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The Evolution of the US Family Income-Schooling Relationship and Educational Selectivity

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We estimate a dynamic model of schooling on two cohorts of the NLSY and find that, contrary to conventional wisdom, the effects of family income on education have practically vanished between the early 1980’s and the early 2000’s. After conditioning on a cognitive ability measure (AFQT), family background variables and unobserved heterogeneity (allowed to be correlated with observed characteristics), income effects have lost between 30% and 80% of their importance on age-specific grade progression probabilities. A $70,000 family income differential raised college participation by 10 percentage points in the early 1980’s. In the early 2000’s, a $330,000 income differential had the same impact. The effects of AFQT scores also decreased substantially but did not vanish. Over the same period, the relative importance of unobserved heterogeneity has expanded so much that it has become by far the most important determinant of education.

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2019-09-09

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Inequality; Education; Family Income

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Required Publisher Statement: Published by the Cornell Higher Education Research Institute, ILR School, Cornell University.

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