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Does Money Matter for Intergenerational Income Transmission? Evidence that Intergenerational Income Transmission is Largely Driven by Human Capital

47 Pages Posted: 18 Nov 2016 Last revised: 21 Nov 2017

Frank McIntyre

Rutgers Business School Newark and New Brunswick

Michelle M. Miller

Loyola Marymount University - Department of Economics

Date Written: November 18, 2016

Abstract

Parental income can predict children’s income through human capital or monetary transfers. Using data from the Panel Study of Income Dynamics (PSID), we decompose parental income into a component that is predictable based on a wide array of human capital measure and a “luck” component that by construction is uncorrelated with human capital. We find that the intergenerational income transmission occurs through both channels but at sizably different rates. While the predictable component has a transmission rate of at least 0.8, the “luck” component has a transmission rate of at most 0.2. Therefore, the “pure human capital” component, calculated as the difference between these two estimates, has a transmission rate of at least 0.6. Thus, the intergenerational income elasticity is largely recovering the transmission of human capital rather than the influence of money.

Keywords: Intergenerational Income, Human Capital, Income Mobility

JEL Classification: D31, E24, J62

Suggested Citation

McIntyre, Frank and Miller, Michelle M., Does Money Matter for Intergenerational Income Transmission? Evidence that Intergenerational Income Transmission is Largely Driven by Human Capital (November 18, 2016). Available at SSRN: https://ssrn.com/abstract=2872040 or http://dx.doi.org/10.2139/ssrn.2872040

Frank McIntyre (Contact Author)

Rutgers Business School Newark and New Brunswick ( email )

111 Washington Avenue
Newark, NJ 07102
United States

Michelle M. Miller

Loyola Marymount University - Department of Economics ( email )

1 LMU Drive
Los Angeles, CA 90045
United States
(310) 338-1811 (Phone)

HOME PAGE: http://michellemmiller.lmu.build/

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