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Intergenerational Economic Mobility and the Racial Wealth Gap†

Intergenerational Economic Mobility and the Racial Wealth Gap† AbstractA growing body of research documents the importance of wealth and the racial wealth gap in perpetuating inequality across generations. We examine the impact of wealth on child income. Our two-stage least squares regressions reveal that grandparental wealth has an important effect on the younger generation's stock, which in turn affects the younger generation's household income. We further explore the relationship between income and wealth by decomposing the child's income by race. We find that the intergroup disparity in income is mainly attributable to differences in family background. These findings indicate that wealth is an important source of income inequality. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png AEA Papers and Proceedings American Economic Association

Intergenerational Economic Mobility and the Racial Wealth Gap†

Intergenerational Economic Mobility and the Racial Wealth Gap†

AEA Papers and Proceedings 2021, 111: 206–210 https://doi.org/10.1257/pandp.20211113 By Jermaine Toney and Cassandra L. Robertson* The conventional economic wisdom is that college education, an unpaid internship in a individual wealth accumulation is derived from high-rent city , a new business, a property in a savings out of current incomes. Such wisdom better residential neighborhood, or a job in the dates back to the Wealth of Nations by Smith family firm (Corak and Piraino 2011). Without (1904), where Smith writes that “[p]arsimonywealth transfers, regardless of income, these [i.e., surplus of income over current consumpassets are harder to attain. - Another strand of tion] … is the immediate cause of the increaseresearch explores the parent-to-adult-children of [wealth].” However, in this paper we raise thetransmission of household wealth (Chiteji and question of whether or not current incomes and Hamilton 2002, Charles and Hurst 2003) and the economic well-being are linked to the previous connections of three generations and the build- generation’s wealth. These links may be direct ing blocks of net wealth through the inter - gener (intervi vo transfers, inheritance) or indirect ational transmission of risk nonfinancial, and y, (social capital, peer effects from family social safe asset components (Toney 2020). position). Less attention is focused on how the income Existing scholarship reveals that paren of younger generations is influenced by the - tal income is highly predictive of children’ wealth of pre s vious generations. According to income (Corak 2013, Blanden et al. 2014). Fox (2016), parental wealth propels a larger pro- Wealth is, however, distinct from income. portion (62.1 percent) of white children above Wealth, more than income, can be used to invest their parents’ income position compared to their in appreciating assets for offspring, such as a Black peers (42.4 percent). Parental homeown- ership...
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References (4)

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  • Charles Kerwin Kofi (2003)

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    Journal of Political Economy, 111

  • Chiteji Ngina S (2002)

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    Review of Black Political Economy, 30

  • Blanden Jo (2014)

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    Review of Income and Wealth, 60

Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
2574-0768
eISSN
2574-0776
DOI
10.1257/pandp.20211113
Publisher site
See Article on Publisher Site

Abstract

AbstractA growing body of research documents the importance of wealth and the racial wealth gap in perpetuating inequality across generations. We examine the impact of wealth on child income. Our two-stage least squares regressions reveal that grandparental wealth has an important effect on the younger generation's stock, which in turn affects the younger generation's household income. We further explore the relationship between income and wealth by decomposing the child's income by race. We find that the intergroup disparity in income is mainly attributable to differences in family background. These findings indicate that wealth is an important source of income inequality.

Journal

AEA Papers and ProceedingsAmerican Economic Association

Published: May 1, 2021

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