Year of Award

2013

Document Type

Thesis - Campus Access Only

Degree Type

Master of Arts (MA)

Degree Name

Economics

Department or School/College

Department of Economics

Committee Chair

Ranjan Shrestha

Commitee Members

Douglas Dalenberg, Stephen Siebert

Keywords

INTERGENERATIONAL CORRELATION, INDONESIA

Abstract

How important are parent’s incomes in determining their children’s incomes? Does this relationship matter for children in developing countries more than they do for those in developed countries? Are the linkages of wage income across generations different from the linkages of other kinds of income? This paper will analyze these questions by quantifying the correlations in earnings between parents and their adult children in Indonesia. By measuring the intergenerational earnings correlation, or how correlated children’s earnings are to that of their parent’s earnings, we can quantify how important the parent’s initial position on the income distribution is in determining their children’s ultimate location in the distribution. Indonesia is an interesting case study as the developing county has gone through rapid economic growth over the past 30 years. The RAND Corporation conducted four waves of surveys in Indonesia between 1993 and 2007 in Indonesia, entitled the Indonesian Family Life Survey (IFLS), and this will be the primary data source for this analysis. The empirical models in this analysis will primarily use the children’s earnings data as the dependent variable and their parent’s earnings as an independent variable. Then we will examine the estimated regression coefficient on parent’s earning and interpret that as an estimate of the intergenerational correlation. This analysis finds the estimated intergenerational elasticity of earnings in Indonesia to be between 0.08 and 0.35, but seems to be close to 0.2 when all the evidence is considered. These estimates would indicate intergenerational earnings correlation is roughly equal to the levels in the United States. Additionally, this analysis finds there is little difference in the correlation between wage earnings and the broader measure of income including non-wage components.

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© Copyright 2013 Eric Dale