Do Parental Networks Pay Off? Linking Children's Labor‐Market Outcomes to Their Parents' Friends

• Author: Erik Plug,Bas Klaauw,Lennart Ziegler
• DOI: http://doi.org/10.1111/sjoe.12227
• Date: 01 January 2018
• Published date: 01 January 2018

©The editors of The Scandinavian Journal of Economics 2017.

Scand. J. of Economics 120(1), 268–295, 2018

DOI: 10.1111/sjoe.12227

Do Parental Networks Pay Off? Linking

Children’s Labor-Market Outcomes to Their

Parents’Friends*

Erik Plug

University of Amsterdam, NL-1018 WB Amsterdam, The Netherlands

e.j.s.plug@uva.nl

Bas van der Klaauw

VU University Amsterdam, NL-1081 HV Amsterdam, The Netherlands

b.vander.klaauw@vu.nl

Lennart Ziegler

University of Vienna, A-1010 Vienna, Austria

lennart.ziegler@univie.ac.at

Abstract

In this paper, we examine whether children are better off if their parents have more

elaborate social networks. Using data on high-school friendships of parents, we analyze

whether the number and characteristics of friends affect the labor-market outcomes of

children. While parental friendships formed in high school appear long lasting, we find no

significant impact on their children’s occupational choices and earnings prospects. These

results do not change when we account for network endogeneity, network persistency,

and network measurement error. Only when children enter the labor market do friends

of parents have a marginally significant but small influence on their occupational choice.

Keywords: Informal job search; intergenerational effects; occupational choice;

social networks

JEL classification:A14; J24; J46; J62

I. Introduction

Social networks are widely considered important for labor-market outcomes

(Jackson, 2010). In search models, social networks are typically thought

of as informal job-search channels providing job searchers with either

information about open vacancies or background references,

*This research uses the Wisconsin Longitudinal Study (WLS) of the University of Wisconsin-

Madison. The WLS has been supported principally by the National Institute on Aging. We

thank seminar and conference participants in Amsterdam, Braga, and Ljubljana, as well as

two anonymous referees, for their comments and suggestions.

E. Plug, B. van der Klaauw, and L. Ziegler 269

recommendations and job referrals (Rees, 1966; Granovetter, 1973).

Furthermore, in surveys, social networks are often mentioned as one of

the main channels through which job searchers find jobs (Holzer, 1987,

1988; Ioannides and Loury, 2004; Cappellari and Tatsiramos, 2015).

However, quantifying social networks and their impact on labor-market

success has proved difficult. First, social networks are often loosely defined

and can take many shapes and forms, ranging from family members and

friends to colleagues, dormmates, neighbors, and ethnic-minority groups.1

Second, information on social networks is rarely collected together with

information on labor-market outcomes. Third, causal inference is difficult

due to the potential endogeneity of network connections (Manski, 1993;

Bramoull´e et al., 2009).

In this paper, we are the first to examine whether children are better off

if their parents have more elaborate social networks. Specifically, we focus

on the high-school friendships of parents and test whether the number and

characteristics of high-school friends affect the labor-market outcomes of

children. Our empirical strategy takes into account some of the selectivity

effects that are common to studies on the labor-market consequences of

social networks. In particular, we examine how sensitive our results are to

network measurement error, network persistency, and network endogeneity.

We use data from the Wisconsin Longitudinal Study (WLS). The WLS

contains detailed information on a random sample of Wisconsin high-

school graduates in 1957 (Hauser, 2009 provides an overview of the

WLS structure). Respondents are asked about their friendship connections

in high school, which can be used to reconstruct the underlying friendship

network. Respondents also report their children’s occupational choice,

which we measure in terms of prospective earnings and interpret as

a proxy for lifetime earnings. We exploit the richness of the WLS,

including information on the respondents’ cognitive and non-cognitive

abilities, educational attainment and other socioeconomic variables, to

account for many of the individual characteristics that possibly confound

friendship ties. The WLS information on friendship ties has been used

before by Conti et al. (2013).

We start our empirical analysis by examining whether children, parents,

and high-school friends of parents make similar occupational choices. We

do not find evidence for the presence of friendship-network effects. We find

positive correlations between the occupations of children and the friends

of their parents, but these positive correlations disappear as soon as we

account for coinciding occupational choices between parents and children.

1Examples are Kramarz and Nordstr¨om Skans (2014), Cappellari and Tatsiramos (2015),

Cingano and Rosolia (2012), Marmaros and Sacerdote (2006), Topa (2001), and Edin et al.

(2003).

©The editors of The Scandinavian Journal of Economics 2017.