Friday, July 13, 2007

Intergenerational Poverty

The Organization for Economic Cooperation and Development recently conducted a study on the causes of intergenerational poverty. The study found that socioeconomic mobility (i.e. the ability to move up from the lower classes to the middle or even upper classes) is lower in the United States than many other Western Democratic countries including Denmark, Austria, Norway, Finland, Canada, Sweden, Germany, Spain and France.

I mentioned a similar report in a blog entry about this before.

Here are a couple of the conclusions from the report:

The level of wealth and education of parents are two crucial determinants of children’s future life-chances. For example, the evidence suggests that parental characteristics are reflected in educational outcomes, and that greater public intervention in the accumulation of human capital might reduce intergenerational transmission of advantage and disadvantage. Moreover, parents who are capital constrained – facing tighter liquidity constrains – cannot invest as much as rich parents in education although these constraints seem less important than other family background characteristics. The effects of such liquidity constraints are also likely to vary considerably accordingly to the ability of the child: they are likely to be tighter for low-income parents of high-ability children.

Growing up in low-income households seems to affect heavily children's future life-chances. In fact, parental poverty is related to lower levels of good health, nutrition and housing, all of which affect child development and future incomes. Furthermore, the home and social environment is where beliefs, attitudes and values are shaped (for example welfare dependency of parents is correlated with future
welfare receipt of children, even after adjusting for income, in part reflecting the role-model that parents provide). High parental income is correlated with a better quality of education because good schools are generally in good neighbourhoods, where in addition, networks useful in later life may be more present, and crime is less prevalent. It is further correlated with transmission of verbal ability, and non-cognitive skills, including self-discipline, which improve life chances (Heckman and Carneiro, 2003). Reducing poverty, and especially childhood poverty, might therefore contribute to reduce intergenerational inequality.

The language is highly technical; but basically it is saying that where a child starts out in life based on his parent's income and educational status has a great correlation to where they will end up. If governments would tax the wealthy more, it would go a long way to alleviating the problem of poor parents who don't have the spending power to get their children the best possible education.

The second paragraph says that children who live in better, lower-crime neighborhoods not only benefit from a better quality education, but also benefit from the social and business contacts who will be able to give them better job and entrepreneurial opportunities. Furthermore, going to those better schools improves language skills, interpersonal relationship skills (among them dispute resolution skills) and the principles of delayed gratification and other self-control skills that will help them avoid trouble. Therefore reducing poverty can lead to greater opportunities because it would alleviate the problems associated with stress brought on by fear of crime, which impedes learning.

There. Clear as mud?

I remember many years ago attending a short seminar put on by a local non-profit group that rated a child's chances of success based on some 30+ factors called "assets." The more assets a child had, the greater their chance of success in life. I can't remember if poverty was one of the factors. However, this study indicates that until we alleviate the problems associated with inequality in society, it needs to be a factor in evaluating a child's opportunity.

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