Tzlil Aloni Comment on Intergenerational Income Mobility in Israel

Intergenerational Mobility of Earnings in Israel Tslil Aloni & Zeev Krill JUNE 2017

The Data  Core sample of 288,483 observations of 79’-82’cohorts  Earnings:

 Individuals monthly wages for employees and self-employed for the years 2011-2014

 4 years of earnings

 Children ages in the main sample are 29-35

 Parents’ gross yearly earnings (the sum of both parents’ salary income)  At age 24 and at age 20 (starting from the year 1999)  i.e. parents are 50 on average

Two Adjustments • Adjustment #1 – Mazumder (2015) • Based on the discussion between Chetty et al. and Mazumder • Mazumder evaluates the bias in Chetty et al. (2014b) to be a factor of 1/1.7

• Adjustment #2 – Corak (2006, 2016) • International comparisons adjusting for the selected estimate for the US.

Intergenerational Mobility Estimates (1-elasticity) 0.85 0.85 0.75 0.75

0.83 0.83 0.77 0.77

0.72 0.72 0.72 0.72

0.65 0.65 0.55 0.55 0.45 0.45 0.35 0.35 0.25 0.25

Sources: IGE estimates from Corak (2016) and Oren Heller (2017)

Intergenerational Elasticity

The Great Gatsby Curve 0.7

0.6

0.5

0.4

0.3

0.2

0.1 20

25

30

35

40

45

50

55

60

65

Gini Coefficient

Notes: HH net income Gini coefficients from the World Bank Data in 1997, otherwise the earliest available after 1997. Fitted line includes the Corak-adjusted estimate.

Gini coefficients definitions may vary across countries due to data limitations, as detailed in the Gini index metadata provided by the World Bank.

Sources: IGE estimates from Corak (2016), Gini coefficients from the World Bank Data, as used in Corak (2016).

Descriptive Statistics – Immigrants and Natives

Parent's average rank (exc. zeros) Children's average rank (exc. zeros) Father's years of education Mother's years of education

Natives

Immigrants

50 48

47 52

11.9 11.4

12.4 12.2

% from Former Soviet Union 2% % from European/American countries 17% % from North-African/Asian countries 32% % from Ethiopia 0% % with Israeli Grandparents 17% % Arabs 25% % Orthodox 6.7% Number of kids in the family* 3.9 % Of individuals with no income data 21% Number of observations 225,347 * Total number of siblings when the child is 17 years of age.

42% 15% 35% 4% 0% 0% 4.3% 2.9 23% 138,868

Omitting the immigrants from the sample – a substantial increase in mobility Natives and Natives

Immigrants

Immigrants

IGE

0.195

0.166

0.133

Rank-Rank Correlation

0.279

0.238

0.21

Number of Observations

189,746

288,483

98,737

All results significantly differ from one another with a confidence level of 99%.

All on core samples, 1979-1982 cohorts with positive income average in 2011-2014 and positive parents’ income.

Intergenerational Elasticity

The Great Gatsby Curve 0.7

0.6

0.5

0.4

0.3

0.2

0.1 20

25

30

35

40

45

Gini Coefficient

50

55

60

65

Immigrant families display higher upward mobility

Probability of outranking parents (full sample)

Mean rank from 24th to 26th percentiles Observations Mean rank from 1st quartile (excluding zeros) Mean earnings in 1st quartile Percentage reaching top 1 pct.

Percentage reaching top 5 pct.

Percentage reaching top 10 pct.

Percentage reaching top 25 pct.

Percentage reaching top 50 pct.

