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Intergenerational Persistence of Earnings: The Role of Early and College Education

Author

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  • Diego Restuccia

    (University of Toronto)

  • Carlos Urrutia

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM), Universidad carlos III de Madrid)

Abstract

Recent empirical studies show that the intergenerational persistence of economic status in the U.S. is much higher than previously thought. We develop a quantitative theory of inequality and intergenerational transmission of human capital where parents invest in early and college education of their children subject to borrowing constraints. Children differ exogenously in innate abilities, which can be correlated with their parent's innate ability. An important feature of the environment is that the quality of early education determines the probability of college completion. We calibrate a stationary equilibrium of this economy to relevant statistics in aggregate U.S. data, and use it to investigate the sources of inequality and persistence in earnings. In our benchmark model, about half of the intergenerational persistence and one fourth of the inequality in earnings are accounted for by endogenous investments in education. We find that early investments in education account for most of the endogenous persistence in earnings, while college education generates most of the endogenous inequality in earnings. Our theory is suited to study the effect of educational policies on the persistence of inequality. We show that public resources devoted to early education have the largest impact on earnings mobility. Moreover, non-progressive college subsidies generate more intergenerational persistence of earnings.

Suggested Citation

  • Diego Restuccia & Carlos Urrutia, 2002. "Intergenerational Persistence of Earnings: The Role of Early and College Education," Working Papers 0209, Centro de Investigacion Economica, ITAM.
  • Handle: RePEc:cie:wpaper:0209
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    References listed on IDEAS

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    More about this item

    Keywords

    Human Capital; Education; Intergenerational Mobility; Ability;
    All these keywords.

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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