Intergenerational Persistence of Earnings: The Role of Early and College Education

Diego Restuccia and Carlos Urrutia ()

Working Papers from University of Toronto, Department of Economics

Abstract: Recent empirical studies show that the intergenerational persistence of economic status in the U.S. is much higher than previously thought. We develop a quantitative theory of inequality and intergenerational transmission of human capital where parents invest in early and college education of their children subject to borrowing constraints. Children differ exogenously in innate abilities, which can be correlated with their parent s innate ability. An important feature of the environment is that the quality of early education determines the probability of college completion. We calibrate a stationary equilibrium of this economy to relevant statistics in aggregate U.S. data, and use it to investigate the sources of inequality and persistence in earnings. In our benchmark model, about half of the intergenerational persistence and one fourth of the inequality in earnings are accounted for by endogenous investments in education. We find that early investments in education account for most of the endogenous persistence in earnings, while college education generates most of the endogenous inequality in earnings. Our theory is suited to study the effect of educational policies on the persistence of inequality. We show that public resources devoted to early education have the largest impact on earnings mobility. Moreover, non-progressive college subsidies generate more intergenerational persistence of earnings.

Keywords: Human Capital; Education; Intergenerational Mobility; Ability. (search for similar items in EconPapers)
JEL-codes: E6 I2 J62 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2002-09-11
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-DIEGOR-02-03.pdf MainText (application/pdf)

Related works:
Journal Article: Intergenerational Persistence of Earnings: The Role of Early and College Education (2004)
Working Paper: Intergenerational Persistence of Earnings: The Role of Early and College Education (2002)
Working Paper: Intergenerational Persistence of Earnings: The Role of Early and College Education (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:diegor-02-03

Access Statistics for this paper

More papers in Working Papers from University of Toronto, Department of Economics 150 St. George Street, Toronto, Ontario.
Bibliographic data for series maintained by RePEc Maintainer ().