# Economic Insights Doing as Well as One’s Parents? Tracking Recent Changes in Absolute Income Mobility in Canada

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by Yuri Ostrovsky
Social Analysis and Modelling Division, Statistics Canada

Release date: May 23, 2017 Correction date: October 5, 2017

## Correction Notice

The title of Chart 5 in the article was corrected to: Absolute Income mobility rate at age 40 of children born in 1963, 1969, or 1974, by percentile of parent’s income, alternative sample.

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This article in the Economic Insights series provides Canadian evidence of recent changes in intergenerational income mobility in Canada. The study uses a unique Canadian database that directly links children and their parents and provides information on their incomes. The analysis focuses on absolute income mobility—often seen as an indicator of economic opportunity in a society. The study suggests that the rates of absolute mobility measured at age 30 have remained stable for Canadians born between 1970 and 1984.

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## Introduction

This Economic Insights article examines recent changes in intergenerational income mobility in Canada, focusing specifically on changes in the rate of absolute income mobility, i.e., the share of young Canadians whose family income was at least as high as that of their parents when they were the same age. The analysis focuses mainly on children who were born from 1970 to 1984 and compares their family income at age 30 (observed from 2000 to 2014) with that of their parents when they were the same age. It uses a unique Canadian database that directly links children and parents, providing information on their family incomes over almost four decades. The analysis is repeated at age 40 for earlier cohorts of children and parents.

A recent New York Times article (New York Times 2016) drew attention to a study of absolute income mobility in the United States (Chetty et al. 2016). According to the study, during the latter half of the twentieth century a declining share of 30-year-old Americans had a family income that was at least as high as that of their parents when they were the same age. Chetty et al. estimate that at age 30, 90% of Americans who were born in 1940 had incomes that matched or exceeded those of their parents when they were 30 years old, while this was the case for just 50% of those born in 1980. Based on this trend in intergenerational income mobility, the authors conclude that generational prospects have declined markedly in the United States.

Although this Canadian study also analyzes rates of absolute income mobility, the results cannot be compared directly with those of the U.S. study because of important data and methodological differences.Note 1 Nevertheless, the attention drawn to Chetty et al. underscores the importance of the issue, and some of their findings provide a partial reference point for this analysis. In particular, in contrast to the significant decline observed for the 1980 birth cohort relative to the 1970 birth cohort in the United States, little change in rates of absolute intergenerational income mobility was evident across the Canadian birth cohorts, aside from mild pro-cyclical fluctuations.

## Data, sample and method

The data for this study are from the Intergenerational Income Database (IID), a linked administrative database composed of two main components. The first component is a family file in which children who were aged 16 to 19 in 1982, 1984, 1986, 1991, 1996 or 2001 were matched with their parents. To be included in the IID, a child had to: (a) be aged 16 to 19 in one of those years; (b) have a social insurance number (SIN) at that time; and (c) reside with at least one parent at that time. Weights were applied to ensure the representativeness of the sample.Note 2

The second component of the database is information from income tax returns over the 1978 to 2014 period. The direct matches between children and parents, combined with 37 years of income data, makes it possible to directly compare the incomes of (adult) children and their parents.

This analysis begins with an examination of the incomes of children and their parents at age 30. The period for which income data are available―1978 to 2014―necessarily restricts the sample to children whose parents were born in 1948 or later, as the oldest of them turned 30 in 1978—the first year for which income data are available. (A small number of parents who were younger than age 19 when the child was born are also excluded.) Thus, the first cohort of children consists of those born in 1970, who turned 30 in 2000. Their parents were born from 1948 to 1951, were aged 19 to 22 when the child was born, and had their 30th birthday in the years from 1978 to 1981 (Table 1). Subsequent cohorts of children and parents were identified, usually at two-year intervals. The last cohort of children were born in 1984, and hence, were aged 30 in 2014—the last year in which income is observed. Their parents were born from 1951 to 1965, were aged 19 to 33 when the child was born, and had their 30th birthday in the years from 1981 to 1995.

Given the structure of the data file and sample selection, the parents of the 1970 cohort were younger when their child was born than were the parents of the 1984 cohort. This issue is addressed below.

