What is the source of the intergenerational correlation in earnings?

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Date: July 2022
Publisher: Elsevier B.V.
Document Type: Article
Length: 492 words

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Abstract :

Keywords Intergenerational models; Estimation; discrete choice; Human capital; Panel study of income dynamics Highlights * We estimate a dynastic model of intergenerational transmission of human capital in which parents choose time with children, fertility, and labor supply. * We decompose the effects of four factors on the IGC (i) earnings structure, (ii) assortative mating, (iii) heterogeneity in preference, (iv) direct impact of parental skills * The returns to experience account for 42% of the persistence in IGC. * Assortative mating accounts for less than 13%. * The increased demand for children of more-educated households mutes the persistence * Direct transmission of parental skills is significant. Abstract We use a dynastic model of household behavior to estimate and decompose the correlations in earnings across generations. The estimated model can explain 75% to 80% of the observed correlation in lifetime earnings between fathers and sons, mothers and daughters, and families across generations. We find that human-capital accumulation in the labor market, the nonlinear return to part-versus full-time work, and the return to parental time investment in children are the main forces driving the intergenerational correlation in earnings. The primary mechanism through which these three sources affect the intergenerational correlation in earnings is their effects on fertility and the division of labor within the household. Assortative mating magnifies these forces. Author Affiliation: (a) Department of Economics, Washington University in St. Louis, United States (b) Federal Reserve Bank of St. Louis, United States (c) King Fahd University of Petroleum and Minerals Business School, Saudi Arabia (d) Center for Finance and Digital Economy, King Fahd University of Petroleum and Minerals, Saudi Arabia * Corresponding author at: Department of Economics, Washington University in St. Louis and the Federal Reserve Bank of St. Louis Campus Box 1208, One Brookings Drive, St. Louis, MO 63130 Article History: Received 27 April 2022; Accepted 28 April 2022 (footnote)[white star] We thank seminar and conference participants and discussants at American University of Beirut, Australian National University, Bilkent University, Central Bank of the Republic of Turkey, Federal Reserve Bank of St. Louis, Hacettepe University, Illinois State University, Istanbul Technical University, King Fahd University of Petroleum and Minerals, Koc University, New York University, Marmara University, Middle East Technical University, Michigan State University, Ozyegin University, Sabanci University, Southern Illinois University, University of British Columbia, University College of London, Institute for Fiscal Studies, University of Houston, University of Miami, University of Minnesota, Yale University, University of Western Ontario, CRNYU conference 2021, Barcelona GSE Summer Forum 2016, CEE Annual Conference: Issues in Labor Economics 2017, EconAnadolu Conference 2017, Econometric Society North America Summer Meeting 2016, European Society for Population Economics 2018, Fourth SOLE/EALE World Conference 2015, 5th Annual All Istanbul Meeting 2015, HCEO Markets Group--Chicago 2017, Royal Economic Society Annual Conference 2016, Turkish Economic Association Annual Conference 2016, and Workshop on Socio-Economic Mobility, Inequality, and Growth, Barcelona GSE Summer Forum 2016. All errors are our own. Byline: George-Levi Gayle (a,b), Limor Golan [lgolan@wustl.edu] (*,a,b), Mehmet A. Soytas (c,d)

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Gale Document Number: GALE|A706769209