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Economists Release New Paper Showing Generational Income Is Dependent On Parents and Grandparents

Economists Release New Paper Showing Generational Income Is Dependent On Parents and Grandparents

Generational Income

Economists Release New Paper Showing Generational Income Is Dependent On Parents and Grandparents. Photo by Zach Vessels on Unsplash

A recent study about generational income has shown the income of parents and grandparents plays a role in how much wealth their children and grandchildren will attain.

Entitled “Intergenerational Economic Mobility and the Racial Wealth Gap,” the study was authored by Jermaine Toney and Cassandra L. Robertson. It was published in March by the American Economic Association (AEA).

The study posits while “existing scholarship reveals parental income in highly predictive of children’s income,” wealth is another matter. To gain a more comprehensive understanding of how wealth is impacted by the income of prior generations, researchers decided to explore three generations.

A variety of factors including family background, educational attainment, household income, homeownership and more were examined. After examining the results, the study authors wrote, “The pursuit of wealth accumulation, through the propensity to save, may not be entirely confined to individuals and parents alone, but also may be dependent on grandparental wealth. Our 2SLS/IV regressions reveal that grandparental wealth has some effect on the third generation’s stock (first stage results), which in turn affects the third generation’s income (second stage results).”

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When race is factored in, along with family background, the way inequality contributes to the wealth gap and attainment of generational income becomes even more prevalent. “Long standing differences in family background account for two-tenths (0.2134 is attributable to parental income and wealth, and 0.1803 for grandparental income and wealth) of the black-white income gap,” the study states.

In conclusion the study found that “grandparental and parental wealth have some effect on the third generation’s stock (first stage results), which in turn affects the third generation’s adult income (second stage results).”

“Such a finding indicates that wealth is an important predictor of later life income for both black and white Americans, and that the unequal distribution of wealth has long ranging consequences for the younger generation and inequality overall,” the study continued. “Focusing on individual efforts and two generations will not provide a complete picture. Our analysis indicates not only that the prior generation’s endowments are crucial to understanding the subsequent generations attainment, but also that the impact of those endowments are not constant across racial groups.”