Correlations of Brothers' Earnings and Intergenerational Transmission

Research Seminars

We model the correlations of brothers' earnings isolating the effect of fathers' earnings from additional residual influences shared between brothers. We separate the two effects by analysing sibling correlations and intergenerational correlations jointly within a unified framework. Our multi-person model of earnings dynamics distinguishes permanent from transitory shocks, allows for life cycle effects and nests previous models. Using data on the Danish population of father/first-son/second-son triplets, we corroborate the findings of sibling correlation studies that do not account for life cycle effects for those aged in their 30's, but find correlations twice large at 25. The impact of intergenerational effects also varies over age, but is everywhere higher than what previous studies have found using calibrations − by on average a factor of thirteen − and accounts for most of the sibling correlation. When allowing for differential intergenerational transmission, we find mild evidence of stronger transmission to second sons.