Intergenerational transmission of human capital: implications for poverty, inequality and policy

Lead Research Organisation: Institute for Fiscal Studies
Department Name: IFS Research Team

Abstract

Family circumstances changed significantly over the past 50 years on key dimensions such as mother's education, employment and earnings, father's involvement in raising children, and the prevalence of lone-motherhood. These changes increased inequality in home environments, particularly by maternal education. Less educated mothers are now more likely to divorce and have children out-of-wedlock; more educated mothers are now more likely to work continuously and their wages have increased steadily. These trends raise great concerns about their implications for child development and inequality because child outcomes and parental choices are related. Growing evidence links socio-economic background and broader differences in childhood experiences to child development from early infancy and to life-long outcomes such as education, employment, income, family formation and crime.
The degree to which child outcomes are related to those of parents is a measure of the inequality of opportunities in a society, the focus of much policy debate. Although the importance of family characteristics and choices for the abilities and opportunities of children is clearly established, the mechanisms that drive these relations remain largely unexplored. Since policy can influence parental choices, understanding the interplay between child outcomes and parental characteristics and choices is critical to inform the design and evaluation of policies aiming to improve child wellbeing, reduce poverty and shape inequality in the long-term.
The aim of this project is to fill this gap by investigating the interactions between parental characteristics, investments in children and child outcomes, and studying the implications of these interactions for poverty, inequality, and the design of childcare, education and welfare policies. It focuses on the inter-generational transmission of human capital (HC), a key determinant of economic wellbeing.
Studying the importance of family characteristics and investments in children for child development and its policy implications faces two key difficulties. First, investments in children and lifetime decisions driving family characteristics are closely related. E.g., altruistic parents take their offspring expected outcomes into account when deciding about their own education, marriage and labour supply because these decisions affect family resources and their value in raising children. Second, quantifying empirically these relationships requires long longitudinal data, linking parents' lifetime decisions and its determinants with child outcomes.
This project combines rich longitudinal data from several sources for the UK and the US with a model of intergenerational transmission of HC to advance knowledge on the roots of inequality and the role of policy in promoting equal opportunities. The model has four main building blocks: 1. a process of HC formation in childhood, accumulated through sequential investments of both parent's time, childcare and other investments; 2. a model of the life course, formalising parental education, marriage, divorce, working and the intra-household allocation of resources; 3. the market for marriage; 4. a detailed description of the tax and welfare system.
The project will produce new empirical evidence on the mechanisms linking parental characteristics and choices with child outcomes. It will account for the interplay between the HC of both parents for family wellbeing and child development, helping to explain the value of HC for marriage. It will measure the dynamic links between education, marriage, divorce and family resources, and their implications for inequality in resources and investments in children. Understanding these links is key to assess responses to policy reforms in their entirety; this project is the first to explore the links between lifetime decisions to study the effects of policy on the transmission of HC.

