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What is the source of the intergenerational correlation in earnings?

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  • Gayle, George-Levi
  • Golan, Limor
  • Soytas, Mehmet A.

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.

Suggested Citation

  • Gayle, George-Levi & Golan, Limor & Soytas, Mehmet A., 2022. "What is the source of the intergenerational correlation in earnings?," Journal of Monetary Economics, Elsevier, vol. 129(C), pages 24-45.
  • Handle: RePEc:eee:moneco:v:129:y:2022:i:c:p:24-45
    DOI: 10.1016/j.jmoneco.2022.04.007
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    Cited by:

    1. de la Croix, David & Pommeret, Aude, 2021. "Childbearing postponement, its option value, and the biological clock," Journal of Economic Theory, Elsevier, vol. 193(C).
    2. Musab Kurnaz & Mehmet Soytas, 2019. "Early Childhood Investment and Income Taxation," 2019 Meeting Papers 290, Society for Economic Dynamics.
    3. Uta Bolt & Eric French & Jamie Hentall Maccuish & Cormac O’Dea, 2018. "Intergenerational Altruism and Transfers of Time and Money: A Life-cycle Perspective," Working Papers wp379, University of Michigan, Michigan Retirement Research Center.
    4. Teodora Boneva & Christopher Rauh, 2018. "Parental Beliefs about Returns to Educational Investments—The Later the Better?," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1669-1711.
    5. George‐Levi Gayle & Limor Golan & Mehmet A. Soytas, 2018. "Estimation of dynastic life‐cycle discrete choice models," Quantitative Economics, Econometric Society, vol. 9(3), pages 1195-1241, November.
    6. Gabriella Conti & Giacomo Mason & Stavros Poupakis, 2019. "Developmental origins of health inequality," IFS Working Papers W19/17, Institute for Fiscal Studies.
    7. Gallipoli, Giovanni & Low, Hamish & Mitra, Aruni, 2020. "Consumption and Income Inequality across Generations," CEPR Discussion Papers 15166, C.E.P.R. Discussion Papers.
    8. Giovanni Gallipoli & Hamish Low & Aruni Mitra, 2020. "We characterize the joint evolution of cross-sectional inequality in income and consumption across generations. We estimate a model of intergenerational persistence and separately identify influences ," Working Papers 2020-061, Human Capital and Economic Opportunity Working Group.
    9. Emily Moschini, 2019. "Child Care Subsidies with One- and Two-Parent Families," 2019 Meeting Papers 42, Society for Economic Dynamics.
    10. Kurnaz, Musab & Soytas, Mehmet A., 2019. "Intergenerational Income Mobility and Income Taxation," GLO Discussion Paper Series 409, Global Labor Organization (GLO).

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    More about this item

    Keywords

    Intergenerational models; Estimation; discrete choice; Human capital; Panel study of income dynamics;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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