How does education affect intergenerational income mobility in Chinese society?

Education has been proved to be one of the most important variables influencing intergenerational income mobility. Existing literature decomposes the indirect effect of education on intergenerational income mobility into two components: the effect of the correlation between a parents' income and their children's education, and the effect of the return to education. Basing on the framework of existed studies, this paper explores a beneficial application to measure the two components, and checks which effect is more important in explaining the inter-generational income mobility in Chinese society. Using data from the China Health and Nutrition Survey (CHNS), the research analyzes how education affects inter-generational income mobility, and estimates the respective contributions of the two effects of education. The empirical results show that the effect of education is of importance in explaining the increase in the intergenerational income correlation for 1960s, 1970s and 1980s of Chinese age groups. Meanwhile, after decomposing the effect of education, we find that the return on education has stronger explanatory power on intergenerational income mobility than the correlation between a father's income and his child's education. Therefore, the return to education should be the center of policy design for the Chinese government.