Parental Background and Earnings: German Evidence on Direct and Indirect Relationships

Abstract

Summary Using data from the German Socioeconomic Panel (GSOEP), the study analyzes the direct and indirect effects of parental background on employees' earnings. To examine indirect effects we estimate the determinants of the employees' years of schooling. In a second step, we run wage regressions to examine direct effects. Our results suggest that the direct and indirect effects of parental background driving the intergenerational correlation of socioeconomic status are complex. It is not only important to differentiate between mother's and father's education. It is also important to take into account other parental characteristics such as maternal labor force participation and the parents' occupational status and fertility. Moreover, we find that interaction effects play an important role. The returns to schooling depend on the employees' parental background.