Does Human Capital Transfer from Parent to Child? The Intergenerational Effects of Compulsory Schooling

Abstract

The strong correlation between parents' economic status and that of their children has been well-documented, but little is known about the extent to which this is a causal phenomenon. This paper attempts to improve our understanding of the causal processes that contribute to intergenerational immobility by exploiting historical changes in compulsory schooling laws that affected the educational attainment of parents without affecting their innate abilities or endowments. We examine the influence of parental compulsory schooling on grade retention status for children aged 7 to 15 using the 1960, 1970 and 1980 U.S. Censuses. Our estimates indicate that a one-year increase in the education of either parent reduces the probability that a child repeats a grade by between two and seven percentage points. Among 15 to 16 year olds living at home, we also estimate that parental compulsory schooling significantly lowers the likelihood of dropping out. These findings suggest that education policies may be able to reduce part of the intergenerational transmission of inequality.