Occupational Choice and the Intergenerational Mobility of Welfare

If the average worker attributes distinct values to the intrinsic qualities of different occupations, benefitting from those values constitutes part of one's labor compensation. Based on responses in the General Social Survey (GSS), we construct an index that aggregates positive qualities such as respect, learning, and work hazards, controlling for respondent income and tenure. Using the PSID and NLSY data, we document that children of richer US parents are more likely to select into occupations that rank higher in terms of this index. We rationalize this fact when we introduce occupational choice with preferences over the intrinsic qualities of occupations into a standard theory of intergenerational mobility. Estimating the model allows us to infer the size of compensation each worker receives from their choice of occupation. When earnings are adjusted to reflect this additional compensation, we find substantially larger persistence of income from parents to children. Applying this adjustment, our model further predicts that the trends in the composition of labor demand in the US over the past three decades may have decreased intergenerational persistence, while also leading to higher growth in the welfare of the average worker.