Abstract
We study the interaction between financial wealth and early income growth. Using banking data on career starters in Belgium, we find higher income growth for individuals with higher financial wealth as early as 3 years into a career. While the roles of social capital and innate abilities appear limited, our results suggest that individuals with higher disposable wealth are more likely to find a job matching their human capital, in turn, boosting their chances of higher performance and consequent income growth. Policies addressing individuals’ capacity to accommodate frictions in the market for first jobs could therefore substantially promote economic mobility.
Highlights
The stagnation of income mobility combined with the increase of wealth inequality in recent times has become a central focus in both public and academic debate (Autor, 2014; Piketty and Saez, 2014; Piketty, 2015)
Would an individual with more financial support achieve greater income growth during the first years of her professional career, or would more financial support instead keep an individual from pursuing income growth at early career stages? How quickly and through which transmission channel does this relationship materialise? We address these questions by studying the impact of financial wealth accumulated before the start of an individual’s professional career on the growth of her income over a window of up to seven years after job market entry
The results indicate that over a relatively small time-span of 3 years, upward income mobility is dominated by individuals from the top financial wealth quintile
Summary
The stagnation of income mobility combined with the increase of wealth inequality in recent times has become a central focus in both public and academic debate (Autor, 2014; Piketty and Saez, 2014; Piketty, 2015). In light of the literature, this paper seeks to fill the gap by studying the effects of three transmission channels between financial wealth inequality and early career income growth: social capital, innate ability and job search conditions. While thrift and financial wealth are found to have comparable effects on early-career income growth, they exhibit substituting effects on each other: benefits from financial wealth transfers before the start of a career are mitigated by higher individual thrift and vice versa The persistence of this substitution effect beyond social capital and innate ability indicates that selfselection processes (e.g., more wealthy individuals choosing degrees and occupation with higher income growth perspectives) have limited capacity to explain away our findings despite limitations in our data set regarding degrees and occupations.
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