Parents and Children : Changes in Income Distribution and the Inheritance of Economic Status

Using a US sample of parents and children, we examine income distribution in two generations. We find that the mean of the children's distribution is higher than that of parents', but incomes were more equally distributed in the lower deciles of the latter distribution. Groups of children raised in richer families have higher average incomes and lower risks of being poor, but they also exhibit higher income variances than children of poorer origins. This latter result is used to investigate the performance of weighted least squares estimators of income transmission equations. Adjusting the data for heteroscedasticity, income inheritance is found to be more intense, and the goodness of fit of the estimated model is substantially improved over the results of the constant variance framework.