Take the example of school quality. Attending a high-quality school may have direct long-run effects on an individual’s lifetime earnings by creating a more valuable professional network, for example. However, attending a higher quality school can also have indirect effects on lifetime earnings through improved cognitive skills and/or the student staying in education for longer. Each of these channels are more likely to benefit the kids of richer parents, who tend to have access to better schools. In a new paper (Bolt et al. 2021a), we use mediation analysis to quantify the different channels through which parental income can impact an individual’s lifetime income.
