Economics researchers reveal it’s not what you know but it’s how rich your father is that matters

New research led by economists at the University of Warwick reveals that many Western societies that pride themselves on being lands of opportunity are anything but. The reality is that most countries show a strong connection between a father and son’s earnings and this factor is more important in the United States than in any of the other country studied.

The new research led by Professor Robin Naylor, an economist at the University of Warwick, shows a strong link between the earnings of fathers and sons. It also demonstrates that the likelihood of a son having earnings similar to his father’s is greater for those born into particularly rich or particularly poor backgrounds. The study, to be presented at the Royal Economic Society’s 2006 Annual Conference, examines how ’intergenerational mobility’ compares between the UK, the United States and the Nordic countries of Norway, Denmark, Sweden and Finland. Some of the main results are that:

* In the UK and the United States, the sons of earners in the top 20% are very unlikely to end up in the bottom 20% of earners.

* Despite the commonly-perceived view of the US as an ’open’ society with ready opportunities for individuals to rise from poverty to affluence (from ’rags to riches’), the evidence shows that the opposite is true. On average, a son’s earnings are more closely related to his father’s earnings in the United States than in any of the other countries.

* In the UK, the connection between sons’ earnings and fathers’ earnings is weaker than in the United States, but stronger than in the Nordic countries. There is substantial earnings ’persistence’ across the generations in all countries.

* In all of the countries, intergenerational earnings persistence is most pronounced in the ’tails’ of the distributions. In other words, the likelihood of a son having earnings similar to his father’s is greater for those born into particularly poor or particularly affluent backgrounds.

* In most countries, the likelihood that a son with a very high earning father (in the top 20% of earners) will also subsequently be a top earner himself is especially high. For example, in the UK, 30% of sons with fathers in the top earnings quintile become top earners themselves. In a world of perfect intergenerational mobility this figure would be 20%. Persistence tends to be even greater at the top than at the bottom of the earnings distribution.

* The UK differs from the Nordic countries in the very low likelihood that the son of a high (top quintile) earner will become a very low (bottom quintile) earner. The probability is just 10%, half what it would be in a world of perfect mobility. In this, the United States is very similar to the UK. Downward mobility is very low in the UK and the United States.

* The major difference between the United States and all the other countries is in the very poor prospects of sons with fathers earning in the lowest 20% or bottom quintile. These sons have a 40% likelihood of themselves becoming bottom quintile earners, twice that which would arise with perfect mobility and much higher than in the other countries. In the UK, the figure is 30% while in the Nordic countries it is 25-28%. The ’rags-to-riches’ depiction of intergenerational mobility in the United States is a myth: upward mobility is especially low there.

* The Nordic countries differ from the UK and the US in the apparent protection of the life chances of sons of low earning fathers. The sons with fathers in the lowest quintile tend to have similar earnings to those with fathers in the next lowest quintile. Thus, there is a non-linear relationship between sons’ and fathers’ earnings in the Nordic countries. This contrasts with the UK and the United States, where there seems to be a relatively linear relationship between sons’ and fathers’ earnings: the lower the earnings of the father, the lower the earnings of the sons.