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Are we destined to become our parents? What your folks’ income says about you

June 22, 2016

4-minute read


Image by Tagido (Own work) [CC BY-SA 3.0], via Wikimedia Commons

A dusty eight-track player. An original set of Tupperware. A crooked baby toe. We inherit a lot of weird things from our parents. But is your income one of them?

Last week, StatsCan released an interesting paper looking at patterns in intergenerational mobility, and whether working Canadians can get ahead by, well…working. The research paper answers some important questions about income levels across generations, but it also begs some others. Here’s what you need to know about the report and why:

What is “intergenerational mobility”?

Well, it’s a fancy way of saying that a child’s future income can be determined by knowing what his or her parents made. Intergenerational income mobility measures whether we’ve moved closer to, or further away from, our parent’s level of earnings. So, if a child’s income is 100% in line with what their parents made, then the mobility rate is 1.0. If the mobility rate is zero, then a child’s income is unrelated to their parents’ and disadvantage hasn’t been passed down.

So, what can intergenerational mobility tell us?

The StatsCan report has two concerning negative implications:

Children’s incomes are more closely linked to parents’ than we thought

Previous estimates in Canada put our income transmission at 23%, but the new report pegs it at 32%. Put another way, a third of what you’ll make in your best years can already be predicted by what your parent made in their best years. That means that both advantage and disadvantage are passed down generationally from parent to child.

In Canada, our income transmission rate isn’t quite as bad as the US, where half of a person’s income is pre-determined by what their parent made. So, what does that mean for the rags-to-riches “American Dream?” Well, it’s actually a bit of an impossible dream. Of developed nations, the US is actually one of the countries where it’s least likely for children to move from abject poverty to millionaire’s row.

If your parents are in the top 1%, chances are you will be, too

If you look only at the intergenerational income transmission of rich parents to their kids, it’s far higher than the average, at 45%. This means that half of the keys to the top 1% club in Canada are passed from parent to child. Since this linkage is so strong, it also means that it’s much more difficult for someone whose parents were middle class (or low income) to work their way up into the top 1%.

There are also some bright spots in the report:

Daughters’ incomes are less determined by their parents

There is an interesting gender-based dimension to the report that is worth more thought. Daughters are less likely than sons to have their income determined by their parents’. Perhaps sons have traditionally been more likely to follow in their father’s professional footsteps (family income is represented by fathers’ income, but more on that in a minute), perhaps it’s because the report’s data reaches back to decades with low female labour force participation (see below), or perhaps something else is at play. With better full time labour force participation in the future, this result may be better explained.

If your parents were low income, you’ve got a shot at the middle class

Interestingly, if your parents had a low income, that’s less likely to influence your earnings than the Canadians in other income brackets.  The children of the lowest income parents have less income transmission than the Canadian average. In the way that the top 1% are in fixed position of privilege, children from low income families are not fixed to poverty. So, just because you grew up in a low income family in Canada that doesn’t mean your circumstance won’t change—in fact, you’re likely to rise up to the middle class (but not above).

However, what’s skated over in the report is that if you’re in the next lowest 20% (the second quintile), your income transmission is already at the Canadian average, meaning lower-middle class parents are likely to have lower middle class children.

The tax system is improving mobility

If you only look at pre-tax income, there is less intergenerational mobility. So, if there were no (or lower) taxes, your income would be more highly linked to your parents’. But once you include income after taxes and transfers, there is a less of a linkage between a child’s and parent’s income. So, to some degree, taxes interrupt income transmission between generations.

In essence, the tax/transfer system in Canada is working to give everyone a fairer shot.

What can’t intergenerational mobility tell us?

Well, intergenerational mobility can be seen as a measure of equality of opportunity—I would say that’s a bit incomplete. The truth is that intergenerational mobility alone can’t tell us the whole story.

First off, since the data in this particular SatsCan report has to go back to the 1960s and 70s to get parents’ peak earnings, that means parental income is represented by the father’s income only and excludes mothers. In those years, full time female labour force participation was much lower than today. In a decade or two, as that data fills in—and hopefully reflects things like equal labour force participation, different family structures (like single mothers or two mother households)— we’ll get a more nuanced sense of the income mobility between generation.

Secondly, intergenerational mobility doesn’t necessarily get at the root causes of inequality and poverty. Persons living with disabilities, single mothers, the elderly, Indigenous and other racialized communities—the members of society who are especially vulnerable to poverty—face all kinds of structural inequalities (like employment and education-based discrimination, denial of culturally competent social and health services, among others) that influence individual, family, and community economic wellbeing. Those barriers, and how our public policies address them, are major factors affecting income level and prosperity.

In the future, it would be both compelling and useful to examine how characteristics like gender, race and identity impact intergenerational inequality. For instance, will Indigenous children inherit the same disadvantage their parents faced, or is Canada becoming fairer in that regard? Unfortunately, this type of work requires long-term longitudinal tax filer data that doesn’t have this sort of identity data attached. But that doesn’t mean that we can’t push for it.

Moving forward, the more we know about intergenerational mobility and the more detail we can add to the picture of income disparities in Canada, the more room we make for policies that not only help keep a lid on growing inequality, but also assure shared prosperity.

David Macdonald is a senior economist at the Canadian Centre for Policy Alternatives. Follow him on Twitter @DavidMacCdn.

(Hats off to my friend Miles Corak who has done much of the previous work on this in Canada and internationally).

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