The Scandinavian Fantasy: The Sources of Intergenerational Mobility in Denmark and the US

• Published date: 01 January 2017
• DOI: http://doi.org/10.1111/sjoe.12219
• Date: 01 January 2017

Scand. J. of Economics 119(1), 178–230, 2017

DOI: 10.1111/sjoe.12219

The Scandinavian Fantasy: The Sources

of Intergenerational Mobility in Denmark

and the US∗

Rasmus Landersø

The Rockwool Foundation, DK-1307 Copenhagen, Denmark

rl@rff.dk

James J. Heckman

University of Chicago, Chicago, IL 60637, USA

jjh@uchicago.edu

Abstract

This paper examines the sources of differences in social mobility between the US and

Denmark. Measured by income mobility, Denmark is a more mobile society, but not when

measured by educational mobility. There are pronounced non-linearities in income and edu-

cational mobility in both countries. Greater Danish income mobility is largely a consequence

of redistributional tax, transfer, and wage compression policies. While Danish social policies

for children produce more favorable cognitive test scores for disadvantaged children, they

do not translate into more favorable educational outcomes, partly because of disincentives to

acquire education arising from the redistributional policies that increase income mobility.

Keywords: Comparative analysis of systems; education; inequality; social mobility

∗This paper was presented at a Conference on Social Mobility held at the University of

Chicago on 5 November 2014, under the title “The Role of Income and Credit Constraints in

Human Development, Part II”. We thank Linor Kiknadze for very helpful research assistance.

We thank Magne Mogstad and the participants in the conference for thoughtful comments.

We also received helpful comments at a January 2015 seminar at the Norwegian School

of Economics, and at seminars held at the University of Copenhagen, Aarhus University,

SOFI (Stockholm), INET Paris (April 2015), and Copenhagen Education Network. We are

especially grateful to Roger Bivand, Sam Bowles, Juanna Joensen, Øivind Anti Nilsen, Kjell

Salvanes, Agnar Sandmo, Erik Sørensen, Torben Tranæs, Anders Bj¨

orklund, and Matthew

Lindquist. We have received helpful comments on this draft of the paper from Juanna Schrøter

Joensen, Rich Neimand, Matt Tauzer, and Ingvil Gaarder. This research was supported in

part by: the Pritzker Children’s Initiative; the Buffett Early Childhood Fund; NIH grants

NICHD R37HD065072, NICHD R01HD054702, and NIA R24AG048081; an anonymous

funder; The Rockwool Foundation; Successful Pathways from School to Work, an initiative

of the University of Chicago’s Committee on Education and funded by the Hymen Milgrom

Supporting Organization; the Human Capital and Economic Opportunity Global Working

Group, an initiative of the Center for the Economics of Human Development and funded

by the Institute for New Economic Thinking; and the American Bar Foundation. The views

expressed in this paper are solely those of the authors and do not necessarily represent those

of the funders or the official views of the National Institutes of Health.

C2016 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of The

editors of The Scandinavian Journal of Economics.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution

and reproduction in any medium, provided the original work is properly cited.

R. Landersø and J. J. Heckman 179

JEL classification:I24; I28; I32; P51

The American Dream is now spoken with a Scandinavian accent.

(Washington’s Blog, 2014)

I. Introduction

Policy analysts around the world point to Scandinavia as a model for re-

ducing inequality and promoting intergenerational mobility (see, e.g., Baily,

2016). By conventional measures, social mobility by income is much higher

there than in the US.

In this paper, we use rich Danish data to explore the sources of these

differences in social mobility. By all accounts, Denmark is a prototypical

Scandinavian welfare state. Lessons learned from Danish data apply to

Scandinavia more generally.

Our investigation reveals some surprises and apparent contradictions. The

literature on Danish social mobility by income is surprisingly sparse and

uses only a limited number of measures of income. One contribution of

this paper is to demonstrate that the choice of the measure of income used

matters greatly in determining the relative social mobility of the US and

Denmark.

The standard measure of intergenerational mobility is based on the in-

tergenerational elasticity (IGE): a regression coefficient showing the per-

centage change in a child’s income associated with a percentage change

in parental income. We show that estimated IGEs depend greatly on the

measure of income used and that estimated IGEs vary with the level of

income. US social mobility is low (absolutely and compared to Denmark)

for children from high-income families.

Popular discussions of the benefits of the Scandinavian welfare state

point to its generous support of childcare and education relative to the US

as major determinants of its greater social mobility. In Denmark, college

tuition is free, there is ready access to childcare, pregnancy-leave policy is

generous, and there is virtually universal free pre-kindergarten. Yet, despite

these stark policy differences, the influence of family background on ed-

ucational attainment is surprisingly similar in the two countries. Levels of

intergenerational educational mobility are about the same. At higher levels

of family income, educational mobility is lower in both countries.

In both countries, cognitive and non-cognitive skills acquired by age

15 are more important for predicting educational attainment than parental

income. The more child-generous Danish welfare state produces much more

favorable distribution of cognitive skills for disadvantaged Danish children

compared to their counterparts in the US. The similarity of the influence of

C2016 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of The

editors of The Scandinavian Journal of Economics.

180 Sources of intergenerational mobility in Denmark and the US

family background on educational attainment in the two countries, despite

the more favorable distribution of test scores for Danish disadvantaged

children, arises in part from the compression of the wage scale and the

generous levels of social benefits that discourage Danish children from

pursuing further schooling. In addition, the generosity of the Danish welfare

state does not prevent sorting of children into neighborhoods and schools

on the basis of family background, which appears to benefit the more

advantaged.

Scandinavia invests heavily in child development and boosts the test

scores of the disadvantaged. It then undoes these beneficial effects by

providing weak labor market incentives. Better incentives to acquire skills

would boost Danish educational mobility. Stated differently, the greater in-

centives to acquire education in the US labor market tend to offset its less

favorable investments in the cognitive skills of disadvantaged children. In

addition, while the Danish welfare state promotes equality of opportunity

compared to the US, many barriers remain. There are large skill gaps be-

tween the children of the advantaged and the children of the disadvantaged,

during early and late childhood. Residential sorting across neighborhoods

and schools is strong.

This paper proceeds in the following way. In Section II, we analyze

income mobility in Denmark and the US. We examine the sensitivity of

estimated income IGEs to alternative measures of income. We examine the

sources of differences in income mobility. We also report non-parametric

estimates of income mobility. In Section III, we examine the relationship

between schooling attainment, measures of family financial resources, cog-

nitive and non-cognitive skills of children at age 15, family background

(education and home environment), and measures of schooling quality. We

report surprisingly similar effects of family influence on educational at-

tainment in both societies. We show a link between welfare benefits and

educational attainment in Denmark. We discuss the role of neighborhood

sorting on child educational attainment. In Section IV, we qualify our

analysis. We conclude in Section V.

II. Income Mobility

In this section, we explore alternative measures of intergenerational income

mobility. Different measures of income convey very different impressions

of social mobility. We show how the levels of transfers, the mapping of

education to income, the levels and progressivity of taxation, and income

inequality differ between the US and Denmark. All four factors affect

estimates of income mobility.

We report estimates of non-linear (NL) IGEs for both countries. We

find different patterns depending on which income measure we consider.

C2016 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of The

editors of The Scandinavian Journal of Economics.