"The days when you could rise from rags to riches are long gone"
A joint study by the Bank of Korea and the Organisation for Economic Co-operation and Development (OECD) has confirmed that the intergenerational mobility symbolized by the saying "a dragon rises from a small stream" has weakened further in recent years. The analysis suggests that in order to ease the structure in which economic power is increasingly passed down in connection with one’s place of birth and residence, it is necessary not only to strengthen mobility so that "those with the potential to become dragons can reach the river," but also to transform local regions themselves from "small streams into large rivers."
According to the "BOK Issue Note - Interregional Population Mobility and Intergenerational Transmission of Economic Status (Jeong Minsoo, Lee Dahye, and Volker Ziemann)," published by the Bank of Korea on February 11, intergenerational transmission of economic power in Korea has strengthened in recent years. Jeong Minsoo, Head of the Regional Economic Research Team at the Bank of Korea’s Economic Research Department, said, "The rank-rank slope (RRS) of income, which is widely used to measure the degree of transmission, is estimated at 0.25, meaning that when parents’ income rank rises by 10 places out of 100, their children’s income rank rises by 2.5 places," adding, "The rank-rank slope of wealth based on assets is even higher at 0.38, indicating that the transmission of assets is stronger than that of income."
Worsening "asset inheritance" across generations
By generation, the degree of transmission has worsened in more recent cohorts for both income and assets. For children born in the 1970s, the income RRS is 0.11 and the asset RRS is 0.28, whereas for children born in the 1980s, these figures rise to 0.32 and 0.42, respectively. Jeong noted that "this is in line with the widespread social perception that the ladder of social mobility is weakening."
Jeong said, "In general, when children leave their parents and move to another region, factors that affect economic outcomes such as the educational environment and workplace change together, which tends to improve their economic situation and mitigate intergenerational transmission," adding, "Microdata analysis shows that the average income percentile of children who moved rose by 6.5 percentage points compared with their parents, whereas that of non-migrant children actually fell by 2.6 percentage points."The income and asset RRS of the migrant group (0.13 and 0.26) were also significantly lower than those of the non-migrant group (0.33·0.46), indicating that intergenerational transmission is weaker among migrants.
Stay in the provinces, and poverty stays too? Mobility gap becomes reality
A key finding is that the income-mobility effect for the children’s generation arising from migration (the migration effect) varies greatly depending on their place of birth and destination. Children born in the Seoul metropolitan area experienced upward mobility, especially among low-income households, when they moved within the metropolitan region. In contrast, children born outside the metropolitan area saw a large improvement in economic status when they moved to the metropolitan area, but the effect of moving between provinces within the same broad region has shrunk significantly compared with the past.
For example, among older cohorts (those now in their 50s), the average income percentile was similar for those who were born outside the metropolitan area and graduated from a regional hub-city university (61.7%) and those who went on to a university in the metropolitan area (62.3%). By contrast, among more recent cohorts (those now in their 30s), the average income percentile of graduates from metropolitan-area universities (61.8%) far exceeded that of graduates from regional hub-city universities (53.3%). Jeong interpreted this by saying, "These changes are the result of a combination of the declining competitiveness of hub-city universities and structural conditions in which quality jobs are relatively scarce across non-metropolitan regions."
The fact that migration within a broad non-metropolitan region, without moving beyond it, does not sufficiently translate into improved economic status works particularly against low-income children. This is because low-income households are more likely to forgo moving to Seoul or the metropolitan area due to housing costs and instead choose to move within their current region, such as to nearby hub cities. Jeong said, "Children whose parents’ assets are in the bottom 25% have a 43-percentage-point lower probability of moving to the metropolitan area than children of parents in the top 25%," adding, "This inequality of opportunity is likely to have contributed to the overall intensification of intergenerational transmission in Korea."
At the same time, children who were born outside the metropolitan area and stayed in their hometowns are experiencing a "transmission of poverty." Among them, the share of children whose parents’ income was in the bottom 50% and whose own income also remains in the bottom 50% has risen from the high-50% range in the past (those born between 1971 and 1985) to over 80% in more recent cohorts (those born between 1986 and 1990). Conversely, the share entering the top 25% of the income distribution has fallen from 13% to 4%.
Reality shaped by metropolitan concentration... growing importance of public investment
From an individual standpoint, children born outside the metropolitan area have a strong incentive to move to the metropolitan area, while those born in the metropolitan area have a strong incentive to stay there. This has led to a one-sided concentration of young people in the Seoul metropolitan area. However, Jeong stressed that "in a situation where individually rational decisions are collectively causing severe side effects for the country as a whole, ranging from regional polarization and weakened social cohesion to ultra-low fertility, public intervention to correct this is unavoidable." He emphasized that "to mitigate the structure in which economic power is increasingly inherited in connection with place of birth and residence, it is necessary not only to strengthen mobility so that 'those with the potential to become dragons can reach the river,' but also to transform local regions themselves from 'small streams into large rivers.'"
In this process, the role of the education system and public investment is particularly important. Jeong said, "We need to expand opportunities for low-income students from non-metropolitan regions to enter top-tier universities in Seoul through measures such as region-based proportional admission systems," adding, "Bold public investment is also needed to dramatically enhance the educational competitiveness of non-metropolitan hub universities." He explained that a "selection and concentration" strategy should be pursued so that a small number of hub universities can achieve competitiveness comparable to that of top-tier Seoul universities, at least in certain fields.
He also stressed the need for concentrated investment in hub cities to improve the industrial base and jobs in non-metropolitan regions. "Regional growth centered on hub cities can provide a fundamental solution by simultaneously enhancing mobility within non-metropolitan regions and easing intergenerational transmission," he said, adding, "Ongoing discussions on administrative-district consolidation and broad regional governance reform should also be pursued in ways that strengthen the status of hub cities."
