COVID-19 Shock Affect Intergenerational Income Mobility: History
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Contributor:
Shiqi Jiang
,
Lingli Qi
,
Xinyue Lin

The COVID-19 crisis has caused a huge negative shock to economic activities worldwide, leading to a reduction in income and changes in income distribution. Intergenerational mobility is an important indicator of sustainable social development. 

  • COVID-19
  • intergenerational income mobility
  • income inequality
  • sustainable society

1. Introduction

The outbreak of COVID-19 has had a far-reaching detrimental influence on economies around the world, as seen by China’s GDP growth rate of 2.3% in 2020, which is far lower than the 6% growth rate that the IMF predicted in the absence of the pandemic [1]. In order to control the spread of the pandemic, many countries have adopted strict mandatory restrictions, such as social distancing, total lockdown and quarantine, as well as the control of production activities. These measures have further reduced domestic and international supply and demand, which in turn has severely damaged employment and personal income and worsened individual living standards [2][3][4]. According to China’s National Development and Reform Commission, in the first half of 2020, the per capita disposable income of Chinese residents fell by 1.3%. Among them, the income of urban residents fell by 2.0% and that of rural residents by 1.0%; in June 2020, the unemployment rate of China’s national urban survey was 5.7%, exceeding the same period in 2019 by 0.6% [5]. The structural changes in the economy triggered by COVID-19 and the growth in demand for public resources have exacerbated pre-existing inequalities [6]. The unequal impact of the COVID-19 pandemic on the employment incomes of different economic groups in society could exacerbate the inequality of opportunity and undermine social mobility [7].
Intergenerational mobility is an essential indicator of “equality of opportunity” in the economy and society, belonging to the category of social mobility and reflecting the dynamics of economic status between generations of a family [8]. Greater income inequality is associated with lower intergenerational income mobility [9]. Higher intergenerational mobility reflects “equality of opportunity” and is more conducive to stronger market vitality in a country or region, contributing to inclusive growth in an economy. On the other hand, low intergenerational mobility means that individuals’ achievements in society are closely tied to parental and family backgrounds and that social hierarchies are heavily entrenched, often leaving economies and societies without the competitive driving force for sustainable development, to the detriment of long-term economic growth [10][11]. The problem of income distribution inequality in China is extremely prominent and concerned. Compared with developed countries, China’s intergenerational mobility is low and tends to decline, and there is a risk of the further solidification of social classes [12]. Once the pandemic exacerbates household income and opportunity inequality, this greatly increases the pressure on China to maintain social equity, so this is an issue worthy of attention. However, direct evidence to analyse the impact of the COVID-19 pandemic on intergenerational income inequality is currently lacking, particularly in China.