Table 1
Structure of sample of children and parents at age 30
Table summary
This table displays the results of Structure of sample of children and parents at age 30. The information is grouped by Child's birth cohort (appearing as row headers), IID cohort, Age in IID cohort year, Parent's birth year, Parent's age when child born, Years parent's income observed and Year child's income observed (appearing as column headers).
Child's birth cohort IID cohort Age in IID cohort year Parent's birth year Parent's age when child born Years parent's income observed Year child's income observed
1970 1986 16 years 1948 to 1951 19 to 22 years 1978 to 1981 2000
1972 1991 19 years 1951 to 1953 19 to 21 years 1981 to 1983 2002
1974 1991 17 years 1951 to 1955 19 to 23 years 1981 to 1985 2004
1975 1991 16 years 1951 to 1956 19 to 24 years 1981 to 1986 2005
1977 1996 19 years 1951 to 1958 19 to 26 years 1981 to 1988 2007
1979 1996 17 years 1951 to 1960 19 to 28 years 1981 to 1990 2009
1980 1996 16 years 1951 to 1961 19 to 29 years 1981 to 1991 2010
1982 2001 19 years 1951 to 1963 19 to 31 years 1981 to 1993 2012
1984 2001 17 years 1951 to 1965 19 to 33 years 1981 to 1995 2014

Adjusted family incomes at age 30 were calculated from income tax returns. For (adult) children who were marriedNote 3 by age 30, family income was the sum of the spouses’ total before-tax income divided by two. If the child was married at age 30 but his or her spouse’s SIN was not provided or could not be matched to a tax return that year, the spouse’s income was set to zero. The family income of single children at age 30 was simply their total before-tax income that year.

The family income of parents at age 30 was calculated in much the same way. If two parents were present, total income was the sum of their total before-tax income divided by two. If the father was aged 30 in 1978 and the mother in 1980, the higher of these two family incomes was used for the calculation. If a 30-year-old parent reported being married but his or her spouse did not file a tax return, the spouse’s income was set to zero. If only one parent was present, the total family income was the total before-tax income of that parent.

All income figures were converted to constant 2015 dollars using the all-items Consumer Price Index (CPI) series.

The absolute income mobility rates for each birth cohort of children ${M}_{c}$ , were calculated directly as the share of children whose family income was at least as high as that of their parents where ${N}_{c}$ is the number of children in cohort $c$ , ${y}_{ic}^{k}$ is the child’s family income at age 30, and ${y}_{ic}^{p}$ is the parent’s family income at the same age. To calculate absolute income mobility rates corresponding to each percentile of parental income, the parents of the children in each cohort were ranked by their income and assigned to percentiles.Note 5 Percentile-specific rates of absolute income mobility were then calculated by applying the equation above to the parents and their children within each percentile.

## Results

Chart 1 shows absolute income mobility rates for children born between 1970 and 1984. Based on adjusted family income, absolute income mobility was higher for each cohort born between 1970 and 1977 than for the preceding cohort: 59% for the 1970 cohort and 67% for the 1977 cohort. In other words, when they reached age 30, 59% of children born in 1970 had a family income that was equal to or higher than that of their parents when they were 30 years old, while for children born in 1977, the corresponding figure was 67%.

For children born in 1979, 1980, 1982 or 1984, absolute income mobility rates by age 30 ranged from 66% to 64%. The modest decline across these later cohorts was likely related to the economic recession in 2008 and 2009. The latter is the year in which the 1979 birth cohort reached age 30. Because the incomes of all children in a particular cohort were measured in the same year (the year they turned 30), their incomes were more sensitive to business cycle fluctuations than were those of their parents.Note 6

The cross-cohort pattern of changes in the rate of absolute income mobility was similar when the computations were based on the unadjusted family income (Chart 1). However, mobility rates were lower compared with those based on the adjusted family income: 48% for the 1970 cohort, 55% for the 1977 cohort, and 53% for the 1984 cohort. As mentioned above, unadjusted family income is strongly correlated with marital status, so the lower rates likely reflect the lower percentages of children who were married or in a common-law union at age 30, compared with their parents.

