Generation next: unleashing youth aspiration and upward mobility

Socioeconomic status Wealth Intergenerational wealth transfers Youth

Growing concerns have been expressed in media commentary and policy circles about the economic fortunes of young Australians, especially Millennials and Gen Z’ers. One of the key indicators in assessing the long-term economic wellbeing of younger generations is intergenerational income mobility — the extent to which young people’s incomes earned over time exceed that of their parents.

Intergenerational income mobility can broadly be measured in relative terms (tracking movements of young people within the income distribution compared to their parents) or in absolute terms (tracking extent of income growth for young people over time as compared to their parents).

A number of empirical studies have been produced to quantify the degree of intergenerational mobility in Australia. While the correlation between parental and offspring income varies across available studies, a common finding is that the extent of Australian intergenerational income mobility is less than that in certain continental European countries and Canada, but exceeds that found in the United States and United Kingdom.

Economic studies indicate there exists a ‘Great Gatsby’ curve, showing a negative association between income inequality and intergenerational income mobility. The existence of the Great Gatsby curve has been taken by some academics and policy-makers to imply a causal relationship between inequality and mobility that justifies larger ‘tax-and-spend’ redistributive programs to bolster mobility for young people.

However, recent contributions to the income mobility literature question the causal link between inequality and mobility, pointing to the role of institutions and policies in affecting rates of upward income mobility over time. Empirical investigations support the suggestion that poor quality economic institutions inhibit mobility outcomes.

Fiscal, legal, and regulatory settings that do not respect private property rights, and that restrict gains from entrepreneurship, education and training, and productive economic activity, are identified as barriers to upward mobility, including for young people. This paper argues that institutions that facilitate the availability of greater, and meaningful, economic choice would empower young Australians in discovering their own, preferred pathways for upward mobility and material prosperity.

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CIS Research Report 44