Monday, June 18, 2018

150 years for poor Irish child/ descendants to earn national average income: 60 years in Denmark

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The average disposable income of the richest 10% of the population is about 9.5 times that of the lowest 10% across OECD countries, compared with 7 times, 25 years ago. Wealth inequality is even more pronounced with the top 10% holding half the wealth while the bottom 40% have only 3%.

The United States has had greater social mobility than large European economies such as Germany, France, and the UK, according to the Organisation for Economic Cooperation and Development (OECD) — a think-tank for 35 mainly rich countries including Ireland —  but the US has higher levels of income and wealth inequality.

According to a report published last week, for Ireland, the UK, South Korea, and the US, it would take five generations—or roughly 150 years—for the descendants of a person in the bottom 10% of earners to secure an average income, compared with two generations in Denmark, which means a person would see their grandchildren achieve that goal. In Colombia, the steep climb would take 11 generations, which means longer than the country has been independent of Spain, since 1810.

A Broken Social Elevator? How to Promote Social Mobility says that given current levels of inequality and intergenerational earnings mobility, it could take at least five generations or 150 years for the child of a poor family to reach the average income, on average across OECD countries.

This ranges from just two to three generations in the Nordic countries to 9 generations or more in some emerging economies. One in three children with a low earning father will also have low earnings, while for most of the other two-thirds upward mobility is limited to the adjacent earnings group.

“Too many people feel they are being left behind and their children have too few chances to get ahead,” said Gabriela Ramos, OECD chief of staff and Sherpa to the G20 group of 19 leading advanced and emerging nations. “We need to ensure that everyone has the opportunity to succeed, especially the most disadvantaged and that growth becomes truly inclusive.”

The research body said the variation in social mobility across countries proves that it is possible to make improvements and recommended a focus on access to a high-quality education from a young age.

Income mobility was a reality for many people born between 1955 and 1975 from low-educated parents but it has stagnated for those born after 1975.

Over the four year period observed in the report, about 60% of people remained stuck in the lowest 20% income bracket, while 70% remained at the top. At the same time, one-in-seven of all middle-class households, and one-in-five of people living closer to lower incomes fell into the bottom 20%.

In Germany and France, it would take a child whose parents' earnings are in the bottom 10% of the population six generations or 180 years to reach the average national income.

The OECD said Germany should invest more in childcare, postpone the performance tracking of school children and reform its tax code to promote intergenerational mobility. As for the US, it said federal funds should be used to make up for gaps in educational provision, supported by a system of maternity leave and childcare for poorer families. More broadly, it urged governments to improve tax inheritances and ensure that poor families aren’t concentrated in disadvantaged areas with limited access to public services, quality education, and employment opportunities.

The OECD estimates that 42% of American men with low-earning fathers end up in the same income bracket themselves — much higher than the OECD average of 31%. Only 8% make it into the top income group. 

The US and Germany share what is called the “stickiness” of its richest group, as 48% of those whose parents were high earners grow up to be high earners themselves. 

The report says that in the UK, 46% of children whose fathers have high earnings grow up to have high earnings themselves. Only 18% of sons born to low-income fathers make it to the top-earning group while the child of a parent with low educational attainment has only a 21% chance of gaining a degree-level qualification at college or university, compared to 71% of those with parents who themselves have a college degree.

In summary, the research shows that social mobility from parents to offspring is low across the different dimensions of earnings, education, occupation, and health and that the same prevails for personal income mobility over the life course. There is, in particular, a lack of mobility at the bottom and at the top of the social ladder — with “sticky floors” preventing upward mobility for many and “sticky ceilings” associated with opportunity hoarding at the top.

The lack of social mobility has economic, societal and political consequences. This report shows that there is space for policies to make societies more mobile and protect households from adverse income shocks. It discusses the options and measures that policymakers can consider how to improve social mobility across and within generations.