No. 3630: The Causal Effect of Parent's Schooling on Children's Schooling: A Comparison of Estimation Methods
published in: Journal of Economic Literature, 2011, 49 (3), 615-651, revised version available here
Recent studies that aim to estimate the causal link between the education of parents and their children provide evidence that is far from conclusive. This paper explores why. There are a number of possible explanations. One is that these studies rely on different data sources, gathered in different countries at different times. Another one is that these studies use different identification strategies. Three identification strategies that are currently in use rely on: identical twins; adoptees; and instrumental variables. In this paper we apply each of these three strategies to one particular Swedish data set. The purpose is threefold: (i) explain the disparate evidence in the recent literature; (ii) learn more about the quality of each identification procedure; and (iii) get at better perspective about intergenerational effects of education. We find that the three identification strategies all produce intergenerational schooling estimates that are lower than the corresponding OLS estimates, indicating the importance of accounting for ability bias. But interestingly, when applying the three methods to the same data set, we are able to fully replicate the discrepancies across methods found in the previous literature. Our findings therefore indicate that the estimated impact of parental education on that of their child in Sweden does depend on identification, which suggests that country and cohort differences do not lie behind the observed disparities. Finally, we conclude that income is a mechanism linking parent’s and children’s schooling, that can partly explain the diverging results across methods.