The impact of parental income and education on the schooling of their children

We investigate the relationship between early school-leaving and parental education and paternal income using UK Labour Force Survey data. OLS estimation reveals modest effects of income, stronger effects of maternal education relative to paternal, and stronger effects on sons than daughters. Using IV to simultaneously model the endogeneity of parental education and income, the maternal education effect disappears, while paternal education remains significant but only for daughters. In our favourite specification, which proxy for permanent income, paternal income becomes insignificant. Thus policies alleviating income constraints to alter schooling decisions may not be as effective as policies which increase permanent income.