Have you noticed how sons of successful fathers are usually successful too. In fact, the sons even do better than their fathers, often earning more than their fathers did. Is it just because of the father’s money? New research begs to differ.
An economics professor at the Brigham Young University has found that behind the success of a son who has a successful father is something more than money—intangibles such as smarts, advice or work ethic.
The researchers term these intangible assets as human capital. And they noticed that more than a father’s financial background and how much money he can pass on to his son, what matters in a son’s success to a large extent is the human capital the son inherits from the father.
The authors’ methodology builds on the following thought experiment. Take two smart, similarly skilled and educated fathers. Say one lived in a town with a robust labor market and he had a big salary. The other father wasn’t so lucky. He lived in a town with a depressed labour market, and had much lower earnings despite his comparable human capital. If money is the only thing that matters in the inter-generational transfer of income, then we’d expect that the son of the lucky father would end up with a higher income than the son of the unlucky father. However, if human capital matters, the two sons may end up with more similar incomes.
To test this idea, the researchers used analysed government administrative data on a large sample of Swedish fathers with sons born between 1950 and 1965. The data included detailed information such as: salary information of fathers and sons in addition to education levels and the nature of their occupations [clues about fathers’ human capital]. Fathers that were highly educated or who worked in specialised jobs were considered to have higher human capital.
The first finding that emerged on analysing the data was that sons of high-income fathers too earned well. And the second finding was that money isn’t the only thing that matters—human capital passed on from father to son plays a key role in the son’s income.