to be expected when occupaton and educaton are correlated wth the number o on. 14

15 3.3. Co-redng ample The drect OLS etmate or co-redng ather-on par obtaned rom a derent ample. We contruct a ample o 231 par rom the 2002 urvey among thoe ndvdual who were employed and reportng potve ncome. Table 5 report ummary tattc or elected ndvdual. Table 5. Charactertc o co-redng ample 2002 Father Son N mean age (5.78) (4.29) mean log ncome 9.97 (0.55) Note: Standard devaton n parenthee (0.58) The ample mean age or on n , whle the ample mean age or ather around 53. Becaue on are oberved at an earler tage o the le cycle ther mean ncome lower. Compared to the prevou ample, thee on are younger and ther ather are older. On the ba o the extng lterature, both age derence are lkely to caue lower etmated value or β. 4. Emprcal reult 4.1. Regreon reult Table 6 report regreon coecent or the ntergeneratonal ncome equaton or Italy. The value hown are the reult o the etmaton o equaton (1) under the three meaurement procedure outlned n ecton 2. Frt-tage etmate o ather ncome are hown n table A1 n the appendx. 15

16 In the lght o the coecent reported n Table 6, ntergeneratonal pertence o economc tatu n Italy appear to be hgh and gncant. 11 The TS2SLS etmate o β or dependng on whether or not we control or age o both ather and on. Broadly peakng, th ndcate that about hal o the economc advantage o Italan ather paed on to ther chldren. A expected, the value obtaned predctng ncome or both generaton are lower: Both par o value are o a mlar magntude o thoe ound n the US by Bjorklund and Jantt (1997) ung the ame technque. 12 Table 6. Etmated Intergeneratonal Elatcty n Italy Technque uncorrected or age corrected or age 1. TS2SLS (0.076) 2. Predcted ncome (0.059) (0.071) (0.059) 3. Co-redng (0.082) Note: Boottrappng tandard error are n parenthe. Income are predcted by educatonal, occupatonal and geographcal dumme. I check thee reult agant varou entvty tet. Table A2-A5 n the appendx how the reult rom a number o alternatve regreon etmatng the coecent n row 1-2. Choong derent year or ather ncome doe not gncantly alter t 11 To calculate tandard error, we ue the boottrap procedure. Frt, we draw a boottrap rt-tage ample o ather, rom whch we etmate the parameter ued to generate predcted ncome. Then a boottrap ample o on drawn and ued or runnng the econd-tage regreon on ather predcted ncome. Ater repeatng th proce 1000 tme, the boottrap tandard error etmated by the tandard devaton o the dtrbuton o the boottrap etmate. 12 Ther TS2SLS value are , whle the etmate obtaned by predctng both ncome are Note that ther correpondng value or Sweden (uncorrected or age) are and repectvely. 16

17 eect on on ncome (Table A2, upper panel). Coecent do not dratcally vary ether when ung on rom the 2000 urvey wave (Table A2, lower panel). I anythng, the etmate rom the elected par o year ( ) are lghtly lower than the averaged value acro the alternatve regreon. Reult dd not dramatcally change or mnor varaton o the age at whch we oberve on (Table A3) and were not entve to a rough correcton or under-reportng o el-employed ncome (table A4). 13 Somewhat more varaton ound when we tet or derent et o predctor o ncome. However, even n a lghtly larger range o value, the reult tll pont to low level o overall moblty n Italy (Table A5). Returnng to Table 6, the coecent n row 3 obtaned orm the etmaton o equaton (8) ung the maller ample o co-redng ather-on par n We conrm our expectaton o lower etmate when ung ngle-year meaure o ather ncome, relatvely younger on and older ather. A a check, we contruct a mlar ample or the year 2000 and we nd a very mlar value (0.336). The etmate have to be treated wth cauton, however, gven that the ample are pobly unrepreentatve o the reerence populaton Tranton Matrx An alternatve way to characterze ntergeneratonal moblty provded by tranton matrce. Th approach rele on dcrete categorzaton and nvetgate the condtonal probablte o tranton among ordered ncome quantle/group. We contruct our ncome clae or both ather and on: () low-ncome, whch nclude ndvdual wth ncome below two-thrd o the medan; () lower-mddle, rom hgher ncome up to the medan; () hgher-mddle, or ncome rom the medan to 150% o the medan, and (v) hgh-ncome, or the ret o the ndvdual. Table 7 gve the racton o on n each ncome cla gven the predcted cla o ther ather. The normaton n Table 7 enable to nvetgate about the drecton and the pattern o moblty n a way that cannot be accomplhed by mean regreon meaure. We note the extence o a wealth trap, wth rcher people beng very lkely to pa on ther 13 Followng Checch and Dardanon (2002), we reve ncome rom el-employment upward by 40%. Th the dcrepancy o el-employment gure wth correpondng value baed on natonal account averaged over the perod

