Forget the village - it's the family that raises the child

From Family, Community and Long-Term Earnings Inequality by Paul Bingley, Lorenzo Cappellari, and Konstantinos Tatsiramos

From the introduction:

That the environment in which persons grow up and live in the early stages of their life is an important determinant of lifetime socioeconomic outcomes has been well established in the recent economic literature. Francesconi and Heckman (2016) report that at least 50% of the variability of lifetime earnings across persons is due to differences in attributes determined by age 18. Family and community background, which includes the neighborhood where children grow up and the school they attend, are considered important attributes determining later outcomes (e.g. Page and Solon, 2003; Raaum, Sørensen and Salvanes, 2006; Chetty and Hendren, 2015). Families can determine earnings by transmitting abilities, preference and resources, while communities can influence earnings through neighborhood quality, school quality and peers.

In this paper, we study the relative influence of family, schools and neighborhoods on earnings inequality over the life cycle. While there is a large and growing body of evidence on the influence of each of these attributes on adult outcomes, very little is known about their relative influence on earnings and how it evolves over the life cycle. Understanding the relative magnitude of these initial conditions on earnings throughout the life cycle is important for identifying the driving forces of existing inequalities and for interventions that aim to reduce them, especially because some early influences may be longer lasting than others.

Much of the research here in Thingfinder supports the proposition that Family is by far the strongest forecasting variable over school and neighborhoods for future outcomes. Schooling and neighborhoods have influence, but at the margin.

And that is what the researchers found.

This research design shows that, within the environment individuals grow up and live, family is the most important factor in accounting for the inequality of permanent earnings over the life cycle. Neighborhoods and schools influence earnings only early in the working life in an almost equal way, but this influence falls rapidly and becomes negligible after age 30. This implies that, when earnings can only be observed while relatively young, the influence of community on long run earnings inequality is overstated.

Our findings are based on data from Denmark, which, because of its welfare system, is typically considered to promote equality of opportunity. However, as highlighted recently by Landersø and Heckman (2016), there is much less educational mobility than income mobility in Denmark. Low private financial returns to schooling fail to incentivize educational investments among the children of less educated parents. This is consistent with our finding that family is the most important determinant of long run earnings similarities across siblings. Communities seem to affect earnings early in the working life, for example through peers influencing educational choices or youth behaviors, but these influences determine only short term deviations from an earnings profile that – apart from idiosyncratic abilities – mainly reflects characteristics and choices of the family. As administrative datasets and cohort studies mature in other countries, our approach could be applied to measure family and community effects on long run outcomes in other contexts.