Parental networks, wage expectations, and the intergenerational educational mobility

Abstract

We develop a novel theoretical framework for studying the relationship between parental social networks and educational choices of children allowing us to analyze the implications of network structure, especially size and homophily, for intergenerational schooling mobility. When the market skill premium is unobservable, families rely on noisy wage information obtained from their social contacts giving rise to heterogeneous expectations across families. Under skill homophily, children in low skill families are stronger affected by imprecise information due to a smaller number of interactions with high skill families, hence, their expectations are more dispersed and they are less likely to study. This yields a positive intergenerational schooling correlation. Empirically, a larger share of high skill parental friends is positively associated with a probability of studying, in line with the model, after controlling for the education of parents, cognitive abilities and personality traits.