The Origins and Persistence of Inequality in Denmark

The Danish Inequality Project is an investigation of  the causes and nature of inequality and its persistence across generations. The Center for the Economics of Human Development, in collaboration with researchers at the Rockwool Foundation and the University of Copenhagen, has accessed a rich array of longitudinal data drawn from secure administrative sources in Denmark and the United States to analyze intergenerational inequality across a wide number of dimensions and to understand the mechanisms behind how parents’ resources and investments into their children, along with social influence, serve to create opportunities. This international collaboration, spearheaded by Professor James J. Heckman and Dr. Rasmus Landersø, will also leverage novel data from randomized control trials in Danish daycares, with the aim of providing a better link between parental resources and dimensions such as school quality. This groundbreaking work will shed light on how inequality in adult outcomes arises and how government policies can best serve to mitigate inequality.

Background

Inequality has increased in much of the developed world over recent decades, generating great interest in the drivers of inequality within and across generations. The Center’s recent research  uncovered that, despite the extensive equality of governmental resources in Denmark, there remain large gaps in outcomes across social strata. For instance, children of individuals without a college degree have 25% higher child mortality. Those same children also have a 66% lower probability of getting a college degree compared to children of individuals with a college degree. These gaps are mirrored in various dimensions such as birth weight, test scores, and criminal conviction, showing that family resources continue to play a crucial role in shaping children’s futures.

A More Comprehensive Look at Intergenerational Income Mobility

Historically, much of the literature in measuring intergenerational mobility has looked narrowly at income as a mean statistic, averaged over several years in the parents’ lifetime. Building on insights from Professor Heckman’s previous work, this project takes a more robust look at the role of income by taking into account different components of family resources, such as looking at the role of wage income, government transfers, and wealth. Further, we look at income over multiple periods throughout the child’s lifecycle, to understand not only the general transmission of income across generations, but also to understand which periods and components of income matter. Taking into account the entire lifecycle of the children and the pattern of influences by parents, we can note the sensitive periods in the child’s lifetime and consider the importance of timing for the effectiveness of parental inputs, as well as the role of family structures.

Looking at the Family and Beyond

In emphasizing the role of the family, the project takes into account a more complete view of how status is transmitted across generations. Much of the previous literature had solely looked at incomes of fathers to explain the heterogeneity in children’s outcomes. Taking into account insights from child development literature as well as recent findings from the Center on the importance of parental investment, this project also examines the multifaceted ways in which the family influences children through monetary investment, parental education, and time inputs. By including the dynamics of household structure and marital status in our analysis, we are able to provide a richer view of family influence across generations. In addition to examining the household, we aim to study the role of social factors, such as the influence of peers and shared factors in neighborhoods in explaining inequality across the life course and across generations. By examining the policy claims that “zip codes matter,” we examine how the power of place and various other social factors further compound inequality among children growing up in different environments.

The Role of the Welfare State

By aligning the data in Denmark with that in the United States, we are able to closely examine the  role the welfare state plays and how it has reduced—and in other ways reinforced—inequality. In addition to the provision of government assistance, key factors are accessibility and actual take-up of government programs. These factors are important to consider when investigating the efficacy and role of policy in mitigating income inequality. Leveraging longitudinal microdata from the US and Denmark, we can use the variation in timing of various changes in government policies in Denmark and the US across cohorts to gain insight into how they have influenced the lifetime trajectories of children. This will allow us to isolate which types of government policies have been most impactful in combating poverty.

 

Figures

Figure 1: Gaps Throughout Life by Mother’s Level of Education

Figure 2: Average Income in Area of Residence Relative to Country Average, by Years to/from Birth of First Child and Mothers' Education

Note: Figure shows average income level in the parish / large neighborhood / and small neighborhood of residence by years to/from the brith of the first child and mothers' education level. The figure is computed for the mothers of cohorts born 1994-1997, and income is measured as gross income excluding public transfers.

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Project Team

James J. Heckman

The University of Chicago


Neil Cholli

The University of Chicago


Sadegh Eshaghnia

The University of Chicago


Jake Torcasso

The University of Chicago


Rafeh Qureshi

The University of Chicago