SOCIAL IMMOBILITY AMONG ITALIAN LAWYERS: New evidence on nepotism

22 Mar 2018

A liberalisation of Italy''s law profession in 2006 allowed more able lawyers to earn more and reduced room for nepotism, decreasing the earning premium related to social ties. That is the central finding of research by Michele Raitano and Francesco Vona, to be presented at the Royal Economic Society''s annual conference at the University of Sussex in Brighton in March 2018.

Their study notes that lawyers'' career patterns in Italy vary according to parental background, strongly advantaging the children of lawyers prior to the reform. The liberalisation took away some of these benefits, and the research makes clear that they came from nepotism rather than the talents of the favoured individuals. Among non-lawyers'' children, the reform has mostly benefited the youngest and those with a relatively better parental background.

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The observed low rates of social mobility in several contemporary societies are a matter of a lively debate. Is it the unavoidable consequence of the transmission (genetic or not) of skills and abilities? Or is it mostly the result of an unfair society that prevents an efficient allocation of talents, favouring children endowed by better social connections?

The particularly high intergenerational persistency in prestigious occupations, such as lawyers or doctors, is often cited as the key example for testing these competing explanations. It is indeed crucial to verify if dynasties in top professions are a consequence of nepotism and labour market networks rather than of the unavoidable transfer of specific skills that are valuable to perform efficiently the tasks required by the profession.

In applied research, it is exceedingly difficult to separately identify the effect of nepotism from that of human capital transfer. This study offers a novel empirical contribution to understand the mechanisms generating social immobility in top professions, notably Italian lawyers, over nearly two decades (1998-2014).

The researchers aim to understand the mechanisms generating social immobility and intergenerational inequality among lawyers in Italy, exploiting a dataset that merges administrative information on lawyers'' earnings with answers to a questionnaire where several questions about parents'' characteristics are recorded.

The dataset show that lawyers'' career patterns vary according to parental background, strongly advantaging lawyers'' children. The researchers then investigate whether this advantage is related to unobservable abilities of lawyers'' children or are related to the working of better social connections – that is, to occupation-specific skill transfer or to nepotism.

The study examines a liberalisation shock in 2006 affecting price regulation and the right to advertising. Being aimed at increasing competition, the liberalisation, if it is effective, should allow more able lawyers to earn more and reduce room for nepotism, decreasing rents related to social ties.

Therefore, the researchers can analyse whether the 2006 reform differently affected lawyers coming from different backgrounds to identify networks versus specific skills effects. In other words, if the advantage for lawyers'' children is related to better unobservable abilities, there should be an increase in their earnings after the liberalisation; on the contrary, if it is mainly related to nepotism there should be a decrease in earnings of lawyers'' children after the liberalisation.

The researchers find that that the liberalisation squeezed the positive and significant premium for lawyers'' children by two third. This result reveals that a large share of the premium was due to nepotism and that, by limiting the monopolistic rents of incumbents, the liberalisation strongly reduced the incidence of nepotism in the labour market for lawyers.

Indeed, were the lack of competition preventing the full exploitation of the return to skills, there should have been an increase in the returns to occupation specific law background as a result of the liberalisation.

These results also indicate that among non-lawyers'' children, the reform benefits mostly the youngest and those with a relatively better parental background. Finally, lawyers'' children accumulate relatively more experience over their career, but episodes of outflows (or low labour market attachment) declined significantly after the reform for the non-lawyers'' children.

Nepotism vs. Specific Skills: the effect of liberalizations on returns to parental background of Italian lawyers - Michele Raitano (Sapienza University of Rome, Italy), Francesco Vona (OFCE SciencesPo, France)