Mixing the Rich and Poor: The Impact of Peers on Education and Earnings

Elias Einiö

No 128, Working Papers from VATT Institute for Economic Research

Abstract: This study exploits a large-scale natural experiment in Finnish conscription to study how exposure to peers from different family backgrounds affects education, earnings, employment, and hourly wage. Our research design is based on the alphabetic rule in assigning conscripts to dorms, which induces credible exogenous variation in peer family backgrounds. Being exposed to a dormmate from a high-income family has a positive long-term effect on earnings. The effects are the largest for individuals who come from high-income families. Exposure to peers with one standard deviation higher average parent income raises their earnings at age 28-42 by 2.6%. The results suggest beneficial labor market networks as a key mechanism. Exposure to peers from high-income families has little impact on earnings and hourly wages of individuals who come from low-income families, but it increases their educational attainment in the long run. The findings imply that social stratification reinforces economic and educational inequality between rich and poor families.

Keywords: earnings; employment; education; wages; peer effects; family background; Labour markets and education; J24; J31; Koulutus; Tulonjako ja eriarvoisuus (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-edu, nep-eur, nep-lma and nep-ure
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