Data table for Chart 1
Description for Chart 1
Table summary
This table displays the results of Data Table for Chart 1. The information is grouped by Child's birth cohort (appearing as row headers), Adjusted family income and Unadjusted family income, calculated using absolute income mobility rate (percent) units of measure (appearing as column headers).
absolute income mobility rate (percent)
1970 59 48
1972 61 51
1974 63 53
1975 64 53
1977 67 55
1979 66 55
1980 66 54
1982 65 53
1984 64 53

These results suggest that overall rates of absolute income mobility for the 1970 cohort were somewhat lower in Canada than in the United States.Note 7 However, the U.S. estimates show a substantial decline in rates among later cohorts, whereas Canadian rates remained stable. As a result, mobility rates for the 1984 cohort were similar in Canada and the United States when calculated using either income definition.

In addition to the overall rate of absolute income mobility, rates were calculated for children in the 1970, 1975, 1980 and 1984 cohorts according to their parents’ location in the income distribution (i.e., by income percentile) when they were age 30 (Chart 2). Within each birth cohort, children with parents in the lowest income percentiles were the most likely to have a higher family income than their parents at age 30, while the opposite was true for children whose parents were in the highest income percentiles. Furthermore, for children whose parents were between the 20th to 80th percentiles, rates of income mobility were higher among the 1975, 1980 and 1984 birth cohorts than among the 1970 cohort. This suggests that Canada did not experience the marked decline in absolute income mobility among the 1980 cohort relative to the 1970 cohort that was observed in the United States.Note 8

Data table for Chart 2
Description for Chart 2
Table summary
This table displays the results of Data Table for Chart 2. The information is grouped by Percentile of parent's income (appearing as row headers), Born in 1970, Born in 1975, Born in 1980 and Born in 1984, calculated using absolute income mobility rate (percent) units of measure (appearing as column headers).
Percentile of parent's income Born in 1970 Born in 1975 Born in 1980 Born in 1984
absolute income mobility rate (percent)
0 100 100 100 100
1 98 99 100 100
2 98 98 99 98
3 Note ..: not available for a specific reference period 98 98 96
4 96 92 95 89
5 92 94 94 91
6 95 91 93 92
7 94 93 92 90
8 94 90 91 89
9 92 92 91 88
10 88 90 90 88
11 86 89 89 87
12 84 88 89 87
13 88 88 89 87
14 85 85 85 86
15 79 88 84 85
16 78 87 86 84
17 80 87 85 83
18 76 84 86 82
19 78 83 85 82
20 77 86 84 82
21 77 81 81 81
22 76 82 82 82
23 75 80 80 82
24 74 81 80 82
25 68 79 79 80
26 70 77 79 78
27 71 77 78 78
28 69 78 80 78
29 68 74 77 76
30 66 77 78 78
31 72 75 76 76
32 69 73 76 76
33 66 76 74 76
34 66 75 76 76
35 68 74 75 73
36 67 72 76 73
37 60 72 73 75
38 65 71 72 73
39 61 69 74 74
40 67 72 73 71
41 62 68 73 72
42 60 73 70 70
43 62 71 71 72
44 61 69 70 70
45 61 69 71 69
46 60 70 70 68
47 61 68 69 70
48 66 67 69 67
49 60 67 70 68
50 61 67 68 69
51 61 64 71 70
52 57 70 68 65
53 55 63 68 67
54 58 57 66 66
55 57 61 67 65
56 59 65 65 67
57 55 62 64 64
58 56 62 64 62
59 55 60 63 64
60 55 62 64 62
61 55 63 64 63
62 57 64 62 61
63 56 61 63 61
64 51 61 61 59
65 53 61 60 58
66 55 57 61 57
67 53 59 60 59
68 55 56 60 55
69 53 55 58 58
70 49 56 58 55
71 50 56 58 56
72 48 54 57 53
73 46 55 59 55
74 47 53 54 52
75 45 54 56 50
76 47 53 54 53
77 46 52 54 51
78 46 48 54 50
79 43 48 52 48
80 37 47 54 47
81 44 51 48 49
82 39 47 49 46
83 43 45 47 46
84 36 47 47 42
85 38 46 47 39
86 37 42 45 42
87 36 41 43 40
88 31 40 42 39
89 34 39 40 37
90 29 37 38 37
91 31 32 35 35
92 28 31 35 34
93 24 26 31 31
94 23 29 33 31
95 25 24 29 28
96 15 24 27 25
97 20 15 21 20
98 14 16 18 18
99 9 11 11 14
100 7 6 6 7

