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Intergenerational links in earnings: the impact of marital sorting and household labour supply

There is growing evidence of comparatively low intergenerational mobility in the UK and the United States. Robin Naylor and colleagues examine the role played by people choosing spouses like themselves and the decisions that couples make about the female partner’s participation in the labour market.

Family background is an important determinant of economic well-being in adulthood. Children of rich parents not only inherit more wealth than children of poor parents, they also tend to have higher earnings themselves. What’s more, this ‘intergenerational earnings persistence” is often compounded by “assortative mating” or “marital sorting” – people’s tendency to find husbands or wives with similar socio-economic characteristics to their own.

The strength of the links between the earnings of parents and their children – the degree of “intergenerational earnings mobility” – varies over time and across countries. In a new study, we present comparable evidence on intergenerational earnings mobility for Denmark, Finland, Norway, the UK, and the United States, with a focus on the role of gender and marital status.

We confirm our previous finding that earnings mobility in the Nordic countries is typically greater than in the United States, with the UK somewhere in between. But we also find that, in contrast to single people and married men, the earnings mobility of married women appears to be similar across the five countries.

When measuring outcomes in terms of married women’s own earnings, the link between their earnings and their parents’ earnings seems to be as weak in the United States as in the other countries. This stands in contrast to the relative immobility (stronger intergenerational links in earnings) of other groups in the United States.

In the United States, women who marry rich men are relatively likely to opt out of the labour market, despite their own typically high earnings potential

But if outcomes are measured in terms of the earnings of whole households, intergenerational earnings mobility in the Nordic countries exceeds that in the UK and the United States for both men and women, single and married. The reason for this is that, in the UK and the United States, married women with children and with husbands from affluent backgrounds tend to have lower labour supply than in the Nordic countries.

In other words, women who marry rich men seem to respond to the high wages of their husbands by working fewer hours or withdrawing from the labour market altogether. It is the combination of assortative mating and households’ labour supply responses that weakens the association between married women's own earnings and their parents' earnings.

We examine empirically how patterns of mobility by gender and across countries are attributable to differences in intergenerational transmission of earnings capacity, family labour supply and the extent of assortative mating.

The results show that the intergenerational transmission of human capital (educational attainment) is fairly similar across the five countries. But because the returns to schooling differ across countries, the channel of human capital transmission leads to greater intergenerational earnings persistence in the UK and the United States than in the Nordic countries. In terms of earnings capacity, mobility is similar for men and women in all five countries.

As evidence of assortative mating, we examine the educational attainment of partners and find strong correlations within couples in all countries. Marital sorting tends to be slightly more prevalent in the UK and the United States.

Men’s earnings are highly correlated with those of their parents-in-law, especially in the United States

We also find a strong correlation between individuals’ own education and that of their parents-in-law. Here, there is variation both by gender and across countries, with the correlation with the education of parents-in-law especially strong for men in the United States.

This pattern is reflected in our finding that men’s earnings are highly correlated with those of their parents-in-law, especially in the United States. In contrast, the correlation between married women’s earnings and the earnings of their parents-in-law is weaker in the United States than elsewhere.

These patterns of intergenerational mobility seem to reflect variations in family labour supply decisions across countries. We attribute the relatively weak correlation between married women’s earnings and those of their parents-in-law in the United States to the fact that the effects of assortative mating are being offset by the effects of household labour supply decisions. Although women who marry rich men typically have high earnings potential themselves, they tend to choose low or no participation in the labour market.

As evidence of this, we present findings on the influence of the earnings of parents and parents-in-law on the labour supply of married men and women. In all countries, own parental earnings are positively associated with labour supply for men and single women. The same positive association holds for married women in the Nordic countries.

But in the UK and the United States, married women’s labour supply is negatively associated with the earnings of both their own parents and their parents-in-law. This effect can be traced to relatively affluent households with children, where labour supply decisions seem to follow traditional gender patterns of within-family specialisation more than in the Nordic countries.

Thus, for married women, measures of mobility based on their own earnings are misleading indicators of the intergenerational transfer of welfare for the purposes of comparisons both within and across countries. Better measures would be based on combined family earnings or mobility in earnings potential.

Publication details

"Marital Sorting, Household Labor Supply, and Intergenerational Earnings Mobility across Countries," by Oddbjørn Raaum, Bernt Bratsberg, Knut Røed, Eva Österbacka, Tor Eriksson, Markus Jäntti, and Robin Naylor, is published in the Berkeley Electronic Journal of Economic Analysis and Policy 7(2): Article 7. Weblink: http://www.bepress.com/bejeap/vol7/iss2/art7.

The authors

Robin Naylor is professor of economics at the University of Warwick. Oddbjørn Raaum, Bernt Bratsberg and Knut Røed are at the Frisch Centre for Economic and Social Research at the University of Oslo. Eva Österbacka and Markus Jäntti are at Åbo Akademi University. Tor Eriksson is at Aarhus University