The Causal Effect of Parents' Education on Children's Earnings

We develop and estimate a model of endogenous schooling and earnings to isolate the causal effect of parents' education on children's outcomes. Identification uses earnings differences among children with equal schooling whose parents have different schooling. Health and Retirement Study data indicate that the observed intergenerational schooling correlation is largely driven by correlated unobserved preferences for schooling. This is partly offset by a slightly negative structural relationship between parents' and children's schooling choices. Nevertheless, an exogenous one-year increase in parents' schooling raises children's lifetime earnings by 2 % on average.