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The Intergenerational Elasticity of Earnings: Exploring the Mechanisms

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  • Uta Bolt
  • Eric French
  • Jamie Hentall-MacCuish
  • Cormac O'Dea

Abstract

How do education, skills, investments of parental time and school quality, and family circumstances during childhood contribute to the persistence of earnings across generations? Building on a classic literature in sociology and a more recent literature in economics, our model allows each of the above variables to affect lifetime earnings directly, as well as through their contribution to human capital formation. The model allows us to decompose the intergenerational elasticity of earnings (IGE) into its drivers. Using data from a representative British cohort followed from birth to age 55, we show the above variables explain most of the IGE. A key driver is the increased levels of parental investments received by children of high income parents early in their lives, and the resulting cognitive development.

Suggested Citation

  • Uta Bolt & Eric French & Jamie Hentall-MacCuish & Cormac O'Dea, 2024. "The Intergenerational Elasticity of Earnings: Exploring the Mechanisms ," Bristol Economics Discussion Papers 24/783, School of Economics, University of Bristol, UK.
    • Handle: RePEc:bri:uobdis:24/783
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    6. Sreevidya Ayyar & Uta Bolt & Eric French & Cormac O'Dea, 2024. "Imagine your life at 25: Gender conformity and later-life outcomes," IFS Working Papers W24/32, Institute for Fiscal Studies.

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    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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