Scott Duke Kominers (photo by Evgenia Eliseeva)

Scott Duke Kominers (photo by Evgenia Eliseeva)

Income inequality over multiple generations is not just the result of wealthy families passing down money—it’s how those families spend their money, namely on their children’s education, health, and skills development. Those qualities, known as human capital, provide a better predictor of economic status, says Associate Professor Scott Duke Kominers.

“A Theory of Intergenerational Mobility,” authored by Kominers, Kevin Murphy and the late Nobel Prize–winning economist Gary Becker of the University of Chicago, and Jorg Spenkuch of Northwestern University, investigates why children and grandchildren of low-income parents tend to remain in poverty, regardless of intelligence, their ability to borrow money, or innate abilities.

Low-income families often have little option but to send their children to local, under-resourced public schools. And when parents work more than one job or long hours, it reduces the time they can spend with their children reading and playing, or in social interaction.

In contrast, wealthy families have the luxury of living in areas with better public schools or can send their children to private schools, as well as providing enrichment activities such as music lessons or summer camps. As parents, they have more time to spend with their children, particularly when they are very young, and in the process pass along soft skills. These human capital investments open doors, making professional and personal lives easier to navigate and translating to higher earnings.

As a result, 36.5 percent of children born to parents in the top 20 percent of income distribution remain there—twice the probability that a child born to parents in the middle-income range will rise to the top. And for those in the lowest 20 percent of income distribution, there’s only a 7.5 percent chance they’ll move up to the top and a 35.7 percent chance they’ll remain in the lowest income range. “The crux of our analysis is that children of well-educated parents are more likely to grow up in home environments that complement investments in human capital,” the authors state.

“You can’t fix it by simply reducing credit constraints and giving people more access to funds,” Kominers says, adding that the researchers tested this. A better long-term solution is to invest in education, provide direct engagement in skills development, support parents on the cusp, and mentor first-generation college students. The dividends of those investments, Kominers says, could be passed down to successive generations.

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