18 economc tatu to ther chldren. The probablty to move up to medan ncome or hgher rom the bottom 28.5% agant a probablty o 86.02% to be there rom the top; the probablty o a movement rom the lowet cla to the hghet only 8.63%. Stated derently, tranton rom rag to rche ar rom a credble poblty or mot lowncome Italan. Poorer ndvdual have hgher chance to move upwardly n the lower part o the matrx o that the pertence n the rt cla not partcularly hgh. The overall pcture emergng rom the above matrx content wth the ndng o Checch et al. (1999) baed on derent data and a derent analytcal procedure. Table 7. Tranton Matrx by Income Clae Son Lowncome Lower Hgher Hgh- Father mddle mddle ncome Lowncome Lower mddle Hgher mddle Hghncome Note: Value expreed n percentage Famly background and educatonal attanment Conderng the way hgher educaton nanced n Italy, hgh level o economc pertence may appear a a rather urprng reult. In Italy, acce to hgher educaton by poor amle acltated by a largely publc ytem nanced through taxaton. We would then expect parental ncome not to be crtcal or chldren educatonal attanment. Table 8 report mean ather ncome (n log) or ve clae o on educatonal attanment. It how the extence o a relatonhp between level o educaton and ather ncome, wth graduate havng on average rcher ather. What can be ad about the role o th relatonhp n the tranmon o economc tatu n Italy? I t poble to evaluate the ncome pertence through uperor educatonal attanment o rcher chldren? 18

19 Table 8. Son educatonal attanment and ather ncome Son educaton Mean ather log ncome elementary chool 9.30 lower econdary chool 9.52 hgh chool 9.76 bachelor 9.90 Note: Author own elaboraton rom urvey data For the US, Bowle and Gnt (2002) eek to uncover the channel through whch parental ncome nluence oprng ncome by decompong the ntergeneratonal correlaton nto addtve component relectng the contrbuton o varou mechanm. We ollow ther trategy to etmate the ze o the educaton channel n the tranmon o economc tatu. Th wll allow an aement o how much o the ntergeneratonal aocaton accounted or by the act that rcher parent have hgher educated chldren. Suppoe that ather ncome ( Y ) drectly aect on ncome ( Y ), but on ncome alo aected by on educaton ( E ), whch correlated wth ather ncome. It a property o correlaton coecent to be decompoable nto addtve part: the ntergeneratonal correlaton (or the ntergeneratonal ncome elatcty) can be expreed a the um o the tandardzed regreon coecent o ather ncome ( β Y Y ) and chldren educaton ( β E Y ) n a multple regreon predctng Y, each multpled by the correlaton between ncome tel jut 1). 14 Y and the regreor (whch or ather r Y Y = β + r Y Y Y E β EY 14 A tandardzed regreon coecent the change n the dependent varable, n tandard devaton unt, aocated wth a one tandard devaton change n the ndependent varable. 19

20 The educaton component o th decompoton ( r β ) o the ntergeneratonal correlaton called an ndrect eect, whle the drect eect o ather ncome the tandardzed regreon coecent o ather ncome rom th regreon ( β Y E EY Y Y ). Note that th decompoton hould only be een a a decrptve devce along the lne uggeted n Bowle and Gnt (2002) and not a an analy o caual eect. We etmate the ze o thee drect and ndrect eect by applyng th decompoton to the etmate o the ntergeneratonal regreon coecent (uncorrected or age) = (total) = (drect eect) + (ndrect eect) The above mple exerce how that only a mall racton (le than one thrd) o the ntergeneratonal coecent accounted or by the act that the chldren o rch parent are alo more educated. In other word, aumng that the only channel o ntergeneratonal ncome correlaton would work through the aocaton o ather ncome and chld educaton, the ncome regreon coecent or our ample o Italan men would be equal to Concludng Remark Data lmtaton have retrcted moblty tude on Italy: there not a longtudnal urvey that long enough to provde normaton on actual ncome o both parent and chldren. Recent econometrc nnovaton employed n the lterature permt to ue the Htorcal Databae o the Bank o Italy Survey o Houehold Income and Wealth and to overcome ome o the data problem or Italy. Retropectve normaton n the repeated cro ecton exploted by applyng a two ample two tage leat quare etmaton. The remanng lmtaton o the databae are addreed by perormng everal auxlary regreon. When comparng the reult o th tudy wth thoe obtaned rom other countre, one ha to be aware that cro-country comparon o ntergeneratonal moblty are very 20

