Market competition and parental background wage premium: the role of human and relational capital
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Market competition and parental background wage premium: the role of human and relational capital Maurizio Franzini 1 & Fabrizio Patriarca 2 & Michele Raitano 1 Received: 16 October 2018 / Accepted: 2 April 2020/Published online: 24 June 2020 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract
The literature on intergenerational inequality has not inquired so far the role that market competition can play in the intergenerational transmission process. In this article we assess this role from both an empirical and a theoretical perspective. From the empirical side, using a panel dataset on Italian workers, we find that the parental background wage premium significantly decreases when sector competition increases. This result is challenging and might signal that part of the intergenerational transmission of inequalities is related to non-productive abilities transmitted by parents – that we call relational capital – rewarded thanks to rents arising in non-competitive markets. However, parental background might hide both relational capital and unobservable abilities and we cannot exclude that some workers’ unobservable abilities are more rewarded in less competitive industries, even if further analyses run to deal with this issue lend support to the idea that relational capital plays a not negligible role. From the theoretical side, we propose a model – whose predictions are consistent with our findings – that sheds light on the crucial role played by the intergenerationally transmitted relational capital in rent-seeking activities by firms when markets are non-competitive. Keywords Parental background . Intergenerational inequality . Human capital . Relational capital . Rent-seeking . Competition . Earnings JEL Classification D43 . D31 . J24 . J31 . J62
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10888-02009441-y) contains supplementary material, which is available to authorized users.
* Michele Raitano [email protected] Maurizio Franzini [email protected] Fabrizio Patriarca [email protected] Extended author information available on the last page of the article
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1 Introduction A primary objective of the literature on intergenerational inequality is to understand the mechanisms that generate persistence of income inequality between parents and offspring. In general, an association between parents’ characteristics and children’s income emerges when children’s earnings are determined by traits that are inherited from their parents either directly (without costs) or through an investment. In attempts to distinguish the roles played by nature and nurture in the process that shapes intergenerational inequality, empirical studies have inquired about the possibility of a genetic transmission of productive traits (e.g., I.Q.) from parents to children (e.g., Bjorklund et al. 2005; Sacerdote 2007; Holmlund et al. 2011). Following the theoretical models by Becker and Tomes (1979, 1986) and Sol
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