Upward mobility in Canada is not what it used to be

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Will you die in the class you were born? Research conducted by Statistics Canada on intergenerational earnings has found that Canadians do not have the kind of upward mobility that previous generations may have enjoyed.

 

Comparative studies of intergenerational earnings and income mobility tend to rank Canada as one of the most mobile countries among advanced economies. However, in the Statistics Canada research paper Intergenerational Income Transmission: New Evidence from Canada, authors Wen-Hao Chen, Yuri Ostrovsky, and Patrizio Pirainoargue that literature dealing with the subject has not paid enough attention to the relationship between the lifetime earnings of children and their parents. The problem is one of lifecycle bias, which is to say other studies considered earnings levels at certain ages (e.g., when people were younger and therefore earning less money) and failed to account for income in later life.

 

To link together Canadian children and their parents

 

The researchers used tax records to link together Canadian children and their parents, and observed that intergenerational persistence tends to be greater when market income (i.e., the sum of earnings, self-employment income and asset income) is measured. "This suggests that other mechanisms, such as transmission of jobs or entrepreneurial skills, may also be at work," say the authors.  While the paper found that path to the top of the scale of was "quite challenging" for sons born to low-income fathers, it also found that these same sons still appear to have a good chance of moving into the middle class; the authors say this may be due to the influence of social institutions.

 

If a father and son have an intergenerational correlation rate of 0, that means the parent's circumstances has no influence at all over the child's future income level; the higher the correlation rate, the more influence a parent’s background has on the child’s future earnings and the more static the class system. The study found that Canada still has a very low correlation rate, but concludes that it is not quite as low as some other studies have found.

 

Canada is still a mobile society

 

"The results from the analysis suggest that Canada is still a mobile society, but not to the same extent as previously thought," reads the report. "The new estimate of the father–son earnings elasticity is about 0.32, which is noticeably higher than the values previously reported in the literatures (which have been in the neighborhood of 0.2): lifecycle bias alone explains about two-thirds of the discrepancy between the early estimates and the new result."

 

As published in The Insurance & Investment Journal by Andrew Rickard June 28, 2016  09:53 a.m.

 

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