Using data covering a single cohort’s ﬁrst 55 years of life, we show that most of the intergenerational elasticity of earnings (IGE) is explained by diﬀerences 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 eﬀect of each channel on the IGE, but also its indirect eﬀects 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.
Eric is the Montague Burton Professor of Industrial Relations and Labour Economics at the University of Cambridge and Professor of Economics at UCL.
Research Associate Yale University
Cormac is a Research Associate of the IFS, an Assistant Professor of Economics at the Yale University and Research Fellow at the NBER.
Research Fellow University of Bristol
Uta is an IFS Research Fellow and University of Bristol lecturer with an interest in the development of inequalities over the lifecycle.
Research Scholar University College London
Working Paper details
- Institute for Fiscal Studies
Bolt, U et al. (2021). The intergenerational elasticity of earnings: exploring the mechanisms. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/intergenerational-elasticity-earnings-exploring-mechanisms (accessed: 29 February 2024).
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