2.2  Comparing rates of intergenerational mobility

The rate of intergenerational income mobility in some countries is uncertain and widely debated, and there are still no estimates available for many developed countries (OECD, 2008b, p. 4). Figure 1, however, shows the intergenerational income elasticity point estimates for men in different countries made by Canadian economist Miles Corak, together with results that have since become available for Australia, France, Italy, Japan, Spain and Switzerland (Bauer, 2006; Cervini, 2008; Corak, 2006; d'Addio, 2007; Hugalde, 2004; Lefranc, Ojima and Yoshida, 2008; Mocetti, 2007; Piraino, 2007). Corak drew his point estimates from studies using similar methodologies, and scaled them so that they were comparable to the result for the United States (Corak, 2006; OECD, 2008b, p. 6).[7] Corak's results for men are similar to the preferred estimates selected by British economist Jo Blanden (Blanden, 2008, pp. 13, 30). The results for a recent comparative study of the Nordic countries, Britain and the United States (Figure 2), which applied the same methodology and assumptions to large and comparable datasets for the same period, also produced a similar ordering to Corak. There were often statistically significant differences between countries’ intergenerational income mobility rates (Jäntti, et al., 2006, p. 13). For instance, Figure 2 shows that men in the United States were less intergenerationally mobile than men living in the five other countries graphed. Using total family income as the explanatory variable, rather than just the incomes of fathers, seemed to usually only have a small effect on the results. However, the magnitude and direction of this change varied between countries (Jäntti, et al., 2006, pp. 24-25). In most countries women seem to be more intergenerationally mobile than men (Cervini, 2008; Lefranc, 2004, p. 18; Raaum, et al., 2007, p. 22).[8]

Figure 1 shows that in three Nordic countries (Denmark, Norway and Finland) and in Canada the intergenerational income point elasticity for men is less than 0.2. This means that a 1% relative difference in the income of a man's father is associated with, on average, less than a 0.2% difference in his own adult income. In contrast, in Britain, Italy and the United States a 1% relative difference in the income of a man's father is associated with, on average, a 0.4% difference in his own adult income (Corak, 2004, pp. 9,11; d'Addio, 2007, p. 32). Continental European countries (coloured blue), such as Germany and France, appear to have lower intergenerational income mobility than the Nordic countries (coloured yellow). Spread throughout the distribution are the English speaking countries (coloured red), while Japan (coloured green) is in the middle of the range. However, we have to be cautious as the results for men in Australia, France, Italy, Japan and Switzerland are each based on a single dataset, and further research could change their positions (OECD, 2008b, p. 5). The confidence intervals for some estimates are also wide, with the result that there is considerable uncertainty about the exact position of some countries (Björklund and Jäntti, 2009, p. 503).

Studies of intergenerational mobility based on occupation data usually tend to generate similar results to studies based on income data, with measures of SES “capturing something similar to measures of income”. Indeed, the correlation between Blanden's preferred intergenerational income elasticity results and estimates based on SES is 0.9 for the nine countries both measures are available for (Blanden, 2008, pp. 16, 40).

While the number of overseas studies of intergenerational income and occupational mobility has grown (Corak, 2006), the literature on this topic for New Zealand is limited. A recent comparative study by Andrews and Leigh has estimated the intergenerational income elasticity for men living in New Zealand at 0.25. However, the standard error for the estimate was large (Andrews and Leigh, 2008, pp. ii, 13). In addition, that study calculated fathers’ incomes using finely grained data on respondents’ recall of their father’s occupation. Andrews and Leigh’s estimates for other countries are often lower than estimates from the best available national datasets, and are also relatively poorly correlated with both these estimates and with other estimates using occupation data (Blanden, 2008, pp. 14, 40).[9]Similarly, while the results of an unpublished comparative study suggested New Zealand had relatively high intergenerational occupational mobility, the sample size was small and few technical details are available (Blanden, 2008, p. 32). Earlier research suggested that in the 1970s intergenerational mobility between different occupational groups was fractionally higher in New Zealand than in Australia or in the United States (Davis, 1979, pp. 52, 55; Jones and Davis, 1988, p. 282).

However, research using New Zealand data has made an important contribution to the literature on intergenerational welfare dependency. Christchurch Health and Development Study panel data indicates that, between the ages of 16 and 21, the correlation coefficient in benefit dependency (in terms of the unemployment and domestic purposes benefits) between parents and their children was at least one-third. The effects seemed to be more than twice as high for women as for men (Maloney, Maanin and Pacheco, 2003; Pacheco and Maloney, 2003).

One of the aims of this working paper is to investigate how high intergenerational income and occupational mobility is for people in New Zealand compared to people in other countries. Intergenerational mobility is quantified using self-reported income data and a large and internationally comparable occupation dataset. This paper also breaks new ground by investigating whether income and occupational mobility varies between New Zealand population groups.

Figure 1 - Intergenerational income elasticity point estimates for men in developed countries

Source: (Bauer, 2006; Corak, 2006, p. 42; d'Addio, 2007, p. 33; Lefranc, et al., 2008, p. 24; Leigh, 2007, p. 22; Mocetti, 2007, pp. 9-10). Nordic countries are coloured yellow, English-speaking countries are coloured red, continental European countries are coloured blue, Japan is coloured green. The dependent variable is sons’ log incomes; the independent variable is fathers’ log incomes. Results for France, Italy, Japan, Spain and Switzerland have not been scaled and are therefore less comparable than the results for the other countries.

Figure 2 - Intergenerational income elasticities in four Nordic countries, Britain and the United States (with 95% confidence intervals) that have been calculated using the same methods and similar datasets

Source: (Jäntti, et al., 2006, p. 13). The results for men are in blue and for women are in red. The black lines show 95% confidence intervals. Children’s earnings were measured twice for this comparison (at about age 33 and 41) and fathers’ earnings (family earnings for the United States) were measured once (when children were about age 16). The children included were born between 1957 and 1964.