NCPA - National Center for Policy Analysis

Does Dad's Financial Success Rub Off?

November 14, 2002

In the 1980s, the University of Chicago economist Gary S. Becker pioneered the theory of intergenerational transmission of economic status. find that the correlation of a father's and son's income was around 0.15.

This meant that if a father's income was twice the average, his son's expected income would be 15 percent above average, and his grandson's just 2 percent above average.

Later studies put the correlation between fathers' and sons' income at around 0.40 or higher.

And a recent study by Thomas Hertz at American University finds that there is less income mobility from one generation to another than previously believed.

  • Hertz found that a child born in the bottom 10 percent of families ranked by income has a 31 percent chance of ending up there as an adult -- and a 51 percent chance of ending up in the bottom 20 percent.
  • One born in the top 10 percent has a 30 percent chance of staying there -- and a 43 percent chance of being in the top 20 percent.
  • In another study, David I. Levine of Berkeley and Dr. Bhashkar Mazumder of the Federal Reserve Bank of Chicago found that the impact of parental income on adult sons' income increased from 1980 to the early 1990s.

Some scholars say that perhaps three-fifths of the intergenerational transmission of economic status can be explained by transference of cognitive ability and similarity of educational level attained.

Other factors might include race, geographical location, height, beauty, health status and personality.

Source: Alan B. Krueger (Princeton University), "Economic Scene: Apple Falls Close to the Tree, Even in the Land of Opportunity," New York Times, November 14, 2002.

 

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