Intergenerational Earnings Mobility and Returns to Education in Hong Kong: A Developed Society with High Economic Inequality

Abstract

The Great Gatsby curve shows societies with higher levels of economic inequality to exhibit lower levels of intergenerational mobility, with such mobility influenced by educational opportunities. Hong Kong features one of the world’s largest degrees of economic inequality, but has also witnessed a substantial expansion in tertiary education in the past two decades. This paper investigates the change in intergenerational earnings mobility and returns to education in Hong Kong over time. Data were drawn from the 1996, 2006 and 2016 Hong Kong Population By-Censuses. Instrumental variables regression was performed to estimate the change in the average level of such mobility, and instrumental variables quantile regression to estimate the change in the non-linear pattern of intergenerational mobility and returns to education. The findings show the average level of intergenerational mobility has been improved, with intergenerational elasticity decreasing from 0.37 in 1996 to 0.26 in 2006 and 0.23 in 2016. However, intergenerational economic transmission among high-earners remains persistently strong. Examination of the non-linear pattern shows that it is the reproduction of wealth rather than the reproduction of poverty that has led to intergenerational persistence in Hong Kong. A similar pattern was observed in 1996, 2006 and 2016. Returns to non-degree tertiary education were similar across the earnings distribution in 1996 and 2016 but more valuable for low-earners in 2006. Degree-level tertiary education is persistently more valuable for high- than low-earners, which exacerbated earnings inequality in 1996, 2006 and 2016.