How do education, cognitive skills, cultural and social capital account for intergenerational earnings persistence? Evidence from the Netherlands

This study analyzes four different transmission mechanisms, through which father’s earnings affect son’s earnings: the educational attainment, cognitive skills, the cultural capital of the family and the social capital in the neighborhood. Using a unique data set that combines panel data from a birth cohort with earnings data from a large nationwide income survey and national tax files, our findings show that cognitive skills and schooling of the son account for 50% of the father-son earnings elasticity. Education by far accounts for the largest part, while cognitive skills mainly work indirectly through educational attainment. Social capital of the neighborhood and cultural capital of the parents account for an additional 6% of the intergeneration income persistence. From these two additional mechanisms, social capital appears to play a stronger role than thecultural capital of the parents. This means that 44% of the intergenerational persistence is due to other unobserved characteristics for example personality traits or spillovereffects of family assets.