Two sensitivity analyses were performed to address concerns that, given the composition of the sample dictated by the structure of the IID, parents of earlier birth cohorts were generally younger when their child was born than were parents of later birth cohorts (Table 1). Even though the incomes of all parents were observed at age 30, the lifetime income profiles of parents may vary systematically across cohorts because of differences associated with the timing of family formation.Note 9

To shed light on this, income mobility rates were estimated for a subsample of parents who were the same age when their child was born. Because it is not possible to expand the age range of parents in earlier cohorts, it is necessary to restrict the age range of parents in later cohorts (“restricted” sample). The first set of columns in Chart 3 shows rates of absolute income mobility for the restricted sample across cohorts of children whose parents were aged 19 to 21 when the child was born. The income mobility rates for this restricted sample ranged from 59% to 64%. Despite some variability before and after the 1979 cohort, no longer-term trend is discernible. When the analysis was repeated for the broader group of parents who were aged 19 to 24 when their child was born, the results were much the same―rates ranged from 63% to 66%, and no trend is discernible across the decade separating the 1975 from the 1984 cohort. Nonetheless, simply restricting all cohorts to children with younger parents does not eliminate the selection issue in the original sample.

Data table for Chart 3
Description for Chart 3
Table summary
This table displays the results of Data Table for Chart 3. The information is grouped by Child's birth cohort (appearing as row headers), Parent aged 19 to 24 and Parent aged 19 to 21, calculated using absolute income mobility rate (percent) units of measure (appearing as column headers).
Child's birth cohort Parent aged 19 to 24 Parent aged 19 to 21
absolute income mobility rate (percent)
1970 Note ...: not applicable 59
1972 Note ...: not applicable 61
1974 Note ...: not applicable 62
1975 64 61
1977 66 62
1979 63 59
1980 63 60
1982 63 62
1984 64 64

Comparing the family incomes of children and their parents at age 40 is another way to verify the results. The sample for this analysis consisted of children born from 1963 to 1974 who reached age 40 in the years from 2003 to 2014, at which time their family income was observed (Table 2). Their parents had been born between 1938 and 1955, and reached age 40 in the years from 1978 to 1995. When their child was born, the ages of these parents ranged from 19 to 25 among the 1963 cohort, and from 19 to 33 among the 1974 cohort. Hence, the selectivity issue regarding parents’ age when the child was born is more modest. Another advantage of comparing children’s and parents’ incomes at age 40 is that it addresses the “lifecycle bias” in mobility estimates that arises when individuals’ incomes are observed when they are still young. Annual income at age 40 to 45 is most representative of lifelong income (Chen, Ostrovsky and Piraino 2017).

Table 2
Structure of sample of children and parents at age 40
Table summary
This table displays the results of Structure of sample of children and parents at age 40. The information is grouped by Child's birth cohort (appearing as row headers), IID cohort, Age in IID cohort year, Parent's birth year, Parent's age when child born, Years parent's income observed and Year child's income observed (appearing as column headers).
Child's birth cohort IID cohort Age in IID cohort year Parent's birth year Parent's age when child born Years parent's income observed Year child's income observed
1963 1982 19 years 1938 to 1944 19 to 25 years 1978 to 1984 2003
1965 1982 17 years 1938 to 1946 19 to 27 years 1978 to 1986 2005
1967 1984 17 years 1938 to 1948 19 to 29 years 1978 to 1988 2007
1969 1986 17 years 1938 to 1950 19 to 31 years 1978 to 1990 2009
1970 1986 16 years 1938 to 1951 19 to 32 years 1978 to 1991 2010
1972 1991 19 years 1941 to 1953 19 to 31 years 1981 to 1993 2012
1974 1991 17 years 1941 to 1955 19 to 33 years 1981 to 1995 2014

Chart 4 shows rates of absolute income mobility for children in the 1963-to-1974 birth cohorts. By the time they reached age 40, 61% of children born in 1963 had a family income that was equal to or higher than that of their parents when they were the same age. For children born from 1967 to 1974, the figure was 67%. Across the percentile distribution for the 1963, 1969, and 1974 cohorts (Chart 5), rates were higher among the 1974 than among the 1963 birth cohort.

