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The channels of influence of parents background on children's earnings: the role of human and relational capital in monopolistic competition

Author

Listed:
  • Maurizio Franzini

    (University of Rome La Sapienza)

  • Fabrizio Patriarca

    (University of Rome La Sapienza)

  • Michele Raitano

    (University of Rome La Sapienza)

Abstract
The accumulation of human capital is considered the main channel through which parents background influences their children's earnings. The possibility that parents affect their children's prospects through channels not directly related to productivity i.e., their relational capital is usually neglected. Indeed, we lack a theory explaining why firms may reward relational capital and how this affects the intergenerational transmission of inequality. In this article, we aim to fill these gaps by explaining why parents background can affect their children's earnings through channels other than human capital. We set up a theoretical model of monopolistic competition where relational capital is a further determinant of workers' earnings. We show that the premium for human capital is higher as the sector of employment is more competitive, while the opposite holds for relational capital. Parental background is associated with both unobservable human capital and relational capital. Therefore, we can rely on our model's predictions to establish whether the influence of parental background beyond the influence through education is due to unobservable abilities rather than to family networks. We test these predictions for Italy and find that the additional background premium, which is not negligible, seems to depend more on relational capital than on unobservable components of human capital because it decreases when sector competition increases.

Suggested Citation

  • Maurizio Franzini & Fabrizio Patriarca & Michele Raitano, 2016. "The channels of influence of parents background on children's earnings: the role of human and relational capital in monopolistic competition," Working Papers 3/2016, Interuniversity Research Center "Ezio Tarantelli".
    • Handle: RePEc:aex:wpaper:wp3
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    Citations

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    Cited by:

    1. Teresa Barbieri & Francesco Bloise & Michele Raitano, 2020. "Intergenerational Earnings Inequality: New Evidence From Italy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 418-443, June.

    More about this item

    Keywords

    Parental background; Human capital; Relational capital; Monopolistic competition; Earnings;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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