Income Heritability

[ See this spreadsheet for a table of twin studies examining income. It is largely copied from Hyytinen. ]

The median twin study on the heritability of income finds ~45% of the variability is due to genetic causes while ~0% is due to common environment.

The two most important sources of heterogeneity are gender and measurement duration, both of which affect the strength of genes' influence while leaving common environment's influence at ~0.

Of the four studies that examined men and women separately, the median found genes' effect on men's incomes are roughly 11pp higher than their effect on women's.

A Swedish study found that using average earnings over 20 years raised the genetic component estimates by 23pp points relative to a single year Benjamin (see also here).

The four studies on both genders in the US found heritability estimates of 28%, 38%, 40%, and 52% - all looked at only one year of income, which yields a median of 39%. There was also one study of American men that found slightly higher estimates than one would expected based on the other four studies, which bumps my best guess of one-year income heritability up to 40%.

If we then correct by assuming a similar decrease in noise as found in the Swedish study, we find an estimated heritability for 20-year income of about 63%. If we extrapolate this model to 40-year income, we find heritability rises just a tiny bit more to around 64%.

That's just one issue, though. There are still other biases inherent in twin studies that we haven't accounted for. The second one is that all the American twin studies used self-reported earnings data Johnson Rouse Schnittker.. The correlation between self-reported earnings and actual earnings tends to be around 0.8 Errors in survey reports of earnings, hours worked, and hourly wages Evidence on the validity of cross-sectional and longitudinal labor market data The extent of measurement error in longitudinal earnings data: Do two wrongs make a right?. This means that if error in self-reported earnings were independent among twins/siblings, it would be likely that the heritability of lifetime earnings approaches unity (0.64/0.8^2 = 1).

That being said, there are stories we can spin regarding why measurement errors might not be independent. For instance, maybe black market earnings are more likely to show up in surveys than administrative data - if black-market-income is positively correlated between twins, this might result in the naive analysis above being to aggressive.

Still, there is yet another factor: assortative mating: high-earning men tend to mate with high-earning women Schwartz. Assuming you still believe income isn't 100% heritable, assortative mating suggests it is still more heritable than naive analysis would suggest. For instance, if you think proper accounting of the above issues suggest a heritability of 80%, then, adjusting for assortative mating should increase your estimate to about 87%.

Finally, because researchers generally assume the ACE model (instead of the ADE model), estimates are further biased downwards for heritability, since we are assuming dominance genetic effects are assumed to be zero by default.

Ultimately, the above analysis probably points to lifetime income being about 90% heritable. Conversely, estimated heritability in Sweden using government data and 20 years of earnings is only ~62% after adjusting for assortative mating (but still assuming 0 genetic dominance effects). It'd be a little odd if heritability was only ~62% in Sweden and ~90% in the US, so, maybe the best estimate of US lifetime income heritability is around 80% (maybe 75% for women and 85% for men).

Meanwhile, shared environment is probably still around 0%, though, of course, it is worth remembering that even small amounts of shared variance can represent large effect sizes. For instance, if shared environment explains 5% of income heritability, that suggests improving a child's environment by 1 SD will increase their earnings by 0.22 SD, or ~15%.