where _E_ ( _RI_<sup>_cj_</sup> ) = { _πi_<sup>_njRcn_+</sup> (1 _− πi_<sup>_nj_</sup> ) _R_<sup>_cf_}</sup> is the expected return to financial investment in son’s education when the father is employed in occupation _j_ = _n, f_ .

# <u>Rural China</u>

The following observations are important for understanding the role played by occupational persistence in educational mobility in rural China. First, when _πi_<sup>_nn_</sup> _≃ πi_<sup>_nf_,wehave</sup> _E_ ( _RI_<sup>_cn_</sup> ) _≃ E_ ( _RI_<sup>_cf_)</sup> , irrespective of whether _R_<sup>_cn_</sup> _> R_<sup>_cf_</sup> or _R_<sup>_cn_</sup> _≤ R_<sup>_cf_</sup> . Since expected returns to education for the children do not vary significantly across farm and nonfarm households in this case, we would expect parental investment in education and thus educational mobility to be similar also. The second observation is that when there is low or no intergenerational persistence in nonfarm (or farm) occupations, we have _πi_<sup>_nn_</sup> _≃ πi_<sup>_nf_.</sup> A substantial body of independent evidence, in fact, suggests that, for the relevant cohorts, there was no significant intergenerational persistence in nonfarm occupation choices ( _πi_<sup>_nn_</sup> _≃ πi_<sup>_nf_)inruralChina.WuandTreiman(2007)usethe1996nationalprobability</sup> sample of Chinese men and show that there is high degree of _mobility into agriculture_ ; the sons of nonfarm parents also face a substantial probability of becoming a farmer. They identify the geographic restrictions on mobility of rural people because of the Hukou registration system as the primary factor behind this weak intergenerational persistence in nonfarm occupations.<sup>40</sup> Using CHIP 2002 data, Emran and Sun (2015) report evidence supporting Wu and Treiman (2007) finding.

The evidence that _E_ ( _RI_<sup>_cn_</sup> ) = _E_ ( _RI_<sup>_cf_)</sup> , along with equation (19), above implies that a sufficient condition for the equality of the intercepts of the intergenerational persistence equations is that _Y_ 0<sup>_pn_</sup> = _Y_ 0<sup>_pf_,i.e.,theinterceptsofthereturnstoeducationfunctionin</sup> parent’s generation are the same across farm and nonfarm households. We would expect _Y_ 0<sup>_pn_</sup> = _Y_ 0<sup>_pf_</sup> when the fathers with zero schooling have similar income (permanent income) and face similar credit constraint, irrespective of their occupation.

The estimates in panel A of Table 4 show that the null hypothesis _Y_ 0<sup>_pn_</sup> = _Y_ 0<sup>_pf_</sup> cannot be rejected at the 10 percent level with a p-value of 0.78 for the CHIP 2002 data on five-year average income. The evidence from 1995 data is also similar (p-value is 0.81). Again, these conclusions from CHIP 2002 and CHIP 1995 remain intact when we include number of

> 40The link between restrictions on geographic mobility of rural people and a lack of intergenerational occupational persistence (farm/nonfarm) is, however, not unique to China, similar evidence is available on Vietnam where the Ho Khau registration system has been in place since 1964; see the evidence and the analysis in Emran and Shilpi (2011). This enhances the credibility of Wu and Treiman (2007) analysis that the Hukou restrictions played an important role in the low occupational persistence in rural China.

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