What the Mean Measures of Mobility Miss: Learning About Intergenerational Mobility from Conditional Variance

Abstract

A large and growing literature on intergenerational mobility focuses on the conditional mean of children's economic outcomes given parent's economic status, while ignoring the information contained in conditional variance. This paper explores the effects of family background on the conditional variance of children's outcomes in the context of intergenerational educational mobility in three large developing countries (China, India, and Indonesia). The empirical analysis uses exceptionally rich data free of sample truncation due to coresidency. Evidence suggests a strong negative influence of father's education on the conditional variance of children's schooling in most of the cases. Children of educated fathers thus enjoy double advantages: a higher mean and a lower variance. The analysis finds substantial heterogeneity across countries, gender, and geography (rural/urban). A methodology is developed to incorporate the effects of family background on the conditional variance along with the standard conditional mean effects. We derive risk-adjusted measures of relative and absolute mobility by accounting for an estimate of the risk premium for the conditional variance faced at birth by a child. The estimates of risk-adjusted relative and absolute mobility for China, India, and Indonesia suggest that the existing evidence using the standard measures of mobility substantially underestimates the effects of family background on children's educational opportunities. The magnitude of underestimation is especially large for the children born into the most disadvantaged households where fathers have no schooling, while it is negligible for the children of college educated fathers.

Keywords: Conditional Variance, Family Background, Intergenerational Educational Mobility, Risk Adjusted Mobility Measures, China, India, Indonesia

JEL Classification: I24, J62, O12