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Thomas StorringDirector – Economics and Statistics
Tel: 902-424-2410Email: thomas.storring@novascotia.ca

September 22, 2020
STUDY: EXPLORATION OF THE ROLE OF EDUCATION IN INTERGENERATIONAL INCOME MOBILITY IN CANADA - EVIDENCE FROM THE LONGITUDINAL AND INTERNATIONAL STUDY OF ADULTS

Intergenerational Income Mobility refers to the degree to which individual incomes within a family unit persist across generations. If an individual’s adult income is largely independent of their parents’ income within a society, then the society has high income mobility. Studies indicate that Canadians exhibit relatively high intergenerational mobility compared to Americans, but Canada appears to have lower mobility compared to Finland, Norway, and Denmark. These differences reflect in part institutions and policies that help determine economic outcomes across generations.

The study by Simard-Duplain and St-Denis evaluates the relationships between Canadian intergenerational mobility and education. Previous research for the United States indicates that educational attainment accounts for approximately one-half of the observed intergenerational correlation in income. Evidence suggests that Canada may differ from the United States because of differences in how parental outcomes determine children’s educational attainment, physical and mental health outcomes, school readiness, and post-secondary attendance. To provide empirical evidence for Canada, Simard-Duplain and St-Denis study data from Statistics Canada’s Longitudinal and International Study of Adults (LISA), as well as a panel of administrative data covering 1982–2013 for both respondents and their parents.

Their results show that the intergenerational income correlation is largest when comparing family income rather than individual income. Using family income for both parents and children gives a correlation of 0.268, compared to only 0.203 when comparing individual income for parents and children. This difference suggests an important role for marital status and preferences towards partners of similar socioeconomic standing in the intergenerational transmission of income.

Overall, the authors find that educational attainment accounts for 40.5 to 50.1 per cent of the intergenerational income correlation of Canadians. The results suggest slightly greater mobility compared to the United States with a similar relative role of education. Degree type and field of study jointly account for 7.7 to 12.1 per cent of intergenerational income correlation for those with at least a bachelor’s degree. Field of study appears particularly important for those with graduate degrees, as degree type alone accounts for at most 6.3 per cent of relative intergenerational income mobility, while degree type plus field of study account for 13.7 to 37.4 per cent of mobility.

The authors investigate whether education acts as an equalizing force to economic outcomes by lowering the correlation between the parent and child’s adult income. However, no evidence of this effect was found. Parental income was just as strongly correlated with child income among high school dropouts as it was among university graduates. There is weak evidence, bordering on the usual accepted levels of statistical significance, which supports an equalizing effect from obtaining post-secondary education less than a bachelor’s degree. Overall, the results imply that university education does not play an equalizing role in Canadian society, that selection into education is not linked with mobility, or a combination of both.

Simard-Duplain and St-Denis further decompose the estimates of intergenerational income mobility into skill use and job quality factors determined by education and non-education sources. Their analysis captures broadly how the intergenerational transmission is expressed through work skills and job characteristics. Skill use intensity measures were calculated for reading, writing, communication, mathematics, dexterity, and physical strength, while job quality measures include permanence of contract, union membership, and authority over other employees.

 

 

Self-reported measures of the importance and complexity of skills were used. Average use of reading, communication, and writing skills are lowest for respondents born in the bottom income decile, modestly increasing across the bottom eight deciles, and notably higher for the top two deciles. Mathematics skills are also increasing in parental income quintile at the bottom end, but plateau at the seventh decile. Dexterity and physical strength are both generally decreasing in parental income quintile.

Skills acquired through education were found to account for almost half of the intergenerational mobility associated with education. Overall, job skills account for 24.0–29.4 percent of the association between parent and child employment income, and approximately 75 percent of this effect comes through skills obtained through education. Job quality indicators account for 3.0 to 6.1 per cent of the overall association between parent and child employment income. The effect is mostly unassociated with education, and possibly reflects skills and networks that facilitate access to high-quality jobs that are unrelated to education. Of the proportion of relative intergenerational mobility not associated with education, 15.3 to 24.7 percent is linked to job characteristics. This proportion represents an association between parent and child income that is not correlated with education, reflecting instead job matches with characteristics associated with higher rewards among children with higher-income parents.

 

 

When looking at a regional level, significant variation in the role of education is revealed. The study finds that the Atlantic provinces have the strongest correlations between parent income and child education level, while the Prairie provinces exhibit the weakest correlation. In the Atlantic provinces, the intergenerational income correlation is more closely connected to education-related skills compared to other regions. Returns to education were found to be highest on average in Ontario and lowest in the Prairie provinces.

 

 

Deconstructing income mobility by job characteristics shows substantial differences across regions. Intergenerational mobility due to education-related job quality is most prominent in the Atlantic provinces, accounting for more than 7 per cent of the overall correlation. For the Prairie provinces, job characteristics account for a relatively small share of the intergenerational income correlation compared to other regions, leaving a large unexplained component that may reflect high rewards for physically demanding jobs in the extractive industries.

 

 Sources:

Exploration of the Role of Education in Intergenerational Income Mobility in Canada: Evidence from the Longitudinal and International Study of Adults

Growing up in a lower-income family can have lasting effects

 



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