IDEAS home Printed from https://ideas.repec.org/a/eee/labeco/v24y2013icp39-47.html
   My bibliography  Save this article

Intergenerational earnings mobility: A new decomposition of investment and endowment effects

Author

Listed:
  • Cardak, Buly A.
  • Johnston, David W.
  • Martin, Vance L.

Abstract

This paper investigates the contribution of investments and endowments in generating intergenerational persistence in earnings. The empirical analysis involves the estimation of a theoretical model where log-earnings of children are determined by the log-earnings of parents and two sources of randomness arising from labor market and endowment shocks. An important feature of the model is that it predicts a nonlinear relationship between earnings across generations, thereby providing support for nonlinear specifications adopted previously. Using PSID data on father–son pairs in the US over the period 1968 to 2005, the results show that about one-third of the intergenerational earnings elasticity arises from investments with the remaining two-thirds coming from endowments. The results also show that the relative decomposition varies with log-earnings of fathers, with the investment effect dominating the endowment effect at low incomes and the reverse occurring at high incomes.

Suggested Citation

  • Cardak, Buly A. & Johnston, David W. & Martin, Vance L., 2013. "Intergenerational earnings mobility: A new decomposition of investment and endowment effects," Labour Economics, Elsevier, vol. 24(C), pages 39-47.
    • Handle: RePEc:eee:labeco:v:24:y:2013:i:c:p:39-47
    DOI: 10.1016/j.labeco.2013.05.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S092753711300064X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.labeco.2013.05.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dearden, Lorraine & Machin, Stephen & Reed, Howard, 1997. "Intergenerational Mobility in Britain," Economic Journal, Royal Economic Society, vol. 107(440), pages 47-66, January.
    2. Björklund, Anders & Roine, Jesper & Waldenström, Daniel, 2012. "Intergenerational top income mobility in Sweden: Capitalist dynasties in the land of equal opportunity?," Journal of Public Economics, Elsevier, vol. 96(5), pages 474-484.
    3. Anders Björklund & Mikael Lindahl & Erik Plug, 2006. "The Origins of Intergenerational Associations: Lessons from Swedish Adoption Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 999-1028.
    4. Erik Plug & Wim Vijverberg, 2003. "Schooling, Family Background, and Adoption: Is It Nature or Is It Nurture?," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 611-641, June.
    5. Jantti, Markus & Bratsberg, Bernt & Roed, Knut & Raaum, Oddbjorn & Naylor, Robin & Osterbacka, Eva & Bjorklund, Anders & Eriksson, Tor, 2005. "American exceptionalism in a new light: a comparison of intergenerational earnings mobility in the Nordic countries, the United Kingdom and the United States," Economic Research Papers 269752, University of Warwick - Department of Economics.
    6. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521355643, January.
    7. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800, Elsevier.
    8. Bhashkar Mazumder, 2005. "Fortunate Sons: New Estimates of Intergenerational Mobility in the United States Using Social Security Earnings Data," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 235-255, May.
    9. Steven Haider & Gary Solon, 2006. "Life-Cycle Variation in the Association between Current and Lifetime Earnings," American Economic Review, American Economic Association, vol. 96(4), pages 1308-1320, September.
    10. Sarah Brown & Steven Mcintosh & Karl Taylor, 2011. "Following in Your Parents’ Footsteps? Empirical Analysis of Matched Parent–Offspring Test Scores," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(1), pages 40-58, February.
    11. Bruce Sacerdote, 2002. "The Nature and Nurture of Economic Outcomes," American Economic Review, American Economic Association, vol. 92(2), pages 344-348, May.
    12. Bernt Bratsberg & Knut Røed & Oddbjørn Raaum & Robin Naylor & Markus Ja¨ntti & Tor Eriksson & Eva O¨sterbacka, 2007. "Nonlinearities in Intergenerational Earnings Mobility: Consequences for Cross-Country Comparisons," Economic Journal, Royal Economic Society, vol. 117(519), pages 72-92, March.
