Canada

Canadian Households Tied To Parental Wealth, As Income Mobility Plummets: Stat Can

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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9 Comments

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  • Jason 2 weeks ago

    And people wonder why millennials don’t want to work

    • SH 2 weeks ago

      Millennials don’t want to work?

      Actually, they work more hours for less inflation-adjusted pay than Boomers ever did.

      Unfortunately, the government has structured the economy so that the only way to make good money is to speculate on real estate.

      On top of that, mass immigration has suppressed the already meager wages of the Millennial cohort. Now Trudeau wants to compound this situation and bring in 1.3 million newcomers over the next 2-3 years at a time of elevated unemployment and gets almost no pushback on this policy from the media or even from the Conservatives.

  • Jon 2 weeks ago

    I don’t see a problem here. Equality, in practice, drags everyone down to the lowest common denominator. Inequality is natural and should be appreciated more rather than maligned. Our modern fight for equality is unnatural and will destroy our species, if successful, through dysgenics. It’s a harsh reality but children of poor people are likely to be poor. Maybe these people should not be having children. We don’t exactly have a population shortage.

    • Kevin 1 week ago

      Poor people are likely to be poor because they’re born into a world that is built on rules that is easier for people with wealth and opportunity. They don’t have to worry about survival. You lucked out. Maybe we should consider that fact before we suggest the population stop procreating.

      • Sam 7 days ago

        I grew up poor. My parents example was that of low end middle class-to-outright poor muddling and struggling with one poor financial decision after another. I carried that mentality into adulthood.

        One day I was talking to a friend about finances when he said “You think stupid….you think like a loser….” That stayed with me and was the catalyst for a complete re-think on my part as to how I approach my career, my finances and in a lot of ways life as a whole.

        My parents are loving, ethical people and I still carry those values. However, I have revised my approach to finances and now am seeing some (later-in-life) success.

        It’s taken a lot of work, a determination to change when required, a hard look at myself and an un-willingness to blame anyone else for the financial hard times I brought upon myself. I dug myself into a hole, and nobody but me is going to get myself out of it……

        Life isn’t fair, but Canada still is the land of opportunity for people who want to get ahead.

  • Kate 2 weeks ago

    This is common trend in the rest of the world. That is why current government is making Canada socialist/communist state to solve the issue by removing the wealth. We will own nothing.

  • Groot 1 week ago

    Some of the comments above are starting to sound a lot like the “Great Reset”.

  • straw walker 1 week ago

    The main reason for this is immigration.
    Mass immigration leads to lower incomes, lower standard of living , higher density living, and higher costs to our medical and education systems, not to mention our social and policing services

  • Sam 7 days ago

    That being said, the Government and BOC have completely mismanaged the Housing Market over the last 20+ years. A market that should be regulated toward 3-5% growth every year has instead been allowed to be preyed on by foreign and domestic speculators. Worse yet, they keep juicing the system to keep rates low and foment the ridiculously unsustainable yearly growth in home prices…..it’s 1929 type BS pure and simple.

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