Income and Wealth Inequality during the Life Course. - a Study Based on Sibling Correlations

How should intergenerational inequality be explained? A common idea is that parents transfer resources to their children and that parental investments influence their children’s attainments. Most studies have emphasized the effects of parental investments in education. It is easier for parents to directly influence their children’s attainment of education than their success in the labor market. Therefore early parental investments are considered to have the largest impact on their children’s life chances. This is not the case for wealth transference between generations. Wealth may be easily transferred during the whole life course, and in many cases transferred quite late in life.

In this paper, we measure intergenerational inequality through the life course using sibling correlations. A sibling correlation provides an omnibus measure of family background and neighborhood influences, a measure that includes both observable and unobservable characteristics. There are no prior studies to our knowledge that assess life course changes in sibling correlations using wealth as measurement.

Following recent theoretical developments, we explore the consequences of different parental investment strategies. Put simply, one strategy is that parents make equal investments in their children, something that leads to the expectation that sibling correlations in wealth should decrease over the life course.  If, however, the parents seek to compensate for initial differences in talents and attainments among siblings, by transferring most to the least successful sibling, we expect an opposite trend. We discuss how these patterns may be influenced by children’s labor market success and savings, and by variations in parental strategies in different socioeconomic layers.

We use register data from Norway for brothers and sisters born 1955-1960, tracked annually 1993-2010.  Our measures include earnings and capital income, as well as two measures of wealth (net and gross wealth). We also take into account sibling differences in education.