21 dcult. Th eentally due to the act that nternatonal comparon have much more evere data requrement than ngle-country tude. Comparablty o reult demand mlar normaton on both ather and on ncome, a well a pecal attenton on ample electon rule appled to the dataet. I comparatve tude do not attempt a parallel analy or the countre nvolved then t dcult to ay whether derence n the ntergeneratonal ncome pertence relect true derence n moblty or are drven by derent ncome meaure, age range or other ample electon crtera. Lookng at the reult rom extng tude that have ued mlar etmaton procedure, the ndng o th paper ndcate that Italy dplay level o economc pertence that are mot mlar to Unted State and Brtan. Italy appear to be markedly le moble than Sweden. More nternatonal evdence avalable we conder alo the tude that ued derent data and methodologe. Corak (2006) doe a thorough revew o the nternatonal lterature regardng rch countre, wth an explct comparatve perpectve. He put together a et o comparable etmate acro a number o countre, takng nto account the pecc o derent tude degn. Although t not poble to rank countre n a rgorou way accordng to ther level o overall moblty, he conclude that among rch countre, Scandnavan countre and Canada are the mot moble ocete. At the other extreme, the US and the UK tand out a beng the leat moble ocete, wth 40% to 50% o ather ncome advantage beng paed on to on. Takng account o the poble bae arng rom the data and the procedure adopted, the evdence provded n th paper hnt at Italy n the low-moblty group among advanced ocete. Obvouly, th evdence ha to be condered uggetve, not concluve, a rcher data and derent etmaton method have demontrated to gncantly mprove the relablty o the etmate n other countre. However, the preent reult are content wth the mage o Italy a a rgd ocety that had emerged rom prevou tude by both ocologt and economt. Varou tentatve explanaton o the low moblty n Italy can be uggeted. We nd that the nhertance proce operatng through uperor educatonal attanment o thoe wth well-o parent, whle mportant, account or le than one thrd o the ntergeneratonal tranmon o economc tatu. Th reult gve credblty to the 21

22 hypothe that n Italy equally educated chldren have unequal chance dependng on ther amly background. The act that the Italan labour market charactered by the preence o extenve barrer to entry nto a wde range o occupaton mght play an mportant role. 15 The hgh tandardzaton o the Italan hgher educaton ytem can alo be blamed, or t deprve poorer chldren o a tool to gnal ther ablty when competng wth chldren rom rcher amle, who can benet rom parental connecton. Th reult may appear puzzlng to the extent that a publc educaton ytem expected to avour ntergeneratonal moblty. A a matter o act, countre can der gncantly n the mpact that educaton pendng may have on ntergeneratonal moblty. It wll depend on a larger et o ntangble advantage rcher parent are able to pa on to ther chldren, whch nclude not only amly connecton but alo bele and motvaton. 15 See Schzzerotto and Bon (1996). 22

23 APPENDIX Table A1. Frt-tage regreon o peudo-ather ncome on our categorcal varable (1977) N = 953 R 2 = Varable coecent robut t.err. t Educaton elementary chool lower econdary chool hgh chool bachelor Work tatu oce worker/teacher manager/proeonal/entrepreneur Sel-employed Sector ndutry publc admntraton prvate ervce Geographc dummy outh Cont Note: reerence categore are: no educaton, blue collar, agrculture and north. 23

24 Table A2. Two-ample etmate or derent par o year or ather and on. Son ample: 2002 peudo-ather ample TS2SLS (0.066) (a) (b) (a) (b) (a) (b) (0.058) (0.061) (0.067) (0.076) (0.071) Predcted ncome (0.026) (0.024) (0.023) (0.023) (0.028) (0.026) Son ample: 2000 peudo-ather ample TS2SLS (0.049) (a) (b) (a) (b) (a) (b) (0.051) (0.051) (0.050) (0.047) (0.048) Predcted ncome (0.021) (0.022) (0.023) (0.023) (0.019) (0.020) Note: Income are predcted by educatonal, occupatonal and geographcal dumme. (a) doe not control or age; (b) nclude control or age 24

25 Table A3. Two-ample etmate or derent age range or on. Son age (n=542) (n=404) ather age: (n=613) (n=560) TS2SLS (0.067) (a) (b) (a) (b) (a) (b) (a) (b) (0.063) (0.079) (0.077) (0.058) (0.061) (0.066) (0.061) Predcted ncome (0.024) (0.025) (0.031) (0.029) (0.024) (0.023) (0.027) (0.027) Note: Income are predcted by educatonal, occupatonal and geographcal dumme. (a) doe not control or age; (b) nclude control or age Table A4. Etmated elatcte correctng or under-reportng o el-employed ncome ( ). Technque uncorrected or age corrected or age 1. TS2SLS (N = 612) (0.063) 2. Predcted ncome (N = 612) (0.027) (0.062) (0.027) 3. Co-redng (N=231) (0.073) Note: Income are predcted by educatonal, occupatonal and geographcal dumme. 25

26 Table A5. Etmated ntergeneratonal elatcte ( ) or derent et o predctor o ncome. Predctng varable 2S2SLS Predcted Income (a) (b) (a) (b) 1. educaton, work tatu (0.072) (0.073) (0.024) (0.024) 2. work tatu, ector, area (0.058) (0.058) (0.024) (0.023) 3. educaton, work tatu, area (0.066) (0.066) (0.029) (0.029) 4. educaton, work tatu, ector (0.062) (0.061) (0.021) (0.021) 5. educaton, ector, area (0.079) (0.077) (0.040) (0.039) 6. educaton (0.093) (0.093) (0.029) (0.028) Note: (a) doe not control or age; (b) nclude control or age. 26

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