Maytree blog

How responsible are your parents for your wealth (or lack thereof)?

Published on 27/01/2020

To what extent are your outcomes in life determined by your parents’ financial status?

In a public lecture hosted by the Environics Institute for Survey Research and the Munk School of Global Affairs and Public Policy, Miles Corak, professor of economics at the City University of New York, presented three findings about inequality and its intergenerational transmission in Canada and the United States. The findings illustrate the extent to which intergenerational mobility and earning outcomes are determined (and threatened) by different reasons, such as a family’s financial status, existing public policies, and the labour market.

For each scenario, professor Corak outlined the contextual factors driving intergenerational impacts of inequality and identified a few public policy solutions that could help foster inclusive growth. The research builds on earlier work by Corak and fellow economists on the correlation between income inequality and social mobility, popularized in the form of the “Great Gatsby Curve” — a graph showing that high levels of income inequality correlate with low levels of social mobility in countries around the world.

The first finding showed that the children born to parents who were in the top 1 per cent of earners were most likely to be in the top 1 per cent of earners in their generation. Corak argues that this intergenerational cycle of privilege is perpetuated by the inheritance of wealth as well as networks; for example, 7 out of 10 men born to parents in the top 1 per cent had worked at one point in their careers at the same firm as their fathers. From a public policy perspective, the perpetuation of intergenerational privilege raises questions about the fairness of the tax system, the integrity of democratic processes, and the extent of investment in public services such as education, health care, and child care.

The discussion then moved on to bottom-end inequality, with the data showing that children born to parents in the bottom 40 per cent of the income distribution were most likely to remain in the bottom 40 per cent of earners as adults. Corak noted that in previous generations, geographic mobility was an important mitigating factor in intergenerational poverty — a job loss in a non-urban area could be offset by a move to a neighbouring city, a new job, higher income, and better services. Where for previous generations cities like Toronto offered opportunities for social mobility, rising costs — especially in the housing market — have led to an erosion of these opportunities. Inclusive growth policies (which offer more relative benefit to the economically disadvantaged) and accessible cities need to be important components of poverty reduction strategies for this reason.

For the third finding, Corak moved to middle and upper-middle class mobility. His research shows that children born to those in the middle- and upper-middle classes experience considerable class mobility (they are just as likely to rise above their parents’ income levels as they are to fall below them), a scenario that engenders anxiety among middle-class parents who cannot predict or secure their children’s futures. In terms of public policy responses, Corak pointed to strategies that could help temper anxieties around downward mobility. In particular, he highlighted policies like earnings top-ups and wage insurance that could help manage work transitions and counter the effects of structural changes in the labour market.


For a more detailed discussion, read Professor Corak’s article “Intergenerational Mobility between and within Canada and the United States.” You can also download Professor Corak’s presentation slides here.

Gayatri Kumar is Communications Specialist, Writer and Editor at Maytree.

Summary

Miles Corak, professor of economics at the City University of New York, puts forth three findings about the intergenerational impacts of income inequality.