The future income of your child depends whether you have a flexible job today

Making your kids climb the income ladder better than you may involve more than just working hard and earning more for their future. Your job flexibility can have intergenerational effects.

A recent research analyzed several factors that affect the correlation of income parents and children; a measure related to economic mobility across generations. The researchers looked two-parent households and their education, number of children, participation in the labor market choices, and division of labor in the house.

Source: George-Levi Gayle and Limor Golan and Mehmet Ali Soytas, “What is the source of the intergenerational correlation in earnings?”, St. Louis FED Working Paper 2015-019A, 2016.

Researchers found the most significant contributor to intergenerational earnings correlation was the way the modern labor market is set up. The lack of flexibility in jobs is one of the major things accounting for intergenerational persistence. This new finding is about how firms see the work and human capital in fact can have a huge influence on how households allocate their time. And those time allocation decisions can play a big role in shaping the earnings of the next generation. Most often taking time away from the labor marker can make it difficult if not impossible to just start where you left off since modern labor market actually exhibits depreciation of human capital. In this respect, cost of raising children is much more than just the cost of the foregone market wages, but it means future wages are also at stake. That’s a cost that some families can afford more easily than others. What is the mechanism then that the labor market’s design can affect children’s future earnings? It turns out that it is largely through parental investment, including both time and money.

Parents constantly choose how much time they should allocate for children’s care and how that balances with the labor market arrangements of the spouses. Those decisions can affect how children grow up, through parental investment. Researchers emphasize the likely trade-off between the two productive channels of human capital production, time and money investments. This is especially true for the low educated, low income households. Those children once grown up then will make their own choices about education, family, and work-life balance in the future. Families with more money may be able to afford more time away from the workforce, or more high-quality childcare and educational opportunities. Time with the kids when they are growing up is an essential channel for affecting their future success. Therefore, changing the way workers interact with the labor market is crucial to shaping the earnings persistence in the future, by decreasing the financial burden inherent in choosing to spend more time with children at home. Flexibility in jobs and in the labor market and friendlier workplaces -more work-from-home policies- should be new topics we should be talking about to understand the changes in intergenerational mobility.