Human capital: the collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community.
Parental income is strongly related to children’s human capital.
- Perez-Arce et al (2016) "Inequality and Opportunity: The Relationship between Income Inequality and Intergenerational Transmission of Income"
Intergenerational social mobility has stalled in many developed countries. Mostly this is a problem for the poor and near-poor, whose grown-up children seem stuck in the lower rungs of the economic ladder. Cross-country comparisons reveal a pretty solid link between higher income inequality and lower intergenerational social mobility, but that doesn't tell us much about how one influences the other. The fact of income inequality doesn't have much explanatory value in itself. Income inequality is just a way to describe a skewed income distribution. That a bigger part of the income pie is going to the top income generators doesn't explain why social mobility is affected at the lower income levels.
So why has intergenerational mobility stalled out in developed countries? And what does income have to do with it? The answer has to do with how income impacts human capital, which is largely a matter of skills and education. How does income affect human capital? Money pays for things that build human capital. Lack of money undermines the development of human capital.
Since developing human capital requires financial resources and the returns to skills and education are higher than ever, the children of low-income families are at a disadvantage. But it doesn't have to be so. We just have to make sure the building blocks of human capital are there for all income levels. These building blocks are good health, early and ongoing nurturing of qualities that contribute to learning and success in school, and protection from extreme stressors such as violence and homelessness. In other words, government should fund:
- Universal healthcare
- Nutrition assistance
- Parent education and counseling
- Means-tested subsidies for childcare and preschool
- Relocation vouchers
Some of the above are already provided. Some exist but need to be expanded. Some require additional explanation. Making reality out of the whole list will cost money. My goal is to make it happen without breaking the bank or the economy of this country.
Next: How to provide the goodies and still have lower taxes than Canada.
References:
John Jerrim and Lindsey Macmillan; Income Inequality, Intergenerational Mobility, and the Great Gatsby Curve: Is Education the Key?, Social Forces, Volume 94, Issue 2, 1 December 2015, Pages 505–533, https://doi.org/10.1093/sf/sov075
Perez-Arce, F., E. F. L. Amaral, H. Huang, and C. C. Price. 2016. Inequality and Opportunity: The Relationship between Income Inequality and Intergenerational Transmission of Income. Santa Monica, CA: RAND. http://www.jstor.org/stable/10.7249/j.ctt1d41dcd