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June 21, 2016INTERGENERATIONAL INCOME TRANSMISSION In a recent study from Statistics Canada, Intergenerational Income Transmission: New Evidence from Canada, updated and improved administrative data for Canada is used to study intergenerational income mobility.
The study finds less intergenerational earnings and income mobility compared with previous studies, mainly due to a higher likelihood that children born to high-income fathers will have high earnings themselves. This change reflects a more accurate picture of income mobility enabled by the improved dataset, not necessarily a change in income mobility over time.
However, children born to low-income fathers are found to have a significant opportunity to move up to the middle-income range, though they are not as likely to move to the high-income range. The authors attribute that to successful social policies in Canada easing the transition out of poverty.
Among the key findings are:
- The study found that on average, for every 1 per cent increase or decrease in a father’s earnings, his child’s earnings would move in the same direction by 0.32 per cent. In a perfectly mobile scenario, where the parent’s earnings would have no impact on their child’s earnings, we would expect a change in the father’s earnings to yield a 0.0 per cent change in the child’s income.
- This estimate suggests that an individual’s earnings in Canada is more reliant on their parent’s earnings than previously thought. Previous work had estimated that a 1 per cent change in a father’s earnings would yield a 0.22 per cent change, in the same direction, in his child’s earnings. This indicated Canada had among the highest intergenerational income mobility in the world.
- The new findings place Canada around the middle of the pack compared to other developed countries when it comes to income mobility. However, the author’s note that studies in other countries have not made the improvements to the dataset that this study makes for Canada, and thus it is possible that international estimates of income mobility would also be higher under this change.
- The closest comparable study, which was done for the U.S., found that a 1 per cent change in a father’s income would yield a 0.6 per cent change in his child’s income.
- When including self-employment income, rental income, and investment income into the study, the authors find that the persistence of income across generations increases to 0.35 per cent. This suggests that entrepreneurial skills are likely to pass from one generation to the next.
- Similarly, when including government transfers like E.I., income persistence increases slightly to 0.36, suggesting children of parents who draw on government transfers are themselves more likely to do so.
- Finally, daughter’s earnings are found to be less influenced than son’s earnings by the earnings of their father’s. For daughter’s, income persistence was estimated to be only 0.23.
Source: Statistics Canada Analytical Studies Branch, Cat no. 11F0019M, no. 379