2. The Impacts of COVID-19 Shock on Intergenerational Income Mobility

The COVID-19 pandemic and lockdown restrictions have been shown to have an enormously negative impact on the domestic and international economy and labour market [13][14][15]. The contraction of economic activity in both the supply and demand sectors reduces labour demand and incomes. The blockade further restricts labour mobility, creating a mismatch between supply and demand in the job market [16][17]. In earlier times, the COVID-19 pandemic had been touted by some as the “great equalizer” because it was indiscriminately contagious and restricted economic activity for almost everyone, regardless of their social status. However, current reality and research evidence refute this view, suggesting that the COVID-19 pandemic put a proportion of the population at a higher economic and health risk [18][19].
A growing body of literature examines the unequal impact of the COVID-19 pandemic on the labour market. Li et al. [20] used real-time recorded data and found that the pandemic has aggravated income inequality in Australia, increasing the Gini point by between 0.016 and 0.13 in April–June 2020 compared to February without policy support and worsening the living standards of low-income groups. With additional wage subsidies and welfare support from the government, the income inequality effect of the epidemic is eliminated. Evidence from Adams-Prassl et al. [14] using survey data from the UK, US, and Germany shows that COVID-19 shocks exacerbated income inequality within countries, and low-educated workers and women, who are more prone to being displaced, are most affected. Based on the analysis of data from a telephone interview survey of 31 developing countries, Bundervoet et al. [7] revealed that pandemic and lockdown policies have led to severe labour market contraction and reduced mobility in developing countries, resulting in approximately 36% unemployment and a 65% income decline, with a much more remarkable negative impact for urban and vulnerable groups, such as women, low-skilled non-farm wage workers, the self-employed, and the poor. While they suggest that intergenerational mobility may undergo a further decline since children from low-income families and areas suffer more academic losses and a higher rate of school drop-out due to the pandemic, they did not examine it directly. Additionally, COVID-19 exacerbates gender inequality in the labour market and income [21][22]. Not quite consistent with above conclusions that the largest declines appear in low-end workers, Campello et al. [23] find the largest declines in small companies and high-skilled jobs in the United States.
In the case of China, different occupational types of workers are also at unequal risk, and private, micro- and small enterprises, informal workers, and women are hit harder. The state-owned sector, large enterprises and formal workers, are retained, and small businesses are more likely to be pushed to the brink of collapse [24]. An analysis by Che et al. [16] suggests that the COVID-19 crisis has restricted population mobility, making it more difficult for migrant workers to obtain jobs than urban resident workers and exacerbating poverty among low-income people. Zhang et al. [25] used a computable general equilibrium (CGE) model to make a comprehensive assessment of the short-term impact of COVID-19 on the employment and income of different groups in China, finding that the pandemic lowered wages and exacerbated unemployment and poverty, as well as that female, low-skilled, and low-income groups were more vulnerable to pandemic shocks. However, the CGE model’s conclusions are from simulations rather than real changes in wages reported by individuals, and the macro-model is not applicable to analyse intergenerational problems.
The existing literature deduces that the pandemic has exacerbated domestic income inequality, both in developed and developing countries, by affecting the income and thus the well-being of different households and individuals [26][27][28]. Crossley et al. [29] found that COVID-19 has reduced the incomes of low-income households even further, with UK data indicating that nearly half of individuals have experienced a 10% drop in household income. Among those, the lowest 20% of the income distribution experience the largest decline. Using panel data from three sizeable representative population surveys in Germany between June and November 2020, Immel et al. [30] found that the COVID-19 pandemic has heightened concerns about health and unemployment among German residents: as of April, 5% of the respondents reported unemployment due to the pandemic. Self-employed persons, marginally employed workers, and low-income households experience a heavier burden. Qian and Fan [31] suggest that in China, where economic and social status favours individual resilience to the effects of COVID-19, the crisis has created new inequalities that urgently support policies in favour of disadvantaged groups.
Due to the significance of intergenerational mobility to the social economy, much research has been conducted on its determining factors; internal intergenerational income micro-transmission pathways are divided into “genetic” and “environmental”. The former refers to the innate talent that children obtain from their parents through inheritance, while the latter relates to parents’ investment in and cultivation of their children’s acquired growth environment [32]. The disparity in adult income stems from the fact that they are from families with different income levels and receive unequal investments in human capital as they grow up, and these differences in upbringing have a long-term, significant impact on the formation of people’s capabilities [33][34]. Due to different budget constraints, children from wealthy families receive a higher investment in human capital, are more likely to receive higher levels of education, and are more likely to find occupations with a higher economic and social status and earn higher incomes as they grow up [35][36][37]. In addition, children with higher family endowments also gain advantages from social capital, such as family social ties, making the children of relatively wealthier families more competitive in the labour market and enhancing the flow of resources to the elites [38][39][40].
The macro-economic and social environment and institutions play a defining role in intergenerational mobility. For example, labour market fragmentation and gaps in returns to human capital can increase income inequality and weaken intergenerational equity [41]. A study by Aiyar and Ebeke [11] using an internationally comparable data set demonstrates that unequal educational opportunities exacerbate income inequality and hinder intergenerational mobility, thereby widening the gap between the rich and the poor. It also shows that in societies where the negative effect of income inequality on economic growth is greater, intergenerational mobility is lower, while in regions with more remarkable economic and social growth, more equitable wealth distribution, outstanding social capital, educational opportunities, and stable family structures, intergenerational mobility tends to be higher [42][43][44]. Vijverberg [45] argues that a favourable macro-economic environment could promote social mobility. In 2018, the World Bank’s report, Fair Progress? Economic Mobility across Generations around the World, pointed out that intergenerational mobility is positively correlated with the level of economic development. However, the report indicates that intergenerational mobility in China declines as GDP per capita rises.
Based on the channels of family resource transmission and social instruction, the pandemic’s impact on intergenerational income mobility is related to the gap in the ability of families in different economic classes to withstand economic risks. Economically vulnerable low-income households struggled harder during the crisis than their more advantaged peers [31]. High-income households may be at lower risk of loss of income, as their members generally tend to have higher human capital and occupational status, allowing the use of broader social capital and various other means against crisis shocks [46].
A growing body of literature has studied the impact of exogenous shocks and policies on intergenerational mobility, but there is currently a lack of direct evaluation of the impact of COVID-19, and this study bridges this gap. Lou and Li [47] used micro-data to verify the effect of export shocks on intergenerational education persistence and mobility. They discovered that export expansion increases the earnings of low-skilled workers and improves the educational attainment of children from low-education households, leading to intergenerational educational mobility in China. Ahsan and Chatterjee [48] provide evidence on the impact of trade liberalization on occupational mobility in India, finding that high-skilled export shocks generate increasing demand for high-skilled labour and promote intergenerational occupational mobility. In addition, many papers have assessed the effects of public policies on promoting equal opportunities. Increasing government spending, especially on public services, and expanding the education supply can help narrow the gap between the rich and the poor and raise the likelihood of upward mobility for children from low- and middle-income families. This evidence is derived from China, the United States, Norway, and Denmark [33][49][50][51][52]. Other studies have explored the dynamics of social equity and intergenerational mobility under different economic and social systems, market-based transitions, and technological advances [12][53][54].
 

This entry is adapted from the peer-reviewed paper 10.3390/ijerph191811546

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