New research shows economic mobility not guaranteed

If you’ve ever had conversations with your parents or even your grandparents, they have probably recounted to you how much they earned “back in their day”.

Often the amounts seem quite small in comparison to what you earn but that’s because they haven’t been adjusted for inflation.

However, it is generally accepted that as our nation grows and becomes more educated, too, most people believe they will ultimately earn more than their parents did.

But new research from the Productivity Commission, has found some worrying signs for economic mobility in this country, especially for people born about 30 years ago and, alas, also for women.

According to the research, Australia’s long-term economic growth has led to each generation earning more income than the last, on average.

About 67 per cent of those born in 1976–1982 earn more than their parents did at a similar age, and this is particularly true of those born in poorer families.

However, your parents’ financial situation when you were born, can still have an impact on your own, according to the study.

Children with parents in the bottom or top income deciles are relatively more likely to remain in the bottom or top deciles themselves.

Almost 15 per cent of people with parents in the bottom income decile remained in the bottom decile, while just six per cent of them ended up in the top decile.

In contrast, just seven per cent of people with parents in the top decile ended up in the bottom decile, with 20 per cent remaining in the top decile.

Mobility issues

According to the research – Fairly Equal? Economic Mobility in Australia – there has been weak income growth for people born in the 1990s, which reflects the poor economic outcomes they experienced following the global financial crisis.

Younger Australians experienced stagnant wages and were more likely to obtain jobs with lower educational requirements and earnings potential relative to comparably‑skilled younger people in 2001, which can have long‑term negative effects on their wages and occupational choices.

However, while it is too early to come to strong conclusions, the lack of income growth for those born in the 1990s indicates the trend that each generation earned more than the previous may have stalled for the first time.

Unsurprisingly, I’m afraid to say given my interest in gender financial imbalance in this nation, women are more likely to experience persistent poverty than men – predominantly after separation. Likewise, renters were identified as a cohort much more likely to experience poverty in their lifetimes.

Following separation from a long-term partner, women experience a significant decrease in disposable income, while men’s income actually increases.

This gender difference has also been found in other OECD countries, influenced by lost partner income as well as a greater likelihood of women being the primary residential parent for families with children.

Overall, though, just over half of women earned higher incomes than their parents, compared to the vast majority of men. Men with middle- to high‑income parents are more than twice as likely to outearn their parents than women.

A key reason why women are less likely to outearn their parents is the gender pay gap, according to the study. While 86 per cent of men earn more than their mothers, only 37 per cent of women earn more than their fathers.

This drives the overall result that a lower proportion of women earn higher incomes than their parents and also means men are more likely than women to outearn both their fathers and mothers.

While this might make sobering reading for some, the key takeaway must be that economic mobility remains common and possible in this nation – and one of the simplest ways to do improve your financial situation is to invest in bricks and mortar. 

Figure 3.1 – Incomes have grown for each successive generation until recently (a,b) – Average individual income by birth, decade and age.