Canada was a place where kids can do much better than their parents, but that’s not so much the case now. A new Statistics Canada (Stat Can) study on Intergenerational Income Mobility and Income Inequality in Canada was published this week. Canada used to be a place with a low level of inequality, where kids moved up classes. By the time Millennials were born, that was no longer the case. Their parents faced more inequality, and a child’s economic outcome was more closely tied to their parent’s wealth.
About The Study
The study looks at income distribution of Canadian parents, their children, and how closely they’re linked. They observe cohorts born between 1963 and 1985. Parental income is measured when the children are in their late teens. This helps to give a better idea of what kind of resources were available into adulthood. They then take the income of the child in their late 20s and 30s, and compare it to their parents. The biggest takeaway from the very long study is condensed into one chart. Obviously, it needs a little explanation.
The chart shows the relation between the parent and the child’s income. The horizontal axis is a Gini coefficient, one way to measure income inequality. The higher the scale is, the more inequality faced. Basically the further to the right on this chart, the more inequality their parents faced. Generally higher Gini scores are seen in less advanced economies. For example, WorldBank gives Rwanda a score of 43.70. A country like Norway scored a 27.50 by the same measure. It doesn’t tell you how wealthy these people are, just the general gap between the rich and poor.
The vertical axis measures the correlation between the parent’s income distribution, and their child’s rank. The higher the score, the more likely the child is to stay within the same income distribution. If you’re in the bottom quintile, and your child has no mobility – they’re also in the bottom quintile. They might make more money, and have less – but they would be in the bottom fifth of income. Countries where children have greater income mobility, are generally seen as more successful. To citizens, anyway. Maybe not the plutocrats.
Children of The 1960s Had The Most Income Mobility
Parents in the 1960s had the lowest level of income inequality, and the highest level of class mobility. Those born in 1963 had parents with a Gini coefficient of 36.36 and a coefficient of 0.19. The 1967 cohort had parents with a Gini coefficient of 37.77, and a slope of 0.19. Those in 1967 had parents faced with a little more inequality, but it wasn’t huge. The lower slope means their children’s economic outcome had the lowest correlation. Basically, the wealthy didn’t enjoy such a giant moat around the poor as they do today. Children also had the greatest chance of being wealthier than their parents.
In the next decade, we see opportunity and inequality rise even further. Those born in 1972 had parents with a Gini coefficient of 39.27, and the children had a slope of 0.22. The cohort born in 1977 had parents with a Gini coefficient of 41.18, and a slope of 0.22 as well. The Gini coefficient for the parents increased by 8.00% and 13.26% from the 1963 cohort, respectively. This means inequality was already climbing, albeit modestly. The parent-child correlation also increased by 15.79% from the previous decade. This means a substantial reduction in class mobility.
Millennials Face Much More Inequality, and Less Class Mobility
Millennials’ parents faced even more inequality, and less class mobility. The cohort born in 1982 had parents with a Gini coefficient of 44.37(!), and children had a slope of 0.23. The Gini coefficient for the parents was 22.03% higher than the 1963 cohort. The correlation slope between the parent and child was also 21.05% higher than the 1963 cohort. The latest generation’s data points show they were born into more inequality. Their odds of higher income mobility were also much lower.
The study stops at that data, which is already bad enough, but it gets worse. A growing number of experts believe Gini coefficients for income underestimates inequality. Accumulated and indirect wealth would be the two biggest reasons.
Increasingly, accumulated wealth plays a bigger role in quality of life beyond income. This can be a lot of things. The bank of mom and dad gifting a downpayment that takes generations to make would be one example. The gap isn’t measured largely because it’s difficult to quantify. It does still exist, and provides a more rocky playing field.
Further, countries like Canada lack beneficial ownership data, making it hard to attribute wealth. Not in an illegal and hidden way, it’s just very difficult to pinpoint who holds the actual wealth. A middle class family making $80,000 a year, and someone drawing $80,000 from a trust fund make the same amount. The difference is one might spend 50% of income on rent, while the other lives in a $20 million trust-owned estate. On paper, there’s little income inequality. In reality, not quite the same.
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