Data table for Chart 4
Description for Chart 4
Table summary
This table displays the results of Data Table for Chart 4. The information is grouped by Child's birth cohort (appearing as row headers), Rate, calculated using absolute income mobility rate (percent) units of measure (appearing as column headers).
Child's birth cohort Rate
absolute income mobility rate (percent)
1963 61
1965 63
1967 66
1969 66
1970 66
1972 67
1974 67

Data table for Chart 5
Description for Chart 5
Table summary
This table displays the results of Data Table for Chart 5. The information is grouped by Percentiles of parent's income (appearing as row headers), Born in 1963, Born in 1969 and Born in 1974, calculated using absolute income mobility rate (percent) units of measure (appearing as column headers).
Percentiles of parent's income Born in 1963 Born in 1969 Born in 1974
absolute income mobility rate (percent)
0 100 100 100
1 98 98 98
2 96 97 91
3 95 92 92
4 95 94 93
5 91 94 90
6 89 92 90
7 89 90 89
8 88 90 89
9 86 90 88
10 84 88 87
11 85 87 87
12 84 85 87
13 81 84 88
14 82 85 86
15 80 84 87
16 81 85 85
17 78 81 84
18 78 82 84
19 76 80 84
20 78 81 83
21 78 82 83
22 75 78 83
23 74 77 81
24 74 80 80
25 76 78 82
26 72 77 82
27 74 79 80
28 75 77 81
29 72 77 79
30 72 75 78
31 69 74 78
32 69 76 78
33 69 76 77
34 68 74 77
35 68 74 78
36 67 72 76
37 67 73 78
38 69 74 72
39 66 73 77
40 68 74 73
41 68 73 75
42 66 71 75
43 67 73 72
44 69 70 72
45 63 69 75
46 66 67 75
47 63 70 73
48 64 70 71
49 62 71 71
50 64 68 68
51 64 69 73
52 61 67 71
53 64 66 72
54 65 69 70
55 62 67 70
56 60 64 70
57 61 66 68
58 61 65 69
59 58 63 67
60 60 63 66
61 60 62 66
62 60 63 65
63 55 64 67
64 59 62 64
65 57 61 66
66 55 62 63
67 53 59 61
68 53 59 64
69 53 59 62
70 55 60 60
71 54 60 62
72 51 60 59
73 51 58 58
74 49 59 60
75 49 57 59
76 49 57 59
77 46 55 57
78 47 54 58
79 46 53 54
80 44 53 55
81 45 52 52
82 45 50 54
83 47 52 50
84 42 49 53
85 41 49 49
86 40 47 52
87 39 46 47
88 38 46 46
89 33 43 43
90 37 42 44
91 34 41 41
92 32 38 39
93 33 36 37
94 30 33 35
95 25 32 33
96 23 27 29
97 20 26 23
98 19 21 21
99 16 16 16
100 10 10 8

## Conclusion

This study examines changes in the rates of absolute income mobility in Canada since 2000. Across the cohorts born from 1970 to 1984, and whose income was observed from 2000 to 2014, the percentages of those whose incomes matched or exceeded their parents’ at age 30 remained fairly stable. Likewise, for cohorts born from 1963 to 1974, this was the case at age 40. The findings complement recent estimates of relative income mobility in Canada (Chen, Ostrovsky and Piraino 2017; see also Chen, Ostrovsky and Piraino 2016) and are a first step in examining changes in economic opportunity in Canada over time.

