Concluding Remarks and Discussion

In the introduction we ask ourselves whether we can explain the conflicting results in the literature on causal intergenerational education effects. We offer two possible explanations. One is that most of these studies rely on different data sources, gathered in different countries at different times. The other one is that these studies make use of different identification strategies in order to estimate causal effects. In a setting where we have estimated intergenerational education effects using three different identification strategies with data sets that are as similar as they can be - all are based on Swedish parents born in the same period – we conclude first that all three strategies produce causal estimates that are lower than the corresponding OLS estimates, which means that the intergenerational transmission of human capital is much lower when ability bias is taken into account.

Second, we must conclude that the choice of identification strategy is responsible for the disparities previously observed in the literature. We replicate previous findings for each estimation method. The strategy using twin parents gives us positive intergenerational schooling coefficients for fathers, but a small or no effect for mothers. These findings are in line with the previous twin literature, which has not been able to identify a positive effect for mothers. Our results using samples of foreign-born adoptees to identify the causal effect of parent’s education on child’s education come out as relatively small compared to the previous literature. For Swedish-born adoptees, the estimated intergenerational coefficients are somewhat larger. The IV strategy on the other hand, indicates that it is only the mother’s education that is important, and that the effect for mothers is relatively large. This finding replicates the previous literature that has also found positive effects of mother’s and no effects of father’s education using compulsory schooling reforms as an instrumental variable.

The studies in the previous literature all aim at estimating causal effects, with the scope to draw inference to the population as a whole. We have established that different identification strategies lie behind disparate findings in the literature. We consider two sources. The first source is that the three methods are not estimating the intergenerational coefficient equally well. From our discussion of each identification strategy it should be clear that the identifying assumptions do not always hold. In fact, only the IV takes fully into account inherited abilities and child-rearing endowments, at least in theory. The second source is that effects are heterogenous. This means that each method estimates effects for different subpopulations. In case the intergenerational transmission coefficient varies across different groups of individuals in a way that is systematically related to characteristics of the sub-sample of individuals that contribute to identifying the effect in each particular method, we might expect to end up with estimates that differ across methods.

To address these external validity concerns, we perform a series of tests to shed light on whether the estimates of one particular identification strategy can be generalized to the population as a whole. We believe that our sample of twins is most representative. We apply the twin strategy on low-skilled twins, similar to the reform sample in which the instrument has the strongest impact. If these twin estimates are similar to those obtained for the twins in the whole sample, we conclude that we can probably generalize our IV findings to the population of all children. However, this is only partly true. Also, tests for non-linearities of the intergenerational coefficient, obtained by including a squared term of parental education in our twin and adoption regressions, do not support the idea of heterogenous effects across the parental education distribution.

As a final exercise to better understand the diverging results, we have investigated the underlying mechanisms driving the intergenerational transmission of education. One such mechanism operates through income; one of our findings shows that using the reform as an instrument to identify returns to education, returns are positive for mothers and zero for fathers, which would translate into a larger intergenerational schooling estimate for mothers compared to fathers - exactly what we find using the IV strategy. With this result, in

combination with others, we are confident to conclude that income is an important mechanism explaining our differential findings across methods.

This study has highlighted many of the common pitfalls in applied econometric analysis. Family-fixed effects and instrumental variables are techniques with a widespread use, and as such the findings and discussions in this paper should be illustrative also for a broader set of applications. By comparing three methodologies we have been able to better illustrate and assess the shortcomings of each method, and we have found our causal estimates to be sensitive to some of those. This calls for careful sensitivity analysis in future empirical work. Nevertheless, from the positive side, and to the merit of the methodologies under scrutiny, they all to different degrees reduce ability bias in the intergenerational schooling estimate, which we consider an advancement compared to the earlier literature in the field.

As a final note, we would like to say something on the policy implications. In Sweden much money is spent on the educational system, with the idea to generate a school environment for children to prosper, independent of parental resources. If better educated parents are better in providing an environment that improves the success of children in school because of their education, improving the educational achievement of one generation has long term consequences; the educational achievement of future generations would then improve as well. If, on the other hand, the children’s ability that is responsible for success in school is largely inherited, an improved school environment may help the less able children to overcome their disadvantages. However, these improvements are only short-lived and probably come at greater costs; educational expenses are repeatedly made across generations since the ability of future generations remains unequally distributed. Having said this, our findings indicate that the intergenerational schooling associations are largely driven by inherited abilities and child-rearing talents. Since the impact of parental schooling on child schooling is small, we believe that educational expenses in Sweden that aim to improve the school outcomes of children may be beneficial within generations but not across generations.

Appendix A: Identification using samples of MZ and DZ twins without zygosity