Surnames and a Theory of Social Mobility - University of Chicago ...

Borjas interprets this as the result of “ethnic capital” externalities. Sons from
ethnic groups with high average education levels do better than would be predicted
from the education of the father alone, because of spillovers from the education of
others in the community. But again our interpretation would be that there is likely
little or no externality. It is just that information on the country of origin allows a
better prediction of the likely “true” underlying status of families, and so a better
prediction of the son’s outcomes. That is why the same effect appears below for the
wealthy of 1923-4 in the USA, who span many ethnic communities.
This simple understanding of social mobility can resolve more than the puzzles
of group status persistence. For it can also explain the connection detailed in figure
1 between income mobility rates across countries and the inequality of income. The
greater are the random components in determining measures of status such as
income, relative to the systematic elements stemming from underlying status, the
greater will be the degree of mismatch between such partial one generation estimates
of regression to the mean, and the underlying regression of fundamental social
status.
The USA, for example, has much greater inequality in earnings than does
Sweden. Figure 4 shows, for example, the salaries in $2010 for some comparable
high and low status occupations in Sweden and the USA. A US doctor earns six
times the wage of a bus driver, while in Sweden the ratio is only 2.3 times. A US
professor earns sixty percent more than a bus driver, in Sweden it is only forty
percent more.
We can represent this by modifying equation (3) above to
y t = ψx t + u t
where the ψ linking social competence to earnings is higher in the US than in
Sweden. ψ in the US could be as much as twice the ψ in Sweden. This implies that
the proportion of variation in earnings in the USA that is explained just by random
factors is lower. This will mean that the downwards bias in estimates of social
mobility coming from earnings will be lower in the US. Thus the US will appear,
because of greater wage inequalities, as more immobile across generations than
Sweden. Just the greater wage inequality in the US can easily double the measured
intergenerational correlation if the true intergenerational correlation of status is 0.75.