Study says most follow in fathers' financial footsteps

If your ancestors were rich -- or poor -- you're likely the same, writes Misty Harris, although that tendency may be less pronounced in Canada than in the United States and Europe.

The Ottawa Citizen, Ottawa Ontario, by Misty Harris, April 22, 2006

In what sounds like the life philosophy of Paris Hilton, an international economics study has found "it's not what you know but ... how rich your father is that matters."

The report, presented this week at the annual meeting of Britain's Royal Economic Society, identifies a strong relationship between the earnings of parents and their children. In all regions studied -- Britain, the U.S., Norway, Sweden, Denmark and Finland -- "inherited" economic status was most pronounced for those born into very poor or very affluent families.

Researchers concluded that Cinderella-like aspirations of upward mobility -- particularly those linked to the "American dream" -- are far less attainable in these countries than once thought.

"In most countries, persistence is greater among the highest earners than among the lowest earners," says Robin Naylor, an economist at the University of Warwick and co-author of the study. "But in the U.S., persistence is at its most marked among the particularly poor -- the poorest 20 per cent, for example. Thus, the rags-to-riches story is especially unlikely in the U.S., of all places."

The report, which included 2,000 American parent-child pairs, looked at sons born in the late 1950s and measured earnings in their 30s and 40s against those of their fathers at a similar age.

Frank Atkins, a professor of economics at the University of Calgary, says the findings are consistent with a mounting body of evidence for inherited economic advantage. And, he says, it's not just how much money your father earned that matters, but how much your grandfather, great-grandfather and great-great-grandfather earned.

"There are some people who break through ... because we're always hearing (rags-to-riches) stories," says Mr. Atkins. "But what the statistics will tell you is that, on average, it just doesn't happen."

The story is more encouraging in Canada.

Although one-third of Canadian children from low-income families go on to become low-income adults, Statistics Canada economist Miles Corak reports that almost one-fifth of those born at the bottom rung ultimately climb to the top.

"The story for Canada is a good-news story when comparisons are made to the U.S. and some European countries," says Mr. Corak, who edited the 2004 report Generational Income Mobility in North America and Europe.

"The education system has a lot to do with it, the structure of labour markets has a lot to do with it, and investments within the family has something to do with it. Those three things together determine the average effect that you're seeing."

Mr. Corak believes inequity at the bottom and top of the income scale is everyone's problem.

"This whole message is important because it speaks to equality of opportunity," he says. "Regardless of where you are in the political spectrum, we can all buy into the notion that people's success in life should be based on their own energies and talents and not on something they inherit by the accident of birth."

The Ottawa Citizen 2006