Planned Impact

This project will develop a framework to investigate the mechanisms underlying the intergenerational transmission of economic wellbeing and assess how tax and welfare policies can be designed to promote the outcomes of children and influence inequality and poverty in the long run. We will build on results from our earlier research linking pre-marital investments, marital sorting in an equilibrium framework and labour supply after marriage. We can now develop such framework further, to investigate empirically the determinants of the opportunities faced by children, their role in driving inequality and their implications for the design and evaluation of tax and welfare policies for families.
While strongly academic in nature, this project and its results are relevant to those interested in understanding the determinants and consequences of poverty and inequality and how can public policy best tackle these. We expect this project to benefit a large community outside the academia, including:
1. Civil servants and policy-makers working in or close to the HM Revenue and Customs, HM Treasury, the Department for Work and Pensions and the Department for Education;
2. Think-tanks such as the Resolution Foundation, the Institute for Public Policy Research, and the Centre for Social Justice;
3. Charities aiming to advance understanding of the roots of inequality, poverty and social problems, and to contribute to the public policy debate and the development of solutions to these problems, such as the Joseph Rowntree Foundation or the Nuffield Foundation;
4. Other NGOs committed to contribute to the debate on child poverty, family wellbeing and public policy, and act to improve the opportunities of children, such as Barnardos, the Child Poverty Action Group, the Family and Childcare Trust and the Early Intervention Foundation;
5. International organisations supporting actions in the developing world and funding research on the behaviour of families and the design and evaluation of policies aimed to tackle the roots and consequences of poverty, such as the World Bank, the European Bank for Reconstruction and Development or the Organisation for Economic Co-operation and Development;
6. The media and the general public, as we address issues at the centre of public debate.
We expect these groups to benefit from a better understanding of: 1. the process of human capital formation during childhood; 2. the role of families for the wellbeing of children and their outcomes during childhood and beyond; 3. the roots of unequal opportunities and their long-term consequences for economic inequality and poverty; 4. the implications of all these for the design and evaluation of public policy aiming to tackle poverty and promote social mobility. These groups will also benefit from the availability of a new empirical framework specifically designed to study policies for families. Such framework can continue being improved and used to learn about other policies, beyond the duration of this project.
We expect results on the accumulation of human capital during childhood and later outcomes to become available during the second year of the project. Work on the intra-household allocation of resources, pre-marital investments and the marriage market will be underway during the second and third years of the project, and empirical results on the inter-generational transmission of skills and policy analysis will become available during the third and fourth years of the project.
With our continuous interactions with these groups (as discussed in Pathways to Impact) we hope such benefits to be mutual as we draw from the insights of experienced social scientists, practitioners and policymakers on what matters and what needs to be learned in ways that can steer our project. Our past experience shows that these interactions tend to outlast the project as they lead to further research on mutually interesting issues.
 
Description Work on this project has established various key findings:
- it showed how to formalise the education, marital, labour market and child investment decisions in a unified framework that can be estimated using longitudinal data commonly available and that can be used for policy analysis;
- it found that marital sorting is a key driver of economic inequality across families and within families given the strong positive assortative marriage on economic outcomes;
- it demonstrated, for the UK and the US, marriage became more assortative over the recent 3 decades, accentuating pre-existing inequalities at the individual level;
- it measured the returns to education investments in marriage market and found these can be as large as the labour market returns;
- it demonstrated that inequalities across families have key consequences for the wellbeing of both adults and children;
- specifically, it showed that children in families where parents have lower levels of formal education spend less time with their parents doing key learning and development activities, and that this has consequences for their skills;
- it found, in the context of the Covid-19 pandemic, that these same children were also less likely to receive, at home, the same level of support for learning that children of more educated papers were getting.
Exploitation Route This project developed the theoretical and empirical tools to analyse the formation of inequalities through education investments, marital sorting and labour market participation, and how these inequalities are transmitted across generations. These tools are likely to be of use for academics interest in this topic, and the research outputs from this grant are being widely cited.
The project also made strides in understanding the origins of gender inequality. It has shown that these open gradually and that the dynamics of inequalities are linked to growing disparities in the jobs, occupations, firms and time women and men spend in paid work over the course of their lives, and how these related to education, marriage and fertility. Understanding these inequalities requires these various factors to be considered together. This research has started to address this issue and opened new avenues for research.
Sectors Education,Government, Democracy and Justice

 
Description Work in this project led to further research on inequalities within and across families and what implications those mayhave for gender inequalities and the wellbeing and development of children. Work on pre-existing inequalities and the how the Covid-19 pandemic may have affected these has been discussed with several general audiences, including in Parliament with the 'Women and Equalities Commitee' on 'Coronavirus and the gendered economic impact' (https://committees.parliament.uk/work/319/unequal-impact-coronavirus-and-the-gendered-economic-impact/). It has also help informe the Government Covid-19 roadmap (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/963491/COVID-19_Response_-_Spring_2021.pdf).
Sector Education,Government, Democracy and Justice
Impact Types Societal,Economic,Policy & public services

 
Description Government's covid roadmap
Geographic Reach National 
Policy Influence Type Citation in other policy documents
Impact Work under this project informed Government on how families and children are being affected by the Covid-19 pandemic and inequalities therein. That evidence has been used to inform policy.
URL https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/9634...
 
