Grawe, Nathan D. 2004. "Reconsidering the Use of Nonlinearities in Intergenerational Earnings Mobility as a Test for Credit Constraints." Journal of Human Resources 39(3): 813-827.

Intergenerational earnings regression among Canadian men is nonlinear; middle-earning families experience slower regression. This pattern appears to confirm economic models of educational choice with credit constraints. This paper reexamines the economic model and finds no connection between credit markets and earnings regression nonlinearities. In particular, credit constraints need not produce concavity and concavity does not imply credit market failure. Despite the invalidity of the test, data availability will likely lead to continued research along this path. The paper proposes an amended test using quantile regressions. Applied to Canadian data, the simple liquidity constraint conclusion is rejected.

Nathan D. Grawe is an assistant professor of economics at Carleton College. Helpful comments were provided by Gary Becker, Miles Corak, Paul Grawe, Mark Kanazawa, Casey Mulligan, Sherwin Rosen, Gary Solon, Jenny Wahl, an anonymous referee, and seminar participants at Carleton College, the University of Illinois, and Southern Methodist University. The author gratefully acknowledges financial assistance during some of this work from Carleton College and the National Science Foundation (#DGE9616042). Thanks to Miles Corak, Sophie Lefebvre, and Statistics Canada for providing access to the data used in this paper and to Han Song for providing programs from the simulations in Han and Mulligan ( 2001) . The author claims all responsibility for interpretations and remaining errors. Data used in this paper reside at Statistics Canada in Ottawa. Researchers seeking to replicate these findings may apply to Statistics Canada for access to the data. The author is willing to assist researchers in that quest. Correspondence may be directed to <ngrawe@carleton.edu>.