The Inheritance of Employers and Nonlinearities in Intergenerational Earnings Mobility

Abstract

A growing literature addressing the intergenerational transmission of earnings often forms the backdrop for policy discussions dealing with equality of opportunity. This literature is generally framed in the context of a linear regression to the mean model, and motivated theoretically by models of parental investments in the human capital of their children as in Becker and Tomes (1986, 1979) and Loury (1981). The major concern of the empirical research has been the challenge of correctly estimating the elasticity of earnings between parents and their children in the presence of measurement errors and life cycle biases. Atkinson, Maynard, and Trinder (1983), Solon (1992, 1989) and Zimmerman (1992) offer a starting point that has led to a large number of studies from a number of countries, surveyed by d’Addio (2007), Björklund and Jäntti (2009), Black and Devereux (2011), Corak (2006), and Solon (2002, 1999). Böhlmark and Lindquist (2006), Grawe (2006), Haider and Solon (2006) and Nybom and Stuhler (2016) represent some recent methodological developments.

This is a revised version of a paper presented to departmental seminars at Columbia University, Princeton University, Stockholm University, University of British Columbia, Uppsala University, Harvard University, University of Washington, University of Massachusetts, University of Saskatchewan, and Florida International University and to the International Economics Association — World Bank Roundtable on Shared Prosperity and Growth, the 30th conference of the International Association for Research in Income and Wealth, the “Intergenerational Mobility Conference,” organized by the Centre for Longitudinal Studies and the Centre for the Economics of Education held at the London School of Economics, and the conference on “Recent Developments in Research on Intergenerational Mobility” organized by the Scottish Institute for Research in Economics and held at the University of Edinburgh. We thank the participants at these presentations and others for their feedback, and in particular Carlo Fiorio, Markus Jäntti, Alan Krueger, Sheng Guo, and Gary Solon. We also acknowledge help during the early stages of constructing the data from Leonard Landry, Darren Lauzon, Sophie Lefebvre, and Debbie Tobalt, and the advice of Mikal Skuterud, and thank Sheng Guo for the STATA code that formed the basis for some of our empirical analysis. Corak acknowledges financial support from the Social Sciences and Humanities Research Council of Canada.