Figure 9: The Great Gatsby Curve for a set of developed and developing countries
Countries with high levels of inequality, measured by the Gini Coefficient on the x-axis, tend to have low rates of social mobility, measured by Intergenerational Earnings Elasticity on the y-axis (where values close to zero represent high social mobility and values close to one represent low or no social mobility). Source: Corak, 2012
In the inequality literature, two measures are used to quantify social mobility – Intergenerational Elasticity (IGE) and the index of Inequality of Opportunity (IOp). The IGE is the most widely-used measure of intergenerational inequality and measures the degree of association between the incomes of parents and their children, whereas the IOp estimates how much total inequality can be explained by a set of predetermined circumstances outside of one’s control (such as parental education, parental occupation, and race).46,47 Lower IGE measures mean that the income of parents has less of an association with the income of their child, and a higher IGE means that parental income is a stronger determinant of their child’s income.48(p1) Similarly, a low IOp measure indicates that predetermined circumstances have little bearing on overall inequality, and a high IOp measure implies that the opposite is true.46 Using three waves of NIDS panel data, Patrizio Piraino (2015) estimates that the IGE and IOp for South Africa are 0.6 and 0.241, respectively.46 This means that in South Africa, 60% of one’s earnings can be explained by the earning of one’s parents and 24.1% (almost a quarter) of income inequality can be explained by predetermined circumstances, in this case parental education and race.46 According to Piraino, these measures indicate that “inherited circumstances explain a significant fraction of South Africa’s earnings inequality” and “the inequality of opportunity index is high in view of the limited set of circumstances (parental education and race) included in the analysis.”46 Piraino’s findings are congruent with Oosthuizen’s analysis described in Box 2. Wealthier families invest significantly more resources in their children; this inevitably translates into better health, education, and other factors which contribute to human capital development, and thus higher earnings. Also, given the legacy of South Africa’s history of segregated and inferior education, health services, urban planning, and “colour bar” policies in the labour market, it is not surprising that intergenerational resource transfer follows the patterns described by Oosthuizen, and that parental education and race are still major determinants of inequality in South Africa.
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INEQUALITY AND DEMOGRAPHY