    13. Miles Corak & Andrew Heisz, 1999. "The Intergenerational Earnings and Income Mobility of Canadian Men: Evidence from Longitudinal Income Tax Data," Journal of Human Resources, University of Wisconsin Press, vol. 34(3), pages 504-533.
    14. Jo Blanden & Paul Gregg & Lindsey Macmillan, 2007. "Accounting for Intergenerational Income Persistence: Noncognitive Skills, Ability and Education," Economic Journal, Royal Economic Society, vol. 117(519), pages 43-60, March.
    15. Erik Plug, 2004. "Estimating the Effect of Mother's Schooling on Children's Schooling Using a Sample of Adoptees," American Economic Review, American Economic Association, vol. 94(1), pages 358-368, March.
    16. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    17. Alexandra L. Minicozzi, 2003. "Estimation of sons' intergenerational earnings mobility in the presence of censoring," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(3), pages 291-314.
    18. Nathan D. Grawe, 2004. "Reconsidering the Use of Nonlinearities in Intergenerational Earnings Mobility as a Test for Credit Constraints," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
    19. Tyra Ekhaugen, 2009. "Extracting the causal component from the intergenerational correlation in unemployment," Journal of Population Economics, Springer;European Society for Population Economics, vol. 22(1), pages 97-113, January.
    20. repec:bla:revinw:v:36:y:1990:i:2:p:115-27 is not listed on IDEAS
    21. Black, Sandra E. & Devereux, Paul J., 2011. "Recent Developments in Intergenerational Mobility," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 16, pages 1487-1541, Elsevier.
    22. Haoming Liu & Jinli Zeng, 2009. "Genetic ability and intergenerational earnings mobility," Journal of Population Economics, Springer;European Society for Population Economics, vol. 22(1), pages 75-95, January.
    23. Corak,Miles (ed.), 2004. "Generational Income Mobility in North America and Europe," Cambridge Books, Cambridge University Press, number 9780521827607, January.
    24. Lars Lefgren & Matthew J. Lindquist & David Sims, 2012. "Rich Dad, Smart Dad: Decomposing the Intergenerational Transmission of Income," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 268-303.
    25. Lídia Farré & Roger Klein & Francis Vella, 2012. "Does Increasing Parents’ Schooling Raise the Schooling of the Next Generation? Evidence Based on Conditional Second Moments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(5), pages 676-690, October.
    26. Greene, William H., 1990. "A Gamma-distributed stochastic frontier model," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 141-163.
    27. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
    28. Erik Plug & Wim Vijverberg, 2005. "Does Family Income Matter for Schooling Outcomes? Using Adoptees as a Natural Experiment," Economic Journal, Royal Economic Society, vol. 115(506), pages 879-906, October.
    29. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
    30. Susumu Imai & Michael P. Keane, 2004. "Intertemporal Labor Supply and Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 601-641, May.
    31. Fan, Yanqin & Li, Qi & Weersink, Alfons, 1996. "Semiparametric Estimation of Stochastic Production Frontier Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(4), pages 460-468, October.
    32. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-429, June.
    33. Jere R. Behrman & Paul Taubman, 1990. "The Intergenerational Correlation Between Children'S Adult Earnings And Their Parents' Income: Results From The Michigan Panel Survey Of Income Dynamics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 36(2), pages 115-127, June.
    34. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
    35. Amin, Vikesh & Lundborg, Petter & Rooth, Dan-Olof, 2011. "Following in Your Father's Footsteps: A Note on the Intergenerational Transmission of Income between Twin Fathers and their Sons," IZA Discussion Papers 5990, Institute of Labor Economics (IZA).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richey, Jeremiah & Rosburg, Alicia, 2016. "Understanding intergenerational economic mobility by decomposing joint distributions," MPRA Paper 72665, University Library of Munich, Germany.
