Time is money

By William Harms
News Office

Although parents may love their children equally, they split the pie unevenly when it comes to sharing financial resources, says Casey Mulligan, Assistant Professor in Economics.

In his new book, Parental Priorities and Economic Inequality, published by the Press, Mulligan introduces an economic model that predicts parents allocate more financial resources to children with whom they spend more time -- such as adult children living at home and adult children who are single.

Conversely, parents who spend little or no time with their children, such as divorced parents without custody of children, devote a small, or even zero, fraction of their financial resources to their offspring.

The root of the inequality is based on a parent's perspective of his or her personal needs, as well as the availability of such resources as time and money, according to Mulligan. Time, he says, is the most crucial element in determining how a parent divides their wealth.

"Spending time with children is a necessary condition for a parent to care about the welfare of a child," he said. "Spending time with children can increase a parent's willingness to sacrifice for them."

Mulligan's work provides a way of understanding intergenerational mobility, as well. He is the first researcher to study how families transmit standards of living from one generation to the next.

He found that a 10 percent increase in family income does not mean that the children of that family consume 10 percent more goods. "The increase is more like seven percent, because the parents reduce the time spent with their children in order to earn the extra money," Mulligan said. The reduction of time spent with their offspring is reflected in the amount of financial resources they are willing to share.

Mulligan also studied the relationship between the adult consumption and earnings of sons or daughters and the consumption and earnings of their parents, particularly fathers. He found that the earnings of fathers are more strongly related to earnings of sons than of daughters.

Adult family consumption is equally persistent across generations for both sons and daughters, however.

"In other words, the son of a rich father tends to earn a lot while the daughter may not, but both sons and daughters of rich fathers tend to enjoy high adult consumption levels," he said. "This result may reflect an unimportance of human capital investments in the persistence of consumption across generations, or it may reflect the importance of marital sorting. Daughters of a rich father may not earn a lot, but they are likely to marry a man who does."

Mulligan's book is the outgrowth of work he did as a graduate student at Chicago. He received his Ph.D. from Chicago in 1993.