Values for Grandchildren: The Role of Grandparents in Intergenerational Transmission of Income

Grandparents are fundamental pillars of families and societies. They transmit skills and values to the future generations, invest in parental human capital, provide child‐care throughout direct interactions, and are bequest givers.
The aim of this paper is to analyze and quantify the impact of grandparents’ socio‐economic situation during different periods of their working age on the income of the two subsequent generations. For doing this, we exploit the universe of the Danish population from 1980 to 2019 and their correspondent detailed individual information on demographics, education, income, wealth, and labor history. We focus on dynasties composed by grandparents, parents and children.
Inspired by the theoretical model on inequality transmission across multiple generations introduced by Solon (2014), our empirical model studies whether individual income can be explained by the parents’ and grandparents’ income. Using as instrument the firms’ mass lay‐off events in the middle of grandparents’ career (i.e., between 45–55‐year‐old), we find that grandparents’ income has a positive and significant effect on grandchildren’s one and can be quantified in about 25% of the total effect of the intergenerational transmission. This direct effect is beyond the indirect effect of grandparents through parents’ income. In addition, we identify larger effects once maternal grandmothers or retired grandparents living close to the grandchildren are considered.