February 9, 2016

Family background matters more to earnings than previously thought

Australia’s reputation as a nation that provides economic opportunity to all people is under threat.  

Economic inequality in Australia is far worse than previously thought, according to a new report by economists from UOW.

The New South Wales Department of Education commissioned the study to investigate the role of education in intergenerational mobility – how influential your family circumstances as a child are on your financial outcomes as an adult.  

Professor Siminski and Dr Silvia Mendolia, from UOW’s Faculty of Business, found that Australians are worse off than those who live in Scandinavian countries, as well as Germany, Canada and New Zealand, and only just ahead of the UK and US.  

The results suggest a 10 per cent increase in a father’s earnings is associated with a 3.5 per cent increase in his son’s earnings. 

Professor Siminski said New Zealand, Canada and Scandinavian countries had very low percentages, meaning their societies were more egalitarian.   

“One really interesting finding from recent studies is that across countries, the extent of intergenerational mobility is strongly related to the level of inequality.” 

“The so-called “American Dream” – the idea that anyone can make it, regardless of their background – has been challenged. The U.S. has one of the highest levels of inequality and the lowest levels of mobility.” 

Professor Siminski said little research had previously been done on the topic, but what was available showed that Australia earned its reputation as the land of the ‘fair go’. 

“The ideal of egalitarianism – a fair go for all – is part of our national identity.” 

“In recent decades this ideal has been challenged by evidence that our level of economic inequality is similar to the OECD average. However, not everyone agrees that ‘inequality of outcomes’ is necessarily a bad thing – as it partly reflects differences in effort and ability. But almost everyone agrees in the idea of ‘equality of opportunities’.” 

“There has not been much previous research on this topic for Australia and our work suggests that the level of intergenerational mobility is considerably lower than previously thought.” 

Dr Mendolia, co-author on the study, which has just been published by the NSW Department of Education, said Australia’s education system contributed to the problem. 

“The education system has contributed to the problem because of inaccessibility, especially tertiary and early childhood education, and policy-makers should be more concerned about it.”

“Children from more advantaged families tend to stay at school longer, have better school outcomes, and are more likely to progress on to further education than children from more disadvantaged families. 

“As a country invests more wealth in the 'human capital' of children from less advantaged families, those children become more productive, and society becomes more mobile.” 

For more information on the report, read the executive summary.