What is this metric and why is it important?
In addition to knowing how many households are in poverty, it is helpful to know the likelihood that someone born into poverty will leave it. Intergenerational Earnings Elasticity measures the degree to which a parent's income determines a child's. A score of 0 indicates no relationship and a score of 1 represents full determination.
How is Canada doing?
- Of the 15 OECD countries examined here, Canada scores 0.19 which is the third lowest.
- This means that children are much less likely to be stuck at their parents’ income level than children in other countries.
- Norway (0.17) and Denmark (0.15) exhibit even greater social mobility but not by very much, while G7 peers like Germany (0.32), France (0.4) and the United States (0.47) show much less mobility.
Intergenerational earnings elasticity—developed by the economist Miles Corak in 2006 and updated in 2013—measures the extent to which income levels change across generations. A score of 1 means there is no movement from one income level to another from parents to children, whereas a score of 0 indicates no relationship between a parent’s and child’s income—that is, how much your parents earn does not determine how much you will earn later in life.
Specifically, the comparison is made between fathers and sons, due to the changing role of women in the workforce over time. The parents’ income is derived from 1960s data and the children’s from the 1990s. The elasticity is derived using a regression to the mean model; see Corak 2013 for more details.
Expanding this measure to more countries would enable better comparisons. As well, adding demographic components would allow more detailed comparisons between families. How much does the income of a Black family determine the income of their children, versus a White family?