An Inherited Destiny
For decades, Brazil has been the symbol of an economic contradiction: one of the world’s largest economies and, at the same time, one of the most unequal countries. But how much does a parent’s income really influence a child’s future? To what extent is it possible to climb the social ladder? And which regions offer the most opportunities for upward mobility?
These questions are addressed in a new study published in The Review of Economics and Statistics, the first to use large-scale tax and administrative data to measure intergenerational income mobility in a major developing country. Its authors are Diogo G. C. Britto (Bocconi Department of Social and Political Sciences, CLEAN Unit for the Economic Analysis of Crime, IGIER, INSPIRE) and Paolo Pinotti (Bocconi Department of Social and Political Sciences, Baffi Center, CLEAN Unit for the Economic Analysis of Crime, INSPIRE), along with Alexandre Fonseca (Federal Revenue Service of Brazil), Breno Sampaio (Federal University of Pernambuco) and Lucas Warwar (Stanford University).
The main finding is that in Brazil, parental income continues to have a very strong influence on children’s economic outcomes. “A 10-percentile increase in parental income rank is associated, on average, with a 5.5-percentile increase in child income rank,” Paolo Pinotti explains.
In other words, moving up 10 positions in the distribution of parental income translates, on average, into an advance of more than five positions for children once they reach adulthood. This is one of the clearest pieces of evidence of the persistence of inequalities observed at the international level.
The Dream of Social Mobility Stops on the Lower Floors
To reach these conclusions, the researchers reconstructed the economic histories of approximately 1.3 million children born between 1988 and 1990, linking them to their respective parents through tax records, civil registry data and employment data. This was an enormous challenge, made even more complex by the significant size of Brazil’s informal economy.
In fact, about one-third of the country’s economy escapes official records. To overcome this hurdle, the team developed machine-learning models capable of estimating undeclared incomes using census data and sample surveys.
The results reveal an extremely rigid social system. Only 2.5% of children born into the poorest households manage to reach the wealthiest quintile of the population, while nearly half remain trapped in the same income bracket as their parents. In contrast, nearly one in two children born into the wealthiest quintile remains at the top of the distribution even as an adult.
From the poorest to the richest quintile
Children born in the poorest 20%
│
├─ Remain in the poorest 20%: 46.1%
├─ Move up to the middle income bracket: 51.4%
└─ Move into the top 20%: 2.5%
In short, the data show an almost perfectly linear relationship between parents’ economic status and their children’s economic status. The higher up you are born, the higher up you stay.
Less Mobility Than in the United States and Europe
To measure how much parents’ income influences their children’s, economists use the so-called intergenerational persistence coefficient. The value can range from zero to one: the closer it is to zero, the more independent children’s economic fate is from that of their parents; the closer it is to one, the more wealth and poverty tend to be passed down from one generation to the next.
In the case of Brazil, the authors estimate a coefficient of 0.55, one of the highest values ever observed in countries for which comparable data exist. In practice, more than half of the economic advantage or disadvantage associated with parents’ status continues to be reflected in the status their children achieve as adults.
Social mobility: An international comparison
Scholars of social mobility often use a graph known as the Great Gatsby Curve, named after F. Scott Fitzgerald’s famous novel. The curve illustrates a seemingly paradoxical relationship: in countries where income inequality is higher, the chances of improving one’s social status tend to be lower. In other words, the more unequal a society is, the more a family’s starting point ends up determining its destination. Brazil is almost a textbook example of this relationship.
Gender and Racial Inequalities
The study also shows that the impact of one’s background is not the same for everyone. Women born into families with the same income as their male peers end up, on average, 14 positions lower in the distribution of individual income. Much of this gap is explained by differences in the labor market.
Even more significant is the data regarding race. As Diogo Britto explains, “Non-white children rank on average 7 percentiles below white children with the same parental income.”
Non-white children raised in families with the same economic conditions as their white peers rank, on average, lower on the income scale. This gap is also reflected in access to education, prestigious professions and rates of teenage pregnancy.
Where You’re Born Matters Almost as Much as Who Your Parents Are
Regional differences in opportunities are enormous. In the more dynamic regions of the South and the Midwest, children from poor families manage to achieve much higher income levels than those recorded in the North and Northeast of the country.
Surprisingly, it is not necessarily the major metropolises like São Paulo or Rio de Janeiro that offer the best prospects for social mobility. Some rural areas in the South — historically populated by European immigrants — and agricultural regions driven by the soybean boom show better results. There is a veritable “corridor” of high social mobility running through the states of Paraná, Santa Catarina and Rio Grande do Sul.
Places Can Change Destiny
Turning to the analysis of family relocations, the authors compared siblings who moved at different ages, estimating the impact of growing up in a more favorable area. “Movers converge linearly to the income of permanent residents in the destination area at a rate of 2.4% per year of childhood exposure,” as Pinotti says.
In other words, every year spent as a child in an area with greater opportunities significantly improves future economic outcomes. According to estimates, more than half of the differences observed between regions are due to actual place effects, not simply to the characteristics of the families living there.
Breaking the Cycle of Inequality
The study does not just tell the story of a country marked by deep inequalities. It also offers a new methodology for measuring social mobility in contexts where the informal economy is widespread — a reality that affects much of Latin America, Africa and many emerging economies.
It has become clear that opportunities do not depend solely on individual talent. They depend on the family, the school, the neighborhood and the region in which one grows up. In Brazil today, these factors continue to exert an extraordinarily strong influence.
And for this very reason, the authors conclude, investing in the quality of education and in the most disadvantaged areas could be one of the most effective ways to break the cycle of inequality that is passed down from generation to generation.
