Increasing Inequality in Parent Incomes and Children's Completed Schooling: Correlation or Causation?

ABSTRACT: It is well known that income inequality increased dramatically in the United States beginning in the 1970s. Reardon (2011) documents a correspondingly large increase - of close to .50 standard deviations - in the test score gap between children in low and high income families over the same period. This paper shifts the focus from achievement to attainment, as measured by years of completed schooling, and tracks changes in income inequality and educational attainment between children born into low- and high-income households in the U.S. between 1954 and 1985. Using data from the Panel Study of Income Dynamics and concentrating on the cohorts whose adolescent family income were measured between the late 1960s and late 1990s, we find that the schooling gap between high and low income children grew by half a year (about one-quarter standard deviation). We attempt to account for the increase in the schooling gap by changing gaps in family income and other demographic factors (single parenthood, parent education, family size and age of mother at birth). We also estimate changes in the relative importance of income and these other demographic factors for children's completed schooling.