Choosing the Right Parents: Changes in the Intergenerational Transmission of Inequality between 1980 and the Early 1990s

Abstract

This paper uses the National Longitudinal Surveys (NLS), the Panel Study of Income Dynamics (PSID), and the General Social Survey (GSS) to measure the elasticity of family income on men's adult earnings in 1980 and the early 1990s. The study finds a large and statistically significant increase in the importance of family income over time when comparing cohorts in the NLS, a dataset that has not been previously used for this purpose. We also find a large but statistically insignificant increase when using the GSS. The PSID, however, shows a large but statistically insignificant decline in this parameter. The results imply that changes in the effect of family income did not operate through the channel of human capital. Results suggest that the rate of inheritability of income may have increased in recent decades, but this evidence is not yet definitive. Researchers, therefore, should exercise caution when generalizing about trends over time when using small samples from just one dataset such as the PSID.