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The Causal Effect of Parents' Education on Children's Earnings

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  • Lee, Sang Yoon (Tim)
  • Roys, Nicolas
  • Seshadri, Ananth

Abstract

We present a model of endogenous schooling and earnings to isolate the causal effect of parents' education on children's education and earnings outcomes. The model suggests that parents' education is positively related to children's earnings, but its relationship with children's education is ambiguous. Identification is achieved by comparing the earnings of children with the same length of schooling, whose parents have different lengths of schooling. The model also features heterogeneous preferences for schooling, and is estimated using HRS data. The observed correlation between parents' and children's years of schooling is largely driven by the correlation between parents' schooling and children's unobserved preferences for schooling. This is partly offset by a slightly negative, structural relationship between parents' and children's schooling choices, resulting in an IV coefficient smaller than OLS when exogenously increasing parents' schooling. Nonetheless, an exogenous one-year increase in parents' schooling raises children's lifetime earnings by 2 percent on average.

Suggested Citation

  • Lee, Sang Yoon (Tim) & Roys, Nicolas & Seshadri, Ananth, 2025. "The Causal Effect of Parents' Education on Children's Earnings," CEPR Discussion Papers 20692, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:20692
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    2. Awaworyi Churchill, Sefa & Chang, Simon & Smyth, Russell & Trinh, Trong-Anh, 2025. "The long run gender origins of entrepreneurship: Evidence from Australia's convict history," Journal of Business Venturing, Elsevier, vol. 40(6).
    3. Cabrera-Hernández, Francisco & Dustan, Andrew & Osuna-Gomez, Daniel & Padilla-Romo, María, 2026. "Marginal Admission to Elite High Schools: Long-run Effects on Labor Market Outcomes," IZA Discussion Papers 18369, IZA Network @ LISER.
    4. Issofou Njifen, 2024. "Education-Job mismatch, earnings and worker’s satisfaction in African labor market: evidence from Cameroon," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 41(3), pages 931-962, October.

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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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