Deconstructing the sibling correlation: How families increase inequality

Matched data for parents and siblings in Israel were used to decompose the sibling correlation in schooling and earnings into four components: (a) A "genetic" component induced by inherited ability, (b) Correlated effects induced by sharing common parents, (c) Contextual effects due to common ethnicity, and (d) An endogenous component induced by interactions between siblings. Most of the sibling correlation is due to the latter. Parents have little to do with the sibling correlation. The sibling interaction coefficients for schooling and earnings were positive, but it was considerably greater in the case of schooling. It was shown that sibling interaction increases inequality, especially in the case of schooling. However, parent-children interaction contributes little to inequality.