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

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

No 20692, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Human capital formation; Schooling attainment; Parental background (search for similar items in EconPapers)
JEL-codes: E24 I24 I26 J62 (search for similar items in EconPapers)
Date: 2025-09
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