Executive Summary
Intergenerational mobility and why it is important
Intergenerational economic mobility research tests the relationship between the situation of parents and the situation of their children as adults. In other words, intergenerational mobility is about the extent to which parents' circumstances predict the circumstances of their children in adult life.
Researchers are interested in intergenerational economic mobility because of its implications for equality of opportunity and because barriers to people developing and making full use of their abilities could potentially hinder skills development, productivity growth and the achievement of improved living standards. However, some policies that facilitate skills development, productivity and the introduction of new technology could potentially lower intergenerational mobility, at least in the short term.
Data sources used to measure intergenerational mobility in New Zealand
Intergenerational mobility in New Zealand was tentatively calculated using two datasets: income data from the Dunedin Study of people born in Dunedin in 1972-73; and occupation data from the 1996 New Zealand Election Study's voluntary post-election survey.
Results and international comparison
The intergenerational income elasticity for people from Dunedin was 0.26. This implies that a 1% increase in the income of a person's father is associated with, on average, a 0.26% increase in their own income when they are an adult. Using the nation-wide Election Study dataset the average effect of the Socio-Economic Status (SES) of fathers on the subsequent adult SES of their children was 0.20 for those aged 25 or over, and this effect applied to the full range of fathers' SES.
However, only a small proportion of variance in logged income or socio-economic status was explained by the economic situation of people's parents. Furthermore, the standard errors for the Dunedin Study results were large, indicating uncertainty about our results. Differences in mobility between men and women and between Māori and New Zealand's entire population were not statistically significant.
Our results suggest that rates of intergenerational income mobility for people from Dunedin are probably within a similar range to rates for people from most other developed countries. Results based on data from the New Zealand Election Study provide weak evidence that New Zealand has higher intergenerational occupational mobility than Britain, and stronger evidence that New Zealand men have higher intergenerational occupational mobility than German men. Insufficient data is available to make intergenerational occupational mobility comparisons with other countries, although the results do not give cause for concern.
The international literature suggests that a country's rate of intergenerational mobility is affected by the effectiveness of the education system, the rate of economic growth, the physical and emotional environment children experience and the opportunity people have to improve and to use their capabilities. We were unable to test whether most of these theories applied to New Zealand. However, the Dunedin Study results suggest that children's educational qualifications are an important explanatory variable for their income as adults.
