Parental Networks, Wage Expectations, and the Intergenerational Educational Mobility*

43 Pages Posted: 9 Dec 2021

See all articles by Erdenebulgan Damdinsuren

Erdenebulgan Damdinsuren

Bielefeld University - Department of Business Administration and Economics

Mariya Mitkova

Universität Bielefeld

Anna Zaharieva

Bielefeld University - Department of Business Administration and Economics

Date Written: November 19, 2021

Abstract

We develop a theoretical labour market model with two generations of workers, endogenous social networks of parents and binary schooling choices of children. Since the market skill premium is unobservable, families rely on noisy wage information obtained from their social contacts giving rise to heterogeneous expectations across families. If social networks are subject to skill homophily and high skill parents are a minority, then children in low skill families are stronger affected by the lack of objective information, their expectations are more dispersed and they are less likely to study giving rise to a positive intergenerational schooling correlation. Next, we calibrate the model to the German labour market data (SOEP) and show that the described machanism can potentially account for up to 15% of the intergenerational schooling correlation. Moreover, the data strongly supports the idea of skill homophily in the social networks. Finally, we extend the model to analyze the interaction between the network effect and the classical ability transmission for intergenerational mobility. We find that the interaction term is always negative, crowding out the network effect, which may help to explain small network and neighbourhood effects reported in recent empirical work. Nevertheless, accounting for the network effect improves the fit of the model and helps to explain an inverse U-shape relationship between the intergenerational schooling correlation and the share of high skill parents observed in the data.

Keywords: intergenerational mobility, social networks, heterogeneous expectations

JEL Classification: D10, I20, J30, J62

Suggested Citation

Damdinsuren, Erdenebulgan and Mitkova, Mariya and Zaharieva, Anna, Parental Networks, Wage Expectations, and the Intergenerational Educational Mobility* (November 19, 2021). Bielefeld Working Papers in Economics and Management No. 15-2021, Available at SSRN: https://ssrn.com/abstract=3979603 or http://dx.doi.org/10.2139/ssrn.3979603

Erdenebulgan Damdinsuren (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

Mariya Mitkova

Universität Bielefeld ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+495211066931 (Phone)

HOME PAGE: http://www.uni-bielefeld.de

Anna Zaharieva

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

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