Surnames and a Theory of Social Mobility - University of Chicago ...

where τ is the correlation of abilities between parents and children, independent of
any investments in children by parents, and γ is the elasticity of income with respect
to human capital investment. 13 If human capital investments have no effect on
income, then γ = 0, parents don’t invest in human capital, and , from the
biological correlation between the attributes of parents and children. But if γ >
0, then parents invest proportional to their own incomes, and .
In this model a key parameter in influencing status transmission is γ, the
elasticity of income with respect to human capital investment. It is assumed that
income spent on children always boosts their human capital, and thereby raises their
earnings as adults. This assumption has become a key, almost theological, doctrine
of modern economics in accounts of modern economic growth. One problem has
been that the parameters τ and γ are unobserved
However, if we assume that income can be influential in the production of
human capital in children, we would expect the strength of the effect of parental
human capital investment on child incomes to vary substantially across social
regimes. In the pre-industrial world where education was largely privately financed
all the way from elementary to university, we would expect that γ would be large, and
so persistence great.
Also, in modern societies such as Sweden and the UK, a lot of human capital
investment is publicly financed. Elementary, secondary and even university
education is provided free of charge. Often even the living costs of university
students are covered.
13 This model assumes only parents, and not grandparents, contribute resources to children.
It also does not allow for the possibility that parents could simply choose to endow their
children with wealth, rather than investing this in their children’s human capital. The key
result is that the parental investment in children’s human capital is given by
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where y is income, and α is the measure of parental altruism.