Differences in data sources and methodology mean that the results of this study cannot be compared directly with the U.S. study, which used census data from 1940 to 1980 to measure parents’ income. Canadian census data for the same period do not have sufficient detail to construct a comparable income measure. Consequently, the historical span of this study is narrower. Also, this study and the U.S. study used different methodologies to establish links between children and parents.

Despite such differences, the results from the United States provide a partial reference point. At age 30, rates of absolute income mobility for the 1970 cohort were somewhat lower in Canada than in the United States. However, subsequent trends in the two countries appear to be quite different. The U.S. estimates show a substantial decline in absolute income mobility, but Canadian rates appear more stable.

## Appendix tables

Birth cohort 1970 1972 1974 1975 1977 1979 1980 1982 58,664 33,670 68,784 92,403 122,833 168,028 192,437 207,319 236,975 53,556 24,863 51,387 67,843 80,029 122,665 144,665 151,986 189,008 50,511 23,464 49,017 64,999 76,616 117,279 138,578 146,638 180,516 40,502 40,463 41,711 43,646 46,277 46,835 47,189 48,454 50,018 12,756 12,423 12,870 13,840 14,912 14,568 14,632 13,983 14,088 23,333 23,565 24,679 26,107 28,025 28,092 28,235 28,453 28,879 37,376 37,404 38,899 40,104 42,878 43,371 43,630 44,692 45,709 52,273 52,239 54,058 55,806 59,134 60,422 60,816 62,678 64,617 33,683 32,581 32,759 33,487 33,733 34,720 35,366 36,748 37,899 11,373 9,421 10,226 11,158 10,425 11,151 11,771 11,637 12,086 22,225 19,882 20,385 21,350 21,473 22,074 22,701 22,918 23,307 33,004 31,305 31,403 32,140 32,496 33,225 33,763 34,829 35,592 43,174 42,279 42,125 42,639 43,279 44,338 44,966 47,015 48,625 Source: Statistics Canada, Intergenerational Income Database.
Birth cohort 1963 1965 1967 1969 1970 1972 104,830 141,646 174,223 197,837 216,816 200,609 218,168 75,535 101,609 117,955 136,991 155,993 149,138 176,271 77,014 104,104 122,204 140,863 158,819 151,418 177,056 55,993 58,942 63,821 62,556 63,695 65,585 66,923 16,677 17,340 18,577 17,486 17,961 18,695 19,364 30,736 32,199 34,020 33,815 34,429 36,249 37,290 47,266 49,442 52,314 52,882 53,802 55,924 57,390 67,027 70,307 74,827 76,291 77,199 80,113 82,001 44,099 44,401 44,389 44,852 45,483 46,030 46,986 17,122 17,268 16,634 15,834 16,301 15,573 16,300 28,192 28,191 27,949 27,655 28,171 27,527 28,140 39,887 40,133 40,144 40,277 40,973 41,258 41,770 53,054 53,531 53,905 54,586 55,588 56,342 57,213 Source: Statistics Canada, Intergenerational Income Database.

## References

Chen, W.-H., Y. Ostrovsky, and P. Piraino, 2017. “Lifecycle variation, errors-in-variables bias and nonlinearities in intergenerational income transmission: new evidence from Canada.” Labour Economics, 44 (January): 1–12.

Chen, W.-H., Y. Ostrovsky, and P. Piraino, 2016. “Intergenerational Income Mobility: New Evidence from Canada.” Economic Insights, no. 59. Statistics Canada Catalogue no. 11-626-X. Ottawa: Statistics Canada.

Chetty, R., D. Grusky, M. Hell, N. Hendren, R. Manduca, and J. Narang. 2016. The Fading American Dream: Trends in Absolute Income Mobility since 1940. NBER Working Paper Series, no. 22910. Cambridge, Massachusetts: National Bureau of Economic Research.

Cook, K., and A. Demnati. 2000. Weighting the Intergenerational Income Data File. Ottawa: Statistics Canada. Unpublished report.

New York Times. 2016. “The American Dream, quantified at last.” December 8. Available at: http://www.nytimes.com/2016/12/08/opinion/the-american-dream-quantified-at-last.html) (accessed March 31, 2017).

## Notes

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