Work package 1: The impact of childhood circumstances on influential decisions marking individuals’ transition to adulthood
The aim of the first work package (WP) is to identify mechanisms underlying the relationships between childhood circumstances and important decisions which individuals make in their transition to early adulthood and which have implications for income formation later in life. We investigate these relationships in a quantitative setting involving meta-regression analysis, micro-regression analysis, and cross-country analysis.
WP1 will first investigate the implications of sources of unfair inequalities on the two parameters of interest – intergenerational elasticities and inequality of opportunity indicators – through distinct meta-regression studies. No attempt has been made so far to provide a systematic treatment of the factors that underlie the relationships between childhood circumstances and outcomes in adulthood. Likewise, the estimates of intergenerational mobility and equality of opportunity have never been systematised across studies in a regression-type manner. Such systematisation is, however, important for identifying the mechanisms that link childhood circumstances to outcomes in adulthood.
Building on the results from the meta-studies, we will further move to the analysis of the impact of childhood circumstances on outcomes at early stages of individuals’ life-course via micro regression analysis. As a first step, we aim to analyse the impact of circumstances in early life, including the prenatal period and circumstances already present in utero. Second, we will investigate how a broad range of childhood circumstances reflect on the transition from early life to tertiary education and the beginning of working life. This includes the identification of the direct effects of early childhood circumstances on these transitions as well as potential interactions between circumstances and decisions made during early education.
In the final part of WP1, we will evaluate the ability of country-specific institutions and policies to moderate the impact of unfavourable childhood circumstances on the decisions and outcomes at early stages of life via cross-sectional regressions. In this respect, both within-country studies focusing on the evaluation of specific reforms as well as cross-country comparisons analysing differences in institutional design will be carried out. Our empirical objective is to reassess the contextual factors (e.g. policies) and mechanisms in a cross-national comparison with a set of different measures. This base will help to analyse beyond existing evidence, the specific role of deprivation factors in youth and the influence of these early factors on the rest of the life-course.
Work package 2: The impact of childhood circumstances and influential choices made in early adulthood on outcomes later in life
The aim of the second work package is to evaluate how childhood circumstances and the choices made in early adulthood shape socio-economic outcomes of individuals over the entire life-course. Three potential sets of factors driving inequalities later in life will be considered within our framework: childhood circumstances, choices in early adulthood, and government interventions. Building on the theoretical argumentation of intergenerational mobility and equality of opportunity theories, we will analyse how each of these factors shapes outcomes in later life.
Based on the findings from the meta-studies in WP1, our contribution to the literature here lies in the explicit accounting for the variation of outcomes of interest over the individual life-course. For monetary outcomes, such as earnings or income, this implies using the concept of permanent income in order to approximate life-long earnings of individuals. Since life-long earnings, as well as the pension system, are the most important determinants for retirement decisions, both have to be taken into account when analysing the latter. For other, non-monetary outcomes (such as well-being, health, unemployment experiences etc.), the life-course perspective will require exploring their variation at different stages of life.
Besides childhood circumstances and choices, we will also evaluate the role of governmental interventions in the equalisation of opportunities and the enhancement of intergenerational mobility. While intergenerational mobility and equality of opportunity vary substantially across countries, the underlying mechanisms are not yet well understood. Our focus will be on the opportunity enhancing role of two different sets of policies: education policies, which affect individual opportunities during early stages of life when human capital is built, and fiscal policies, which affect opportunities once the individual’s human capital is formed. In both cases, the focus will be on the implications of these policies for opportunities in adulthood.
With respect to the role of taxes and benefits, we will rely on microsimulation models to evaluate the impact of several tax-benefit policy parameters on opportunities and the transmission of inequality. In particular, we will investigate how country-specific tax-benefit systems compensate for different types of circumstances and reward effort. To identify the direct redistributive effects of taxes and cash transfers in a given country, we will simulate a set of counterfactual distributions of income which would have prevailed if certain taxes and cash transfers had not existed. Having identified the best performing tax-benefit policies in terms of their ability to reduce inequality of opportunity, we will move to the second step of the analysis and simulate their implementation across EU countries.
Work package 3: The link between intergenerational mobility and equality of opportunity
Building on the findings from WP1 and WP2, this work package aims to link estimates of equality of opportunity and intergenerational mobility, from both theoretical and empirical perspectives. Both approaches feature distinct methods and underlying theories for the analysis of childhood circumstances and their effect on outcomes in later life. The literature on intergenerational mobility is typically interested in describing the association between specific parental outcomes and child outcomes. On the other hand, the literature on equality of opportunity focuses on how parental characteristics and outcomes, along many other individual circumstances, altogether contribute to inequality in the child generation within a well-defined normative framework. The linkage of the two theories is important because estimates of intergenerational mobility are often used by both researchers and policy-makers for making judgements about the degree of equality of opportunity in the society.
We will start by relating theoretical models of intergenerational mobility and equality of opportunity. Thereby, we build on the small theoretical literature that aims at providing a link between intergenerational mobility and equality of opportunity. Starting from the notion of a mobile society common to both approaches, we highlight differences with respect to the theoretical modelling of transmission mechanisms underlying the influence of childhood circumstances on outcomes in later life. With respect to empirical measurement, we aim at comparing estimation results using methods from both intergenerational mobility and equality of opportunity and discuss their relation. A key challenge is to accurately describe differences in the theoretical objective function of each approach and how these relate to differences in measurement and results. For example, equality of opportunity defined as identical prospects irrespective of starting position does not necessarily minimise persistent inequality. Therefore, applying different methods to a joint research question is expected to provide new empirical insights on the transmission of socio-economic status and to improve our understanding of the theoretical and empirical link between intergenerational mobility and equality of opportunity.
To validate the results of this analysis, we will also study the associations between the estimates of intergenerational mobility and equality of opportunity using large cross-country datasets. To shed additional light on the dynamic relationship between the estimates of intergenerational mobility and equality of opportunity, we will also take advantage of administrative data for some countries (e.g. Sweden). The main advantage of this kind of data is the possibility to observe individuals and family members over the lifecycle and across generations. Thereby, long term effects of policy changes in educational and fiscal patterns can be analysed.