Intergenerational mobility over the income distribution: the role of social networks * Chiara Cavaglia † Monday 22 nd June, 2015 Abstract Several studies find that intergenerational persistence of earnings is higher at the top and bottom of the distribution than in the middle. I explain this phenomenon by exploring the role of social networks. I introduce a framework based on the standard Becker-Tomes-Solon model, which includes parental investment in both offspring’s education and social networks, and uncertainty about child earnings. Social networks in the model influence the earning prospects of children. I test its implications using data from the British Household Panel Survey, which covers occupation of parents, parental friends, sons and sons’ friends. I first find that the occupation of parental friends is significantly associated to the son’s occupational income conditional on parental characteristics. Specifically, the contribution of the parental network to the intergenerational earnings persistence may be higher for younger individuals. Second, consistent with the model, parental investments in education are higher when their friend network is better: the returns to education in this case are higher. Most importantly, parents at the top and the bottom of the earnings distribution have less diverse networks, closer to their own occupation: this finding explains the shape of intergenerational persistence. JEL-Classification: J62, J64, J24 Keywords: intergenerational mobility, social networks, job search, education * Thanks to Prof. M. Francesconi, Dr. B. Etheridge, to the participants of the ISER Family Research Group, those of the 2015 ESPE Conference, of the 2014 PhD Conference in Torino, of the 2015 PhD Con- ference in Leicester and of the 2015 Brucchi Luchino Conference for their valuable comments. All errors are mine. † Department of Economics, University of Essex. E-mail:ccavag@essex.ac.uk. 1