Observations in 1st quartile (exc. zeros)

Natives

Immigrants

46%

55%

43

47

(27.2) 5,383

(27.2)

40

45

(27) 36,404

(27.3) 34,750

0.31%

0.36%

2.13%

2.79%

4.35%

5.87%

14.00%

18.11%

35.81%

43.07%

44,187

27,934

3,271

Transition Matrix – international comparison Child Earnings Quintile

1st

2nd Parents Earnings Quintile

3rd

4th

5th

1st

2nd

3rd

4th

5th

27.7

25.3

20.3

16.3

10.5

(-6)

(-2.7)

(1.9)

(4)

(3)

23.3

23.0

21.1

19.0

13.7

(-0.9)

(-1.2)

(-0.6)

(1.4)

(1.4)

18.8

20.2

21.3

21.5

18.2

(1)

(0.4)

(-0.8)

(-0.5)

(-0.1)

16.1

17.1

20.2

22.4

24.1

(2.7)

(1.1)

(-0.7)

(-2)

(-1.3)

14.2

14.4

17.2

20.8

33.5

(3.3)

(2.5)

(0.2)

(-2.8)

(-3)

US

Denmark

Canada

7.5

11.7

13.4

Note: in parenthesis are the differences from the corresponding table in Chetty et al. (2014b)

Appendix figure 7: Earning Deciles of Sons Born to Bottom Decile Parents: Israel and Canada

18 16

Israel

14

Canada

12 10 8 6 4 2 0

Bottom

2nd

Source: Canada from Corak 2013

3rd

4th

5th

6th

7th

8th

9th

Top

Appendix figure 9: Interdecile P90/P10, Ratio, 2014 or latest available

8 7 6 5 4 3 2 1 0

Source: OECD data

5.9 4.4

Upward Mobility – Country of Origin Comparison Israel

Asia / N. Africa

Euro. / America

FSU

Ethiopia

Arab

Mean rank from 24th to 26th percentiles Observations

45.9 (28.6) 798

46.9 (27.4) 3,002

45.5 (28.2) 919

47.7 (26.7) 1,601

41.6 (24.9) 135

38.4 (26.0) 2,199

Percentage reaching top 5 pct.

Percentage reaching top 10 pct.

Percentage reaching top 25 pct.

Percentage reaching top 50 pct.

3.5%

2.6%

3.7%

3.0%

0.4%

1.2%

6.8%

5.7%

7.0%

6.0%

1.2%

2.6%

18.2%

17.6%

18.2%

18.0%

9.0%

9.5%

40.6%

41.6%

40.4%

42.2%

34.2%

29.0%

Observations in 1st quartile 5,566 23,466 25th percentile average yearly income is 66,700 NIS Standard deviations are in parenthesis.

6,867

12,980

2,279

20,963

Probability of outranking parents by quantiles

Note: Each dot is the proportion of the quantile to have a children’s rank higher than parents’, on the core sample.

Probability Gap of outranking parents between selected groups and general population

Note: Population excludes FSU and Arab population. Line indicates the 95% confidence intervals.

Country of Origin Comparison

Results

Variable

Parents-Child Rank Difference (1)

(2)

Israel

-8.6***

(0.21)

Euro. / America

-11.16***

(0.18)

FSU

7.3***

(0.19)

Ethiopia

20.6***

(0.61)

Arab

8.7***

(0.20)

Constant

0.55***

(0.11)

Notes: Standard errors in parentheses. Base group is of families with Asia / N. Africa origins. Clustered by ethnic groups

Parents’ rank FE

NO

Results

Variable

Israel

Euro. / America

FSU

Ethiopia

Arab

Constant

Parents’ rank FE

R-Squared Observations

Parents-Child Rank Difference (1)

(2)

***

-8.6 (0.21) -11.16*** (0.18) 7.3*** (0.19) 20.6*** (0.61) 8.7*** (0.20)

-0.4*** (0.06) -0.28** (0.08) 2.81*** (0.08) -3.18*** (0.33) -6.21*** (0.16)

0.55*** (0.11)

0.61*** (0.09)

NO

YES

0.045 288,483

0.385 288,483

Notes: Standard errors in parentheses. Base group is of families with Asia / N. Africa origins. Clustered by ethnic groups