The intergenerational elasticity of earnings: exploring the mechanisms

Uta Bolt (), Eric French, Jamie Hentall-MacCuish () and Cormac O'Dea ()
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Uta Bolt: Institute for Fiscal Studies and UCL
Jamie Hentall-MacCuish: Institute for Fiscal Studies and University College London
Cormac O'Dea: Institute for Fiscal Studies and Yale University
Authors registered in the RePEc Author Service: Jamie Hentall MacCuish

No W21/07, IFS Working Papers from Institute for Fiscal Studies

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.

Date: 2021-03-17
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Related works:
Working Paper: The Intergenerational Elasticity of Earnings: Exploring the Mechanisms * (2024)
Working Paper: The intergenerational elasticity of earnings: Exploring the mechanisms (2024)
Working Paper: The Intergenerational Elasticity of Earnings: Exploring the Mechanisms (2021)
Working Paper: The Intergenerational Elasticity of Earnings: Exploring the Mechanisms (2021)
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