Human capital and trends in the transmission of economic status across generations in the U.S.

Using data from the 1979 and 1997 National Longitudinal Survey of Youth, we investigate the changing roles of ability and education in the transmission of economic status across generations. Potential changes are identified using a decomposition method based on the OLS omitted variable bias formula. We find that ability plays a substantially diminished role for the most recent cohort while education plays a substantially larger role. The first finding results from a smaller effect of children's ability on status and a reduced correlation between parental status and children's ability. The second finding results mainly from increased returns to higher education.