Intergenerational Economic Mobility and the Racial Wealth Gap

Abstract

A growing body of research documents the importance of wealth and the racial wealth gap in perpetuating inequality across generations. We add to this literature by examining the impact of wealth on child income. Our two stage least squares regressions reveal that grandparental and parental wealth have an important effect on the younger generation’s stock (first stage results), which in turn affects the younger generation’s household income (second stage results). We further explore the relationship between income and wealth by decomposing the child’s income by race. We find that the intergroup disparity in income is mainly attributable to differences in family background. These findings indicate that wealth is an important source of income inequality.