Family background and intergenerational mobility in a transition economy: Evidence from China

Abstract

This paper develops a parsimonious model of incomplete credit and job markets in which family background helps children invest in education and land jobs. As some competent children lacking in social connections are shut out of good jobs, both their incentives and accessibility in investing in education reduce. The transition process to value more on education rather than family background is associated with higher relative mobility, upward mobility, and mobility expectations. To promote intergenerational mobility in developing countries, the reformation of the job market may be another key area besides providing more education opportunities for deprived children. Some evidence from China supports the theoretical model.