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The intergenerational elasticity of earnings: exploring the mechanisms

Author

Listed:
  • Uta Bolt

    (Institute for Fiscal Studies and UCL)

  • Eric French

    (Institute for Fiscal Studies and University College London and University of Cambridge)

  • Jamie Hentall-MacCuish

    (Institute for Fiscal Studies and University College London)

  • Cormac O'Dea

    (Institute for Fiscal Studies and Yale University)

Abstract

Using data covering a single cohort’s ?rst 55 years of life, we show that most of the intergenerational elasticity of earnings (IGE) is explained by di?erences in: years of schooling, cognitive skills, investments of parental time and school quality, and family circumstances during childhood. To decompose the fraction of the IGE explained by each of these channels, we implement a multi-level mediation analysis combined with a latent factor framework that accounts for measurement error. Multilevel mediation analysis allows us to assess not only the direct e?ect of each channel on the IGE, but also its indirect e?ects working through the other channels, thus providing an in-depth understanding of the link between parents’ and children’s earnings. Of these channels, we show that the main driver of the IGE is increased levels of parental investments received by children of high income parents early in their lives, which encourages greater cognitive development and lifetime earnings.

Suggested Citation

  • Uta Bolt & Eric French & Jamie Hentall-MacCuish & Cormac O'Dea, 2021. "The intergenerational elasticity of earnings: exploring the mechanisms," IFS Working Papers W21/07, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:21/07
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    Cited by:

    1. Koeniger, Winfried & Zanella, Carlo, 2022. "Opportunity and inequality across generations," Journal of Public Economics, Elsevier, vol. 208(C).
    2. 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.
    3. Antonia Antweiler & Joachim Freyberger, 2025. "Flexible estimation of skill formation models," Papers 2507.18995, arXiv.org.
    4. Loumeau, Gabriel, 2023. "Locating Public Facilities: Theory and Micro Evidence from Paris," Journal of Urban Economics, Elsevier, vol. 135(C).
    5. Sreevidya Ayyar & Uta Bolt & Eric French & Cormac O'Dea, 2024. "Imagine your life at 25: Gender conformity and later-life outcomes," IFS Working Papers W24/32, Institute for Fiscal Studies.
    6. Del Bono, Emilia & Etheridge, Ben & Garcia, Paul, 2024. "The economic value of childhood socio-emotional skills," ISER Working Paper Series 2024-01, Institute for Social and Economic Research.
    7. Ricky Kanabar, 2024. "Assortative mating and wealth inequality in Great Britain: evidence from the baby boomer and Gen X cohorts," CEPEO Working Paper Series 24-07, UCL Centre for Education Policy and Equalising Opportunities, revised Nov 2024.

    More about this item

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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