Dynamic complementarity in skill production: Evidence from genetic endowments and birth order
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The birth order literature emphasizes the role of parental investments in explaining why firstborns have higher human capital outcomes than their laterborn siblings. We use birth order as a proxy for investments and interact it with genetic endowments. Exploiting only within-family variation in both ensures they are exogenous as well as orthogonal to each other. As such, our setting is informative about the existence of dynamic complementarity in skill production. Our empirical analysis exploits data from 15,019 full siblings in the UK Biobank. We adopt a family-fixed effects strategy combined with instrumental variables to deal with endogeneity issues arising from omitted variables and measurement error. We find that birth order and genetic endowments interact: those with above-average genetic endowments benefit disproportionally more from being firstborn compared to those with below-average genetic endowments. This finding is a clean example of how genetic endowments (nature) and the environment (nurture) interact in producing educational attainment. Moreover, our results are consistent with the existence of dynamic complementarity in skill formation: additional parental investments associated with being firstborn are more effective for those siblings who randomly inherited higher genetic endowments for educational attainment.Keywords:
Firstborn
Complementarity (molecular biology)
Endogeneity
Nature versus nurture
Educational Attainment
Instrumental variable
Bequest
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This paper investigates the degree of intergenerational transmission of education for individuals from the National Longitudinal Survey of Youth 1979. Rather than identifying the causal effect of parental education via instrumental variables we exploit the feature of the transmission mechanism responsible for its endogeneity. More explicitly, we assume the intergenerational transfer of unobserved ability is invariant to the economic environment. This, combined with the heteroskedasticity resulting from the interaction of unobserved ability with socioeconomic factors, identifies this causal effect. We conclude the observed intergenerational educational correlation reflects both a causal parental educational effect and a transfer of unobserved ability.
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Complementarity (molecular biology)
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Summary In this paper we examine how children's time allocation affects their accumulation of cognitive skill. Children's time allocation is endogenous in a model of skill production since it is chosen by parents and children. We apply a recently developed test of exogeneity to search for specifications that yield causal estimates of the impact time inputs have on child skills. The test exploits bunching in time inputs induced by a nonnegativity time constraint and it has power to detect a variety of sources of endogeneity. We find that with a sufficiently rich set of controls we are unable to reject exogeneity in our most detailed production function specifications. The estimates from these specifications indicate that active time with adult family members, such as parents and grandparents, are the most productive in generating cognitive skill.
Endogeneity
Time allocation
Causal model
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Existing research on intergenerational transfers has focused on income and wealth as the predominant determinants of the provision of financial assistance to adult children (Albertini, Kohli, and Vogel 2006; Zissimopoulos and Smith 2010; Albertini and Radl
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This paper uses the data on child development collected around the evaluation of a nursery program to estimate the details of the process of human development. We model development as made of three latent factors, reflecting health, cognitive and socio-emotional skills. We observe children from age 1 to age 7. We assume that, at each age, these factors interact among themselves and with a variety of other inputs to determine the level of development at following ages. Relative to other studies, the richness of the data we use allows us to: (i) let the dynamics be rich and flexible; (ii) let each factors play a role in the production of any other factor; (iii) estimate age-specific functional forms; (iv) treated parental investment as an endogenous input. We find that the dynamics of the process can be richer than usually assumed, which has important implications for the degree of persistence of different inputs in time. Persistence also changes with age. This has important implications for the targeting of investment and interventions, and the identification of windows of opportunities. The endogeneity of investment is also important.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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Investment
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This paper uses estimates of the dates at which different countries have experienced their demographic transitions to examine the main historical determinants of these transitions. We first show that genetic distance to the United Kingdom, a measure of cultural relatedness used in Spolaore and Wacziarg (2009), is positively associated with the onset of the demographic transition, implying that countries that have a larger genetic distance from the UK tend to experience later transitions. We then unveil a plausible mechanism that can rationalize this result. We show that genetic distance to the UK is negatively related to a country's initial human capital, measured as its schooling level in 1870. One interpretation of this finding is that a larger genetic distance is associated with higher barriers to technological diffusion and hence a lower demand for human capital. This low demand for human capital then delays the demographic transition by providing less incentives for households to switch from quantity to quality of children. Instrumenting initial human capital using genetic distance to the UK and alternative measures of adherence to Protestantism, we confirm the causal link between human capital and the onset of the demographic transition. Further, we show that the impact of cultural relatedness to the UK can be mainly attributed to its effect on educational levels.
