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The human capital that enables a person to be succesful and make money is passed on by parents. But what are the best set of skills, and who passes it on the best?
The human capital that enables a person to be succesful and make money is passed on by parents. But what are the best set of skills, and who passes it on the best?

How do parents help their children earn more?

Parents understandably want to offer their children the best possible chances in life. But what are they actually transmitting and how?

Wide across different cultures, parents, quite understandably, want to offer their children the best possible chances in life by giving them socio-economic resources such as education, but also useful network contacts or help with housing and jobs.

But if higher-status parents can transmit more such advantages to their children, this may also perpetuate status advantages across generations, as such parental help makes it easier only for higher-status children to climb up or stay up in society.

The parental transmission process is therefore a key topic in debates about equality of opportunity and whether our societies reward merit or luck.

Understanding what parents transmit to their children, and how, can also inform debates about how best to reform education systems, to regulate labor markets and to fine-tune other policy tools to produce fairer societies where luck plays a smaller role in determining life chances.

What parents give their children: the direct and indirect channels

But what sort of advantages do parents actually give their children in the labor market?

One key advantage they transmit is human capital, in the broadest sense [see fact box].

Parents give children better chances in the labor market by affecting their accumulation of hard and soft skills, embodied in their educational degrees and their knowledge.

Parents also affect their non-cognitive abilities such as perseverance and curiosity, and in the field their children choose to study.

All this human capital in turn has an important ‘indirect effect’: it then helps children do better in life by earning more in the labor market.

What is human capital?

Human capital is the socially valuable skills, knowledge, traits, and attitudes that people embody. Here we measure four dimensions:

  1. Formal educational attainment: education level (lower secondary, upper secondary, post-secondary not tertiary, and tertiary), or, alternatively, number of years in education.
  2. The particular field of study chosen (general, humanities, social sciences, STEM, and health).
  3. Cognitive ‘hard’ skills (‘knowledge capital’), as proxied by literacy and numeracy scores.
  4. Non-cognitive ‘soft’ skills relating to perseverance and curiosity

An array of parental transmission channels

Yet human capital is unlikely to be the only pathway in the intergenerational transmission process.

Parents, when they can, also employ a wide array of other strategies and types of capital to directly transmit advantages to their children that can similarly boost their labour market opportunities.

For instance via privileged access to job networks and social connections.

Parents might simply leave the family business to their offspring or might use nepotism to allow their offspring to achieve better jobs in other firms.

Alternatively, parents might invest in non-educational ‘enrichment expenditures’ for their children, by financing internships in cool firms that boost or signal other types of social and cultural capital that are attractive to employers.

In other words, above and beyond the ‘indirect’ human capital effect, parents also have a ‘direct’ effect in helping their children in life.

Shining a wider light on human capital

The bad news is that these direct parental influences are often invisible or much harder to measure.

The good news is that human capital, in its many forms, can actually be measured d ever more widely, which we will get back to shortly.

Our new research is out at Oxford Economic Papers, together with sociologist Franco Bonomi Bezzo and economist Michele Raitano.

We investigated almost 7000 adults aged 30-54 in eight major OECD countries from five different welfare regimes:

France and Germany (the two largest continental-conservative welfare regimes) Italy and Spain (the two largest Southern European regimes) the UK and the US (the two largest Anglo-Saxon regimes) Norway (one Nordic regime Poland (the largest EU post-communist regime)

Four dimensions of human capital that parents give their sons

For reasons of data quality, we looked only at the associations between parental education and the earnings of their sons.

We decided to omit daughters as female labor market participation is much more uneven across countries, which might lead to strong selection bias: the women who would hypothetically be included in our data would not be representative of the general female population especially in countries where many women do not work .

Specifically, we made use of the uncommonly rich information on human capital from the OECD’s Program for the International Assessment of Adult Competencies, PIAAC.

This dataset has the advantage of including proxies of very distinct forms of people’s human capital other than their formal educational attainment.

It has information notably on three further dimensions: individuals’ particular field of study chosen, their cognitive ‘hard’ skills (‘knowledge capital’) as measured by literacy and numeracy scores, and their non-cognitive ‘soft’ skills relating to perseverance and curiosity.

Narrowing down the dark corners

Bonomi Bezzo, Raitano and I wanted to check if any ‘residual’ correlation between parental educational background and sons’ labor market earnings still remains even after controlling for a wider range of altogether four dimensions of sons’ human capital.

And the idea is simple:

By shining a wider light to make more transmission channels within the human capital realm visible, we can narrow down on the dark corners that persist – the realm in which less measurable other things are transmitted.

