Abstract
This paper constructs a quantitative model of intergenerational mobility in which lifetime income mobility is shaped by various channels including parental time investments in children. The calibrated model delivers positive educational gradients in parental time investment, as observed in the data, and also successfully accounts for untargeted distributional aspects of income mobility, captured in the income quintile transition matrix. The model implies that removing the positive educational gradients in parental time investment during the whole childhood would reduce intergenerational income persistence nearly by 40 percent. Policy experiments suggest that subsidies to childhood investments that can diminish positive educational gradients in parental time investments would increase intergenerational mobility, and that there are better ways of subsidizing investments to achieve greater mobility in terms of aggregate output and welfare.
Highlights
Empirical research has found intergenerational income mobility in the United States to be quite low (Solon, 1999; and Mazumder 2005)
It has been found that human capital gaps at the beginning of formal schooling tend to persist throughout the childhood (e.g., Heckman, 2008; Cunha, 2013) and that initial conditions of adult human capital around early 20’s are crucial to account for lifetime income inequality (e.g., Keane and Wolpin, 1997; Huggett, Ventura, and Yaron, 2011)
I show that quite a large portion, nearly 40 percent, of intergenerational income persistence present in the baseline model is accounted for by the parental time investment channel that transmits human capital from parents to children
Summary
Empirical research has found intergenerational income mobility in the United States to be quite low (Solon, 1999; and Mazumder 2005). My paper complements the Lee and Seshadri’s analysis by stripping away channels other than parental time investment to isolate its implications.6 It reconciles the theory with a body of empirical evidence suggesting that pre-birth factors are important to the intergenerational transmission of socioeconomic status.. My paper is related to the literature that uses equilibrium models of human capital investment across generations to study policies designed to raise human capital of children from disadvantaged families (e.g., Fernandez and Rogerson, 1998; Caucutt and Lochner, 2012; Cunha, 2013). This literature has concentrated on parents’inadequate ...nancial investments in children’s human capital due to credit constraints.
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