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Pietro Biroli, Ph.D.

University of Zürich, Switzerland

Authors: Pietro Biroli and Maria-Fernanda Rosales

Abstract: Social and racial inequality in the US persistently influences socio-economic outcomes. However, racial differences in outcomes decline or disappear once educational achievement is controlled for. This paper aims to understand how racial gaps in skills are formed, how they evolve throughout childhood, and how they contribute to inequality in long term outcomes. We study racial differences in human capital formation within the context of family environments and parental investments, and examine how they affect early skills to produce subsequent human capital. Since investments are not exogenously determined, we use the rich information provided by the Children of the National Longitudinal Survey of Youth (CNLSY) and leverage exogenous changes in the Earned Income Tax Credit (EITC) at the federal and state level during late 1980’s and 1990’s to identify the effect of investments. We find that the dynamic process of human capital development perpetuates racial disparities in cognitive skills, socio-emotional abilities, health, family environments, and investments that arise early in life. These disparities then translate into later gaps in achievement and ultimately in gaps in adult socio-economic outcomes.

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