Enriching the concept of human capital to four dimensions allows us to better assess whether – and where – any less visible non-human capital channels still remain.

What more is at play?

Any such ‘residual’ background association between parents’ education and their sons’ earnings would then point more strongly to further factors operating in the labour market that are related to rewards for non-productive abilities received by children.

This would suggest other mechanisms at work in society that reduce intergenerational mobility.

It could be many things: help with placements in cool internships, non-educational enrichment activities such as study trips to China, Brussels or Silicon Valley.

It could also be the use of favouritism in job hiring or other channels through which parents can mobilize their social capital and weak ties (e.g their address book telephone numbers or Rotary or Lions Club friends), especially where markets are not competitive, and so on.

Does only formal education matter…

Here is what we found.

In three of our eight societies (Germany, Norway, and the USA), the intergenerational transmission process is wholly mediated just by the first of the four dimensions of human capital: formal educational attainment.

Here, parents help to boost their sons’ earning mainly by boosting their level of schooling, rather than other forms of human capital or all sorts of other things they might additionally give their sons.

One might be tempted to conclude that these societies at least contain one significant element of education-based meritocracy, that is, the distribution of advantages and status on the basis of one’s education.

But of course, parents here may still heavily determine what skills and attitudes sons bring to school and university and which school and university sons attend to further develop their skills and attitudes.

In other words, there may still be highly unequal opportunities to accumulate higher levels of schooling. The very costly tuiton fees at US universities are a case in point.

… or does something else than human capital play a role?

But in the other five societies (France, Italy, Spain, Poland, and the UK), a significant residual parental background association remains even after we control for all four dimensions of sons’ human capital.

These societies are yet further away from resembling education-based meritocracies. This is interesting, as it points to something else that is largely hidden from view, important in the labor market, but not human capital-related that is being transmitted here to a significant degree by parents.

Among these five countries, this is especially the case in Italy, Spain, and the UK.

It might be that yet other (fifth or sixth) types of valuable human capital which we simply could not observe are particularly important in these countries.

Alternatively, these may just be cultures where parents more strongly mobilize other resources and capital to help their children in the labour market.

Through non-transparent labour market selection such as informal recommendations, parental capital can play a major role in determining occupational achievements and earnings.

Two cultures of intergenerational transmission of advantage?

In sum, our findings point to two quite distinct models, or cultures, of how parents give their sons a labor market advantage.

These two cultures are substantially reconfirmed when we alternatively study sons’ occupational status, rather than their earnings.

In a nutshell, in one set of countries, parents mainly help their sons indirectly, by helping them to obtain just one form of human capital - higher levels of education.

In a second set, parents still give other valuable things to their sons in addition to four different forms of human capital.

As such, the existence of such a ‘residual’ parental background association does not provide any conclusive causal ‘smoking gun.’

We have no visible evidence of better-educated parents using their social connections or even nepotism to help their sons earn more.

But while there may be no smoking gun, there is certainly a stronger whiff of other weapons than skills at work in the background.

Social connections and other forms of relational capital, we suspect, do play a more prominent role in the second set of countries than in the first.

How can we equalize labor market chances?

In sum, how can policies make a difference by giving children from all classes a fairer chance in the labor market?

Clearly, widely accessible, high-quality early childhood education policies can be a great equalizer of life chances everywhere.

Europe is a continent of pro-elderly welfare states within child-oriented societies in which families (read: parents) invest massive private resources of time and money to their children. Policies could thus redress existing age and class imbalances by aiding all children and young adults more.

But beyond this, our findings highlight why some policies might be better adapted than others to improve intergenerational mobility for sons in these two cultures.

Since the formal human capital channel matters so much in societies like Germany, Norway and the US, policy reforms here could focus primarily on improving a wider access to higher-quality (higher) education.

On the other hand, as Bonomi Bezzo, Raitano and I note, improving educational equality of opportunity would probably not be enough to foster social mobility in countries like France, Poland, Italy, Spain, and the UK, where parental background plays a direct role in the labour market.

Future research identifying more closely the nature of such non-human capital transmission of advantage would be crucial from a policy perspective. Including both sons and daughters would reveal whether and where any gender biases exist in this transmission process. Extending the horizon of intergenerational transmission to more than two generations may reveal precisely which elements of family culture or of dynastic capital persist over longer periods.

To make our societies more intergenerationally mobile and to level the playing field a bit more for children from all families, we need to understand more precisely the role of family networks and other forms of non-educational family capital.

This article was originally published on our Danish sistersite, at 'Forskerne formidler'.


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