Working Paper: CEPR ID: DP15975
Authors: Eric Baird French; Cormac O'Dea; Uta Bolt; Jamie Maccuish
Abstract: How do education, skills, investments of parental time and school quality, and family circumstances during childhood contribute to the persistence of earnings across generations? Building on a classicliterature in sociology and a more recent literature in economics, our model allows each of the above variables to affect lifetime earnings directly, as well as through their contribution to human capitalformation. The model allows us to decompose the intergenerational elasticity of earnings (IGE) into its drivers. Using data from a representative British cohort followed from birth to age 55, we show the above variables explain most of the IGE. A key driver is the increased levels of parental investments received by children of high income parents early in their lives, and the resulting cognitive development.
Keywords: Parental investments; Cognitive skills; Intergenerational elasticity of earnings
JEL Codes: I24; J24; C38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Parental income (D31) | Years of schooling (I21) |
| Parental income (D31) | Cognitive skills (G53) |
| Parental income (D31) | Parental investments (J13) |
| Parental investments (J13) | Cognitive development (O11) |
| Cognitive development (O11) | Educational attainment (I21) |
| Educational attainment (I21) | Lifetime earnings (J17) |
| Parental investments (J13) | Educational outcomes (I21) |
| Family background (J12) | Intergenerational elasticity of earnings (IGE) (D15) |
| Parental income (D31) | Investments in children (J13) |
| Cognitive skills (G53) | Lifetime earnings (J17) |
| Years of schooling (I21) | Lifetime earnings (J17) |