Intergenerational Mobility in Earnings and Occupational Status

A large literature has measured the regression to the mean in earnings and occupational status. One conclusion of this literature is that earnings regress to the mean more rapidly than status. This paper provides a theoretical model for intergenerational mobility in both status and earnings and examines its implications empirically. We consider the theoretical implications of parental investment in children’s status. The model extends Becker and Tomes to the case where parents care not only about the consumption of their children, but also about their occupational status. We show that if parents care about the status of their children and their consumption, they will buffer the regression to the mean in status by subsidizing the education of their children. This implies that earnings will regress to the mean more rapidly than occupational status. We provide estimates of intergenerational correlations in earnings and human wealth (lifetime present value of earnings) that incorporate models of life cycle earnings growth. The econometric specification corrects for measurement error, and for the effect of human capital investment over the life cycle on intergenerational correlations in earnings. We use a random growth specification for life cycle earnings and status to model and estimate the patterns of intergenerational correlation in both over the life cycle and to estimate intergenerational correlations in the present value of earnings (with standard errors). We find that the intergenerational correlations in status, and earnings increase over the life cycle, and that correlations in status are higher than in earnings when young, but the correlations converge at later ages. We also investigate life cycle patterns in sibling correlations and find that the intergenerational correlation in earnings is higher than in status at later ages. Correlations in present values, however, tend to confirm the magnitudes of recent estimates of the intergenerational correlation, and in addition correlations in the present value of status are higher than in earnings.