Abstract
I use a new methodological approach and larger US samples than previous studies and estimate that the sibling correlation across a range of economic outcomes is around 0.5. This suggests that half of economic inequality in the US can be attributed to family and community influences. A comparison with noneconomic outcomes suggests that individual choices rather than a simple mechanical relationship governs the intergenerational transmission of income. A decomposition of the sibling correlation suggests that the acquisition of human capital is an important channel through which family background affects future success but that noncognitive factors also play a role.
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Notes
The assumption that a i and u ij are uncorrelated is purely for analytical convenience and allows one, conceptually, to divide the permanent component into a part that is perfectly correlated among siblings and a part that is perfectly uncorrelated among siblings. For the assumption that a i and v ijt are uncorrelated, I find (as did Solon et al. 1991) that there is little or no cross-sectional correlation in the transitory component.
Allowing for serial correlation in the transitory component has little effect on the results. Readers who are interested in a comparison of estimators for this case may wish to consult Mazumder (2004), which is an earlier version of this paper.
Solon et al. (1991) implicitly have a restriction of an 8-year sibling age difference as the cohorts must be born between 1951 and 1958. Similarly, Altonji and Dunn (1991) use cohorts born between 1942 and 1952 who, in practice, are observed no more than eight times when they are at least 24 years old making it relatively rare to observe siblings spaced more than 8 years apart. In principle, (Björklund et al. 2002) may observe more widely spaced siblings; however, they do not report the age distribution within families.
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Acknowledgment
I thank David I. Levine, Gary Solon, Dan Sullivan, Kristin Butcher, and three anonymous referees for helpful comments. I also greatly appreciate the outstanding research assistance provided by Sara Christopher. The views expressed here do not represent the views of the Federal Reserve System.
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Mazumder, B. Sibling similarities and economic inequality in the US. J Popul Econ 21, 685–701 (2008). https://doi.org/10.1007/s00148-006-0127-2
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DOI: https://doi.org/10.1007/s00148-006-0127-2