    2. You, Jing & Ding, Xinxin & Niño-Zarazúa, Miguel & Wang, Sangui, 2021. "The intergenerational impact of house prices on education: evidence from China," Journal of Housing Economics, Elsevier, vol. 54(C).
    3. Jeremiah Richey & Alicia Rosburg, 2020. "Decomposing joint distributions via reweighting functions: an application to intergenerational economic mobility," Econometric Reviews, Taylor & Francis Journals, vol. 39(6), pages 541-558, July.
    4. Svetlana V. Mareeva & Ekaterina D. Slobodenyuk, 2020. "A Society Of Unstable Well-Being: Income Mobility And Immobility In Russia," HSE Working papers WP BRP 94/SOC/2020, National Research University Higher School of Economics.
    5. Evans-Lacko, Sara & Paulino, Font Gilabert & Knapp, Martin, 2024. "The double disadvantage faced by adolescents from low socioeconomic backgrounds with mental health problems affects earnings up to mid-life," LSE Research Online Documents on Economics 125804, London School of Economics and Political Science, LSE Library.
    6. Michelle M. Miller & Frank McIntyre, 2020. "Does Money Matter for Intergenerational Income Transmission?," Southern Economic Journal, John Wiley & Sons, vol. 86(3), pages 941-970, January.
    7. Berrittella, Maria & Dardanoni, Valentino, 2016. "Nonlinearity in intergenerational income transmission: A cross-country analysis," Economic Analysis and Policy, Elsevier, vol. 52(C), pages 1-10.
    8. Moshe Justman & Anna Krush, 2013. "Less Equal And Less Mobile: Evidence Of A Decline In Intergenerational Income Mobility In The United Statesless Equal And Less Mobile: Evidence Of A Decline In Intergenerational Income Mobility In The," Working Papers 1315, Ben-Gurion University of the Negev, Department of Economics.
    9. Richey, Jeremiah & Rosburg, Alicia, 2014. "Human capital and trends in the transmission of economic status across generations in the U.S," MPRA Paper 60113, University Library of Munich, Germany.
    10. Jeremiah Richey & Alicia Rosburg, 2017. "Changing Roles Of Ability And Education In U.S. Intergenerational Mobility," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 187-201, January.
    11. Jing You & Xinxin Ding & Miguel Niño-Zarazúa & Sangui Wang, 2015. "Lofty pine and clinging vine: The educational 'Great Gatsby Curve' and the role of house prices," WIDER Working Paper Series wp-2015-147, World Institute for Development Economic Research (UNU-WIDER).
    12. Yu-Wei Luke Chu & Ming-Jen Lin, 2020. "Intergenerational earnings mobility in Taiwan: 1990–2010," Empirical Economics, Springer, vol. 59(1), pages 11-45, July.
    13. Jeremiah Richey & Alicia Rosburg, 2018. "Decomposing economic mobility transition matrices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(1), pages 91-108, January.
    14. Steven N. Durlauf & Andros Kourtellos & Chih Ming Tan, 2017. "Status Traps," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 35(2), pages 265-287, April.
    15. Chu, Luke Yu-Wei & Lin, Ming-Jen, 2016. "Economic development and intergenerational earnings mobility: Evidence from Taiwan," Working Paper Series 19495, Victoria University of Wellington, School of Economics and Finance.
    16. Coban, Mustafa & Sauerhammer, Sarah, 2017. "Transmission channels of intergenerational income mobility: Empirical evidence from Germany and the Unites States," Discussion Paper Series 138, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    17. Moshe Justman & Anna Krush, 2013. "Less Equal and Less Mobile: Evidence of a Decline in Intergenerational Income Mobility in the United States," Melbourne Institute Working Paper Series wp2013n43, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    18. Jing You & Xinxin Ding & Miguel Niño-Zarazúa & Sangui Wang, 2015. "Lofty pine and clinging vine: The educational ‘Great Gatsby Curve’ and the role of house prices," WIDER Working Paper Series 147, World Institute for Development Economic Research (UNU-WIDER).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert Lucas & Sari Kerr, 2013. "Intergenerational income immobility in Finland: contrasting roles for parental earnings and family income," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1057-1094, July.
