In Canada, being born to poor parents doesn’t resign you to same economic fate

If Canada was a place where children of poor parents could not rise up and improve their economic standing, this would be a troubling state of affairs. After all, it would mean that economic fate is pre-determined. Thankfully, that’s not case. The institutions and economic framework of our country afford those born into a low-income situation the ability to surpass the economic standing of their parents and earn higher levels of income.

Important evidence of this reality is contained in a recent Statistics Canada study that measures social mobility across generations of Canadian families—what analysts refer to as “intergenerational income mobility.”
 
The study makes use of a common measure that indicates the degree to which the income of parents is tied to the income of their children (this is typically done by comparing the earnings of a father to his son).

The measure in question can take a numerical value between zero and one. If the value is one, it means that a son’s income is exactly equal to his father’s income. In other words, a value of one signals an extreme case of no social mobility across generations. On the other hand, a value of zero means that a son’s income is completely unrelated to his father’s income, signalling a high degree of social mobility across generations.

The main finding of the Statistics Canada study is that the overall value of the measure comparing the lifetime earnings of fathers and sons is about 0.32 in Canada. Although this is higher than what was found in a previous study with a slightly different methodological approach, it’s much lower than the comparable figure cited for the United States of 0.6. In other words, Canada has a greater amount of measured social mobility than the U.S.

But the headline-grabbing result for Canada of 0.32 masks what may be the most encouraging finding of the study: intergenerational income mobility is much higher for children of parents with lower levels of income. For sons whose fathers were among the lowest five per cent of earners, the results are around 0.2 or lower (recall that a lower figure in the range of zero to one suggests greater social mobility). For sons whose fathers were among the lowest two per cent of earners, the result is approximately 0.1—less than a third of the overall rate. As the study puts it, “this suggests a significant degree of upward mobility for sons born to very low-earnings fathers.”

On the flip side, there’s a stronger connection between the earnings of sons whose fathers had higher income levels. For sons with fathers in the top two per cent of earners, the result is 0.45. While this is higher than the overall result for Canada, it’s still considerably lower than the figure for the U.S., underscoring higher levels of social mobility.

Most encouragingly, however, this new evidence shows that being born into the poorest families does not doom a child to a lifetime of low income.

For more on income mobility, check out the Fraser Institute’s latest study on this issue.