Does parents’ income matter in intergenerational transmission of human capital? A decomposition analysis

Abstract

Purpose

Since the pristine works of Schultz (1961) and Becker (1964, 1975), the concept of intergenerational transmission has constantly been in the front line of discussion among the social scientists to divulge the sources and channels through which diffusion of socio-economic status can take place across the generations. The purpose of this paper is to explore the intergeneration links via monetary channels through decomposition technique.

Design/methodology/approach

Using a sample of 613 households selecting through systematic sampling from Multan district (Pakistan). Making a three tier analyses, i.e. simple, sequential and double decomposition, the findings of the models support the hypothesis of the study that children of high-income parents also fall in high-income groups.

Findings

The simple decomposition analysis using education as the pathway factor reveals that parental income is pivotal in determining the education and ultimately the level of their child’s income. The sequential analysis incorporates occupation and depicts a positive association between the offspring education and occupation. In the double decomposition analysis, the direct component reveals that even among those children with the same level of education, higher parental income is linked with the better occupational achievements, whereas indirect component explains the impact of parental income on occupation via education of the children. In other words, it explains the degree to which children with higher family income acquire more education and consequently get better jobs.

Research limitations/implications

In Pakistan like the other developing countries nationwide surveys are not conducted at the government level.

Practical implications

This study is providing the guideline to the policy makers for the formulating their policies for developing and managing the human capital.

Social implications

The findings of this study are useful for reducing the inequality in the society.

Originality/value

This is an original and first time it is going to be conducted in a country like Pakistan

Citation

Shareef, F., Khawaja, M.J. and Azid, T. (2017), "Does parents’ income matter in intergenerational transmission of human capital? A decomposition analysis", International Journal of Social Economics, Vol. 44 No. 2, pp. 267-283. https://doi.org/10.1108/IJSE-11-2014-0235