2012 June 24 Sunday
Parental Human Capital Endowments Key To Son's Success

The standard leftist interpretation of enduring intergenerational differences in educational achievement, career success, and income is that upper class people give their offspring big advantages in the form of better educations and connections into the business world. A study with Swedish subjects found the income of dads was less important than the skills of dads.

Sons of fathers with high incomes tend to end up with higher than average incomes themselves, but new research shows that it's not just dad's money that helps a son on his way.

According to a study recently published in the Journal of Political Economy, human capital endowments passed from father to son—perhaps in the form of smarts, advice, work ethic, or some other intangible—could be more important to a son's success than the size of dad's paycheck.

Skills are tied to intellectual ability. You can't develop, say, the skills of an electrician if your IQ is 80. You can't develop the skills of an electric power plant manager or a large construction site manager if your IQ is 90. You can't develop the skills of a medical doctor or a civil engineer if your IQ is 100.

To separate the effects of the fathers' skills from fathers' incomes they looked for fathers who, due to local labor market conditions, made less than their skills would predict.

"We know there's a correlation between fathers' income and sons'." said David Sims, an economics professor at Brigham Young University and one of the study's authors. "What's gotten less attention is the mechanism. We wanted to see if the intergenerational income correlation is due to money—what we can buy for our kids—or if human capital attributes passed from father to son play a role as well."

The problem is that separating the two inputs is tricky. On average, fathers with higher human capital endowments also tend to have higher incomes, so it's hard to tell which factor is doing what. Sims and his colleagues used a statistical model and a rich dataset to try to disentangle the two.

The authors' methodology builds on the following thought experiment. Take two smart, similarly skilled and educated fathers. Say one lived in a town with a robust labor market and he had a big salary. The other father wasn't so lucky. He lived in a town with a depressed labor market, and had much lower earnings despite his comparable human capital. If money is the only thing that matters in the intergenerational transfer of income, then we'd expect that the son of the lucky father would end up with a higher income than the son of the unlucky father. However, if human capital matters, the two sons may end up with more similar incomes.

Note the study didn't account for maternal (genetic or nurture) influence on child development.

"We can conclude that, for the men in our dataset, differing human capital endowments passed from father to son account for about two-thirds of the overall intergenerational income relationship," Sims said. "We don't offer a final answer here, but we do offer some boundary conditions and present a methodology that could help unravel the question."

I am reminded of an adoption study of Korean babies in the United States found no economic benefit to being raised in upper class households. Also see the follow-up post by Alex Tabarrok on misconceptions in some reactions to that report. Note that this study found that for the range of economic classes examined there is not some marginal lasting nurture benefit from being raised in higher income families. This strongly argues that genes are far more important than environment over a large range of environments found in families in America. This isn't going to hold true in, say, India or China. But it does hold true in the United States.

In an industrialized country the advantages of having higher income parents are not that great. Whereas the advantages of having a high IQ are huge. I'd rather have a 130 IQ and poor parents than a 120 IQ and wealthy parents. Years after leaving home the extra 10 IQ points will help with decision-making and learning all day and every day. The effects of childhood experiences will fade in comparison to one's on-going intellectual development and daily mental work product.

Share |      By Randall Parker at 2012 June 24 10:22 AM  Human Nature Cognitive Ability


Comments
chucho said at June 25, 2012 3:43 PM:

Within one generation, I disagree. Compare the very smart guy from a poor background that loses his engineering job and has a tough time finding work vs. the slightly dumber finance major whose big shot Dad can hook him up with a comfy spot at any number of places if he gets in a jam. Is the blue collar Dad of the engineer going to be of any help in finding work? Of course not.

In a generation or two the capital (real and social) of the richer family gets spent and/or returns to the mean. But the first generation offspring do ok and lead pretty good lives.

Check it out said at June 25, 2012 4:53 PM:

"The standard leftist interpretation of enduring intergenerational differences in educational achievement, career success, and income is that upper class people give their offspring big advantages in the form of better educations and connections into the business world."

Is that not so?

http://en.wikipedia.org/wiki/Emilio_Azc%C3%A1rraga_Vidaurreta
http://en.wikipedia.org/wiki/Emilio_Azc%C3%A1rraga_Milmo
http://en.wikipedia.org/wiki/Emilio_Azc%C3%A1rraga_Jean

Hey, how about the Bushs' nepotism? To say the least.

dearieme said at June 29, 2012 1:53 PM:

It's fascinating what lots of data gathering and computer power can discover. The alternative, at least in Britain, has always been casual observation of how well the children of parsons often do in life. I should be surprised if the same weren't true of Sweden.

Paul Rain said at July 4, 2012 2:23 PM:

The article probably should have used the phrase 'first world' country rather than 'industrialized'- obviously Mexico is the second, not the first. And the E.A.'s are members of an elite group as far as Mexico goes- of course they will have more successful offspring than the Mixtec-speaking illegal immigrants who come to the USA.

The idea that being born to wealthy, politically connected parents is an advantage because you could at some point become President is not even as rational as claiming that being born to poor, stupid parents is an advantage because you could at some point win the lottery (while those wealthy people aren't even 'in to win').


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