By Michael Heath, Bloomberg News
“If you were born poor, you die poor,” lamented a British politician six years ago. Unfortunately, not much has changed. Britain is joined by the United States, France and Italy in having a strong correlation between the incomes of parents and that of their children, according to a report from Standard Life Investments. The relationship also exists in the Scandinavian economies as well as Australia, Germany and Canada, but to a lesser extent.
This creates challenges for the countries most affected. Such societies tend to waste or misallocate human capital; workers are often less motivated and therefore less productive; and the higher levels of inequality associated with it prove to be detrimental to economic growth, research finds.
“In virtually every country for which evidence is available, there is a clear link between what your parents earned and your own income prospects,” said Jeremy Lawson, chief economist at Standard Life and lead author of the report. âTackling low mobility is a challenge. There are no quick fixes on a global scale, with each country facing challenges in its own institutional and political environment. “
An obvious first solution is education, including spending on early intervention and developing school systems that do not separate students according to their abilities. But the problem is deeply rooted.
In the United States, three decades of weak real wage gains have prompted researchers to seek answers. They tracked the proportion of people aged 30 who earned more than their parents at that age and found a significant downward trend: only 50% of children born in the 1980s earned more than their parents at the same age, compared to almost 80% of the children of the 1950s.
Industrial decline has been one of the main culprits. In the American Midwest, only 41% of children born in 1984 earned more than their parents, compared to 95% for those born in 1940.
âIt’s no wonder President Trump’s campaign messages have been so well received in states like Michigan, Ohio and Pennsylvania,â Lawson said.
But the UK is even more socially rigid. About half of the economic advantage of high-income fathers over low-income fathers is passed on to their sons, while an OECD analysis found Britain among countries where socioeconomic background seemed to have the greatest impact on a student’s performance.
In Asia, much attention is paid to rising inequalities in China; indeed, among the world’s largest economies, only Brazil leads the country in terms of income inequality. But China has mobility. Over the past four decades, rapid and widely distributed growth has resulted in fewer households remaining in the same income quintile for long periods of time. But that could change as the economy matures.
âWhile children are likely to earn more than their parents as adults, they are less and less likely to step out of their social class,â Lawson said. “In this regard, China is perhaps less like a developing economy than the United States”