Intergenerational Transmission of Poverty and Inequality: Young Lives

Parents play major roles in determining the human capital of children, and thus the income of children when they become adults. Models of investments in children’s human capital posit that these investments are determined by parental resources (financial and human capital) and child endowments within particular market and policy environments. Many empirical studies are consistent with significant associations between parental resources and investments in their children. And there is considerable emphasis in the scholarly and the policy literatures on the degree of intergenerational mobility and the intergenerational transmission of economic opportunities, and therefore the intergenerational transmission of poverty – or of affluence. Therefore policies or other developments that affect the extent of poverty and/or inequality in the parents’ generation are likely to have impacts on the extent of poverty and/or inequality in the children’s generation. However the extent of these intergenerational effects is an empirical question that this paper explores using the Young Lives data to estimate intergenerational associations between parental resources and investments in human capital of children and then, under the assumption that these associations reflect causal effects, to simulate what impacts changes in poverty and inequality in the parents’ generation have on poverty and inequality in the children’s generation. The results suggest that reductions in poverty and in inequality in the parents’ generation reduce poverty and inequality in the children’s generation some, but not much.