Intergenerational Mobility and Inequality of Opportunity

This thesis addresses two fundamental and related aspects of social mobility in separate chapters: Intergenerational Mobility and Inequality of Opportunity (IOp). Both chapters use data from the British Household Panel Survey (BHPS) and the UK Household Longitudinal Study (UKHLS), covering from 1991 to 2023. The objective of the first chapter has been estimating intergenerational persistence of permanent income between parents and offspring in the UK while pursuing a theoretically motivated search for non-linearities. As a second step the role of capital and labor income has been considered. This to study possible difference in persistence due to the composition of total income. The functional form of the relationship between parental and offspring income is investigated using polynomial regression models, while the potential linkage between the combination of high incomes from both capital and labour sources and the presence of non-linearity has been investigated through a threshold regression model. The economic interpretation that can be attributed to the empirical evidence is that total parental income becomes increasingly relevant along its distribution in explaining offspring outcomes but the composition of total income is also significant. Greater persistence is observed where capital income and labour income are both present. Higher levels of total parental income are less influential in explaining offspring income if the primary source is labour income with no capital income. The second chapter contributes to the understanding of inequality of opportunity by proposing the introduction of latent variables for effort and cognitive ability. Working within the framework of Structural Equation Modeling (MIMIC model), the analysis attempts to disentangle effort and cognitive ability from circumstances and estimate their respective contributions to total income inequality. The use of SEM has not only enabled to provide a more nuanced decomposition of inequality, but also facilitates the analysis of the interrelationships between effort, circumstances, and cognitive ability. This approach allows to distinguish between the direct effects of circumstances on income and the indirect effects operating through effort. Such a distinction has then been assessed under different ethical perspectives. The results confirm the limitations of standard methods, that primarily focus on circumstances while treating effort as unobservable. Estimates of IOp are consistently higher when exploiting the MIMIC model compared to standard regression methods. Under the proposed method the unexplained part of income inequality decreases considerably, to the extent that can be interpreted as luck.