Description Women and Equalities Committee
Geographic Reach National 
Policy Influence Type Participation in a advisory committee
Impact Evidence provided to the Parliament Select Committee "Unequal impact? Coronavirus and the gendered economic impact" in October 2020, to inform policy-makers of the economic risks of the Coronavirus crisis for women, families and children.
URL https://committees.parliament.uk/work/319/unequal-impact-coronavirus-and-the-gendered-economic-impac...
 
Description Child development, parental investments and maternal labour supply 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Postgraduate students
Results and Impact Research meeting involving academincs, post-graduate students, researchers and practitioners.
Year(s) Of Engagement Activity 2017
 
Description Conference on "Gender Equality, Couple Equity: The Road Ahead" 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact UCL, the Institute for Fiscal Studies and CReAM co-organised a conference on Gender Equality, Couple Equity: The Road Ahead on May 20-21. This two-day conference presented new evidence on gender-based inequalities and explored the role of firms and occupations, norms and stereotypes, family demographics and institutions in driving but also alleviating them. Each day ended with the Gorman Lectures, this year entitled 'A Long Road: Women's Quest for Career and Family' delivered by Claudia Goldin (Harvard) on May 20th / 21st 2019 - from 5.30pm -7.00pm, at UCL.
Year(s) Of Engagement Activity 2019
URL https://www.ucl.ac.uk/economics/events/2019/may/gender-equality-couple-equity-road-ahead-20-21-may
 
Description Dynamic economics in Practice 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Presentation: Dynamic economics in Practice at a seminar at FRB Chicago on the gender wage gap
Year(s) Of Engagement Activity 2018
 
Description Early parental investments and child development 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Sarah Cattan gave a presentation at the workshop on 'Aging, Family and Social Insurance' on 28 February 2019 at Bergen University.
Year(s) Of Engagement Activity 2019
URL https://www.uib.no/sites/w3.uib.no/files/attachments/schedule_-_final.pdf
 
Description Early parental investments and child development 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Postgraduate students
Results and Impact Seminar at the Institute for Fiscal Studies attended by researchers from IFS and UCL
Year(s) Of Engagement Activity 2018
 
Description Education, marriage and child development 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Presentation in Leuven by Costas Meghir at HCEO Family Inequality Workshop, June 19
Year(s) Of Engagement Activity 2018
URL https://hceconomics.uchicago.edu/events/family-inequality-workshop-spring-2018
 
Description Female labour supply, human capital and welfare 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact Monica Costa Dias presented "Female labour supply, human capital and welfare" at the Workshop of Labour and Family Economics, September 2019
Year(s) Of Engagement Activity 2019
URL https://armacad.info/2019-02-15--workshop-cfp-labour-and-family-economics-14-may-2019-uk
 
Description Human Capital, Marriage and Public Goods 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Conference presentation
Year(s) Of Engagement Activity 2017
URL https://www.economics.northwestern.edu/events/nemmers/conference.html
 
Description Marriage market, labor supply and education choice 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact This presentation was given at the following meetings:

This presentation was held at:

- Barcelona Graduate School of Economics, March 2016
- Society for Economic Dynamics, Annual Meeting, Toulouse School of Economics, France, June 2016
- Conference in Honour of Martin Browning, Oxford, UK July 2016
- Pennsylvania State University, October 2016
- Rice-PAC, MCD CM, February 2017
- ISCTE-PAC-MCD-CM February 2017 CCM
Year(s) Of Engagement Activity 2016,2017
URL https://www.ifs.org.uk/publications/8356
 
Description Marriage market, labor supply and education choice 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact This presentation was held at:

Barcelona Graduate School of Economics, March 2016,
Society for Economic Dynamics, Annual Meeting, Toulouse School of Economics, France, June 2016,
Conference in Honour of Martin Browning, Oxford, UK July 2016,
Pennsylvania State University, October 2016,
Rice-PAC, MCD CM, February 2017,
ISCTE-PAC-MCD-CM February 2017,
Royal Holloway Economics PhD Conference, May 2017,
Oslo, 2017,
Nemmers Prize Conference in Honour of Richard Blundell,
Seminar at the University of Chicago in February 2015.
Year(s) Of Engagement Activity 2015,2016,2017
 
