A Detailed Picture of Intergenerational Transmission of Human Capital

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Abstract

Using data from the Health and Retirement Study, we consider how parental education relates to four outcomes in the children's generation: education, lifetime earnings, health, and wealth. By focusing on parents' and children's ranks, we characterize relative mobility in terms of distributions of outcomes and can see patterns that even a relatively disaggregated analysis, like a quintile-based transition matrix, can obscure. Our results show relatively high intergenerational mobility except at extremes, where very low-ranked parents are much more likely to have very low-ranked children and very high-ranked parents are much more likely to have very high-ranked children.

Introduction

Americans care deeply about levels of intergenerational mobility—the degree to which parents transmit their social and economic status to their children. Our nation espouses an American Dream, “that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement” (Adams 1931). This strong commitment to an ideal that anyone should be able to get ahead leads us to celebrate cases of upward mobility. Yet, at the same time, American’s feelings about mobility are often quite complicated. As much as we may love stories of upward mobility and promote the need for level playing fields, few want to see their own children lose ground, so we often loathe downward mobility, even if it is a necessary side effect of upward mobility.

Researchers have considered many different aspects of intergenerational mobility, given that there are so many forms of status, such as lifetime earnings, occupation, education, wealth and even health. No matter what specific indicators they examine, mobility researchers are typically trying to get at the broader concept of human capital. In its most general form, human capital encompasses potential lifetime earnings, based on health, social connections, education and various other factors. Because human capital is so difficult to measure, researchers often use years of education as a proxy. We follow this tradition and focus on connections between parents’ and children’s education. We supplement these analyses with an examination of connections between parent’s education and other outcomes in the child’s generation, including health, wealth and lifetime earnings.

We argue that mobility has a different interpretation at the top and the bottom of these distributions. We focus on how the distribution of child outcomes varies across the distribution of parental characteristics. The data that we use allow us to see changes in mobility at the bottom of the distribution over several decades. Using a long time horizon has some advantages, especially in the case of financial wealth, as it is better measured relatively late in life. The “children” that we examine in our analyses are adults approaching retirement age in the past decade.

Throughout the paper we discuss only relative mobility. Over time, and across generations, outcomes improve on average, meaning that absolute mobility across generations is upward. However, a child from a lower-ranked family can do better than his parents and still have a lower rank in his society than his parents had in theirs. The concept of relative mobility measures how well a child does relative to others of comparable age. For many policies, and for gauging the extent to which the American Dream is alive and well or whether playing fields are indeed level, relative mobility is more important.

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