PROVO — Sons of fathers who are financially successful typically do pretty well themselves. But BYU research says brains trump bucks and the "human capital" intangibles dad passes on are more important than money to building that success. There's much more involved than a financial head start.
The findings of the study, which included American and Swedish researchers, are published in the Journal of Political Economy.
The researchers started with the "known fact, the correlation between incomes of fathers and sons," said David Sims, Brigham Young University associate professor of economics and one of the authors.
Less clear was how different mechanisms interact to create that next-generation success. So they grouped factors into two categories, those related to the money itself and what it can buy, and those related to other things a father can pass to his son, such as work ethic or intelligence, motivation, genetics or a sense of responsibility.
They looked specifically at fathers and sons because they wanted to be able to look over a couple of generations across a stretch of time. Most of those with incomes for long periods were fathers and sons, since women entered the workforce in large number relatively recently.
The researchers wanted to know what impact Dad had on Junior, regardless of his level of financial investment, including "genetic transmission of attributes, the power of example and at-home nonfinancial investments. Without a deeper understanding of the relative importance of transmission mechanisms, it is difficult to correctly anticipate the intergenerational effects of policies designed to redistribute income or to subsidize the acquisition of human capital," they wrote.
They classified the nonmoney factors as "human capital" and determined those factors are responsible for nearly two-thirds of how well a son will do financially. They said no more than 37 percent of the higher-income correlation was a result of dad's financial investment in his son.
"This will help us think about whether we should concentrate on income as a way of helping the next generation" or whether the investment of human capital is more crucial, said Sims.
Figuring out whether something is strictly a financial factor or something else is tricky, the researchers noted. "On average, fathers with higher human capital endowments also tend to have higher incomes, so it's hard to tell which factor is doing what," they said in a release accompanying the study.
They based their study on data collected by the Swedish government that included fathers with sons born between 1950 and 1965. Men in jobs that require specialized skills or education are considered to have higher human capital endowments, the researchers said.
To drill beyond the expected correlation between father's income and son's, they examined what happened if one was "hit by some sort of unexpected shock to your income," Sims told the Deseret News. What happened to a Swede, for instance, living next to a plant that closed? "If an industry experiences a bad stretch, that will reduce your income differently than it would be reduced if you had less education."
Studies repeatedly show that someone who doesn't earn a college degree has reduced lifetime income. When someone has an unlucky break in employment that has little to do with education level, the effect is different.
Sims said that there was diversity in the finding on a father's and son's income correlation between different countries, but not in a way one might expect. "They did not follow the obvious political inferences one might draw," he said, noting the correlation between a father's and son's incomes is higher in the United States than in Sweden. But the correlation in France was more like that in the United States, while Australia was more similar to Sweden. "Political ideas don't seem to make the difference," the researcher noted.
The other study authors are Lars Lefgren of BYU and Matthew J. Lindquist of the Swedish Institute for Social Research, Stockholm University.
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