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This paper develops and estimates a model with multiple schooling choices that identifies the causal effect of different levels of schooling on health, health-related behaviors, and labor market outcomes. We develop an approach that is a halfway house between a reduced form treatment effect model and a fully formulated dynamic discrete choice model. It is computationally tractable and identifies the causal effects of educational choices at different margins. We estimate distributions of responses to education and find evidence for substantial heterogeneity in unobserved variables on which agents make choices. The estimated treatment effects of education are decomposed into the direct benefits of attaining a given level of schooling and indirect benefits from the option to continue on to further schooling.Continuation values are an important component of our estimated treatment effects. While the estimated causal effects of education are substantial for most outcomes, we also estimate a quantitatively important effect of unobservables on outcomes. Both cognitive and socioemotional factors contribute to shaping educational choices and labor market and health outcomes. We improve on LATE by identifying the groups affected by variations in the instruments. We find benefits of cognition on most outcomes apart from its effect on schooling attainment. The benefits of socioemotional skills on outcomes beyond their effects on schooling attainment are less precisely estimated.
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Social scientists have long been interested in the relationship between parental factors and later child income. Finding the best characterization of this relationship for the question at hand is however fraught with choices. In this paper we use machine learning methods to assess the ‘completeness’ of one popular modelling approach. Here, completeness refers to how well the model summarizes the total predictive relationship between multiple parental factors and a single child outcome. Machine learning methods enable us to depart from functional form assumptions, allowing flexible interactions between a large set of possible parental factors. Using our most flexible complete model as a benchmark, we assess the popular ‘rank-rank’ model relating parent and child incomes. Applying our approach to high-quality Norwegian administrative data, we demonstrate that the rank-rank model explains 68% of the total explainable variation in child income rank, based on a broad set of potential parental factors entering a neural network. Parental wealth and parental education explain the majority of the remaining explainable variation. For an extremely tractable model, we consider this to be a relatively high level of completeness. In light of our country-wide estimates, we explore how this measure of completeness varies across regions of Norway, finding broadly similar patterns to those found at the national level. Our results imply that comparisons of regions based on rank-rank mobility measures may indeed reflect differences in broader notions of equality of opportunity.
Rank (graph theory)
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This paper studies mismatch in educational attainment. Mismatch arises when high ability individuals do not obtain a college degree and/or low ability individuals do obtain such a degree. Using data from the NLSY97 survey, the paper estimates a structural model of education choice that matches the moments of mismatch, college attainment and labor market outcomes. The analysis conditions on both gender and race. The model with occasionally binding borrowing constraint fits the moments better than a model with perfect capital markets, indicating that capital market frictions may contribute to mismatch. The influence of parents on educational attainment is present though this channel appears to operate through attitudes rather than through the provision of resources. Once this link between parents and children is taken into account, the influence of borrowing constraints disappears. In this case, mismatch reflects differences in tastes rather than borrowing constraints. The paper also presents a decomposition of the college wage premium into the returns to schooling and the selection into higher education. The analysis highlights the power of selection into higher education as an explanation of the college wage premium by gender and race.
Educational Attainment
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We argue that formal schooling and wage-work experience are complementary types of human capital for entrepreneurs. Strong empirical support is found for this hypothesis as the interaction term between schooling and actual wage-work experience enters positively and significantly in a Mincer equation, whereas the effect of schooling in the absence of wage-work experience is insignificant. These results are extremely robust towards more flexible specifications, including fixed-effects estimations dealing with unobserved heterogeneity. For wage workers, the interaction term is negligible, confirming that the complementarity is a distinct characteristic of entrepreneurial human capital.
Complementarity (molecular biology)
Work experience
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