Description Measuring and comparing assortativeness 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact Monica Costa Dias, "Measuring and comparing assortativeness" at:
- conference on "The Economics of Divorce", University of Oxford, Nov 18-19 2019.
- seminar at University of Essex, Feb 13, 2020
- seminar at University of Bristol, Feb 20, 2020
- seminar at University of Zurich, Nov 17, 2020
Year(s) Of Engagement Activity 2019,2020
 
Description Presentation: The Marriage market, labor supply and education choice 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact The Marriage market, labor supply and education choice: presented by Pierre-Andre Chiapporiv, Monica Costa Dias and Costas Meghir, held at:

• GSE Barcelona, March 8, 2016
• SED Annual Meeting, Toulouse, June 2016
• Conference in Honour of Martin Browning, Oxford July 2016
• Penn State University, October 2016
• Rice-PAC, MCD CM, 23 February 2017
• ISCTE-PAC-MCD-CM February 2017 CCM
Year(s) Of Engagement Activity 2016,2017
URL http://www.ifs.org.uk/uploads/Presentations/Monica%20Costa%20Dias_SED%20Toulouse_PAC_MCD_CM%20SED201...
 
Description The Gender Wage Gap and the Career Patterns of Men and Women 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact presented at BDEM-Greenwich-Jan2016, Audience: Academics
Year(s) Of Engagement Activity 2016
URL https://www.ifs.org.uk/uploads/publications/conferences/BDEM-Greenwich-Jan2016.pdf
 
Description The careers and wages of women 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Various resentations at:
- Gorman conference 2020, on Oct 12-13
- Georgetown University, Mar 2, 2021
Year(s) Of Engagement Activity 2020,2021
 
Description The careers and wages of women: labour supply, sorting and human capital accumulation 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact Monica Costa Dias gave the keynote address, Understanding Society Scientific Conference, July 2019
Year(s) Of Engagement Activity 2019
URL https://www.understandingsocietyconference.co.uk/
 
Description The careers and wages of women: labour supply, sorting and human capital accumulation 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact Monica Costa Dias presented "The careers and wages of women: labour supply, sorting and human capital accumulation" at:
- Conference on Gender Equality, Couple Equity, London, 20-21/05/2019
- IFS-STIICERD seminar, June 2019
Year(s) Of Engagement Activity 2019
 
Description The gender pay gap in the UK: children, working experience and location 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Seminar at the Federal Reserve Bank, Chicago
Year(s) Of Engagement Activity 2018
 
Description Wage progression in the UK 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact Presented at DWP meeting, Audicen: Policy makers
Year(s) Of Engagement Activity 2017
URL https://www.ifs.org.uk/publications/9263
 
Description Wages, Experience and Training of Women over the Lifecycle 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Monica Costa Dias presented the keynote address, "Wages, Experience and Training of Women over the Lifecycle" Workshop on Taxation and Labour Supply, Luxembourg Institute of Socio-Economic Research, January 2020.
Year(s) Of Engagement Activity 2020
URL https://www.liser.lu/?type=news&id=1817
 
Description Wages, Experience and Training of Women over the Lifecycle 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Monica Costa Dias presented "Wages, Experience and Training of Women over the Lifecycle" at:
- Bank of Spain, Oct 2, 2019
- Conference on "Inequality and the Insurance Value of Transfers Over the Life Cycle", London Oct 11-12, 2019
- Birkbeck, Oct 30 2019
- University of Copenhagen, Nov 7, 2019
- University of Sussex, Nov 13 2019
- University of Essex, Nov 26 2019
- LSE, Dec 11 2019
Year(s) Of Engagement Activity 2019
 
Description course on Computational Methods in Dynamic Economics 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact course on Computational Methods in Dynamic Economics at the FRB Chicago (Jan 16-19, 2018) and at IFS (Feb 8-9).
Year(s) Of Engagement Activity 2018