    2. Michelle M. Miller & Frank McIntyre, 2020. "Does Money Matter for Intergenerational Income Transmission?," Southern Economic Journal, John Wiley & Sons, vol. 86(3), pages 941-970, January.
    3. Anna Christina D'Addio, 2007. "Intergenerational Transmission of Disadvantage: Mobility or Immobility Across Generations?," OECD Social, Employment and Migration Working Papers 52, OECD Publishing.
    4. Doan, Quang Hung & Nguyen, Ngoc Anh, 2016. "Intergenerational Income Mobility in Vietnam," MPRA Paper 70603, University Library of Munich, Germany.
    5. Nordin , Martin & Rooth, Dan-Olof, 2011. "Ability Heterogeneity in Intergenerational Mobility," Working Papers 2011:18, Lund University, Department of Economics.
    6. Markus Jäntti & Stephen P. Jenkins, 2013. "Income Mobility," SOEPpapers on Multidisciplinary Panel Data Research 607, DIW Berlin, The German Socio-Economic Panel (SOEP).
    7. Coban, Mustafa & Sauerhammer, Sarah, 2017. "Transmission channels of intergenerational income mobility: Empirical evidence from Germany and the Unites States," Discussion Paper Series 138, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    8. Jeremiah Richey & Alicia Rosburg, 2018. "Decomposing economic mobility transition matrices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(1), pages 91-108, January.
    9. Florencia Torche, 2015. "Analyses of Intergenerational Mobility," The ANNALS of the American Academy of Political and Social Science, , vol. 657(1), pages 37-62, January.
    10. Qin, Xuezheng & Wang, Tianyu & Zhuang, Castiel Chen, 2016. "Intergenerational transfer of human capital and its impact on income mobility: Evidence from China," China Economic Review, Elsevier, vol. 38(C), pages 306-321.
    11. Nicoletti, Cheti, 2008. "Multiple sample selection in the estimation of intergenerational occupational mobility," ISER Working Paper Series 2008-20, Institute for Social and Economic Research.
    12. Daniel D. Schnitzlein, 2016. "A New Look at Intergenerational Mobility in Germany Compared to the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(4), pages 650-667, December.
    13. Ben-Halima, B. & Chusseau, N. & Hellier, J., 2014. "Skill premia and intergenerational education mobility: The French case," Economics of Education Review, Elsevier, vol. 39(C), pages 50-64.
    14. Sajid Amin Javed & Mohammad Irfan, 2014. "Intergenerational Mobility: Evidence from Pakistan Panel Household Survey," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(2), pages 175-203.
    15. Bevis, Leah E.M. & Barrett, Christopher B., 2015. "Decomposing Intergenerational Income Elasticity: The Gender-differentiated Contribution of Capital Transmission in Rural Philippines," World Development, Elsevier, vol. 74(C), pages 233-252.
    16. Quheng Deng & Björn Gustafsson & Shi Li, 2013. "Intergenerational Income Persistence in Urban China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(3), pages 416-436, September.
    17. Lars Lefgren & Matthew J. Lindquist & David Sims, 2012. "Rich Dad, Smart Dad: Decomposing the Intergenerational Transmission of Income," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 268-303.
    18. Maribel Jiménez, 2011. "Un Análisis Empírico de las No Linealidades en la Movilidad Intergeneracional del Ingreso. El caso de la Argentina," CEDLAS, Working Papers 0114, CEDLAS, Universidad Nacional de La Plata.
    19. FAN, Yi, 2016. "Intergenerational income persistence and transmission mechanism: Evidence from urban China," China Economic Review, Elsevier, vol. 41(C), pages 299-314.
    20. Björklund, Anders & Roine, Jesper & Waldenström, Daniel, 2012. "Intergenerational top income mobility in Sweden: Capitalist dynasties in the land of equal opportunity?," Journal of Public Economics, Elsevier, vol. 96(5), pages 474-484.

    More about this item

    Keywords

    Endowments; Educational investments; Nonstandard distribution;
    All these keywords.

    JEL classification:

    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:labeco:v:24:y:2013:i:c:p:39-47. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/labeco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.