Intergenerational Transmission of Unemployment Evidence for German Sons

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Intergenerational transmission of unemployment -evidence for German sons Miriam Mäder Steffen MüllerRegina T. Riphahn Caroline SchwientekUniversity of Erlangen-Nuremberg 24 September, 2014 This paper studies the association between the unemployment experience of fathers and their sons. Based on German survey data that cover the last decades we find significant positive correlations. Using instrumental variables estimation and the Gottschalk (1996) method we investigate to what extent fathers' unemployment is causal for offsprings' employment outcomes. In agreement with most of the small international literature we do not find a positive causal effect for intergenerational unemployment transmission. This outcome is robust to alternative data structures and to tests at the intensive and extensive margin of unemployment. IntroductionUnemployment of young individuals is one of the most pressing labor market problems of our times. Recently, some of the crisis ridden European economies faced youth unemployment rates well beyond 20 percent which instigate not only poverty and a sense of desperation but also waves of emigration and delays in family formation. The literature shows that the early experience of unemployment can be influential for lifetime labor market opportunities (e.g., Gregg 2001, Schmillen andUmkehrer 2013). However, while most commentators agree on the significance of early unemployment there is surprisingly little discussion and evidence on some of its key determinants especially the family background. In this paper we study the intergenerational transmission of unemployment experience, describe its patterns, and investigate causal relationships.A number of mechanisms may relate parent and child unemployment. This paper is structured as follows. We first summarize key findings and approaches of the literature on the intergenerational transmission of labor market outcomes and discuss our empirical methods. Then we describe our data. The results section presents findings of least squares regressions, instrumental variables analyses, an application of the Gottschalk (1996) method, and robustness tests. In section 5 we conclude with a summary of our findings. Literature and empirical approach Existing evidence on intergenerational transmission of labor market outcomesSeveral empirical studies investigate the relation between the outcomes of parents and their children with a focus on unemployment and welfare receipt. Studies on unemployment transmis...