Aggregate implications of occupational inheritance in China and India

Abstract

This paper documents occupational inheritance - that is, children's inheritance of their parents' occupations - in China, India, and other countries. Among the causes of the prevalence of occupational inheritance, we target two broad categories that impede growth: labor market frictions and barriers to human capital acquisition. Counterfactual experiments based on a tractable occupational choice model suggest that if the impediments mentioned above were reduced to the US levels, labor productivity would grow by 60-75% in China and 107-178% in India. China realized 74-89% of this growth potential from the 1980s to 2009. In addition, this productivity gain is accompanied by a decrease in the correlation of intergenerational incomes.