GEP 16/01 Family, Community and Long-Term Earnings Inequality

Summary

We investigate the relative importance of family, schools and neighbourhoods in explaining inequality of earnings. We find that family is the most important factor determining long-term earnings, while the effects of teenage communities are small, early in the working life and are not long lasting. On average community background has zero influence on lifetime earnings.   

Abstract

Correlations between the earnings of siblings reflect shared family and community background, but evidence is mixed on the relative magnitudes of these influences. Using administrative data on the Danish population we link brothers, schoolmates and teenage neighbors and estimate a model of multiple group earnings dynamics to measure jointly the relative importance of family, neighborhoods and schools for long-term earnings. We find that: (1) family is by far the most relevant factor; (2) the influence of neighborhoods and schools falls rapidly, becoming insignificant by age 30; and (3) community effects are persistent and upward biased by a factor of five if family effects are ignored.

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Authors

Paul Bingley, Lorenzo Cappellari and Konstantinos Tatsiramos 

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