Family, Community and Life-Cycle Earnings: Evidence from Siblings and Youth Peers

Using longitudinal data based on administrative registers for the population of Danish men we develop a model which accounts for the joint earnings dynamics of siblings and youth community peers. We are the first to decompose the sibling correlation of permanent earnings into family and community effects allowing for life-cycle dynamics; finding that family is the most important factor influencing earnings inequality over the life cycle. Community background explains a substantial share of the sibling correlation of earnings early in the working life, but its importance diminishes over time and becomes negligible after age 30.