Inheritances will be twice as big on average for those born in the 1980s as for those born in the 1960s. In addition, parental earnings are a much stronger predictor of earnings for people born from the 1970s onwards than they were for previous generations.
As a result, a measure of lifetime income mobility, which includes inheritances, is set to fall further across the 1960s, 1970s and 1980s generations. That means your parents’ income and wealth is of ever-growing importance in determining your own position in the lifetime income distribution.
These are among the key findings from new research ‘Intergenerational mobility in the UK’, part of the IFS Deaton Review of Inequalities funded by the Nuffield Foundation, authored by Laura van der Erve, Sonya Krutikova, Lindsey Macmillan and David Sturrock.
The national picture masks the fact that upward mobility is a lot harder for some than others. There are striking differences between ethnic groups:
- Taking those young men who grew up on free school meals, someone from a Black Caribbean background ends up earning about £8,000 less per year at age 28, on average, than someone from an Indian background.
- Reflecting much lower levels of wealth among those communities, young people from Pakistani and Bangladeshi families are less than half as likely as their White peers to receive a substantial gift from parents (over a two-year period).
There are also big differences across areas of the country:
- Men who grew up on free school meals end up earning £8,700 more at age 28 if they grew up in the highest mobility areas around London than if they grew up in the lowest-mobility areas in the North of England.
- For women who grew up on free school meals, areas in and around London also do best for upward mobility, while the areas with weaker performance are spread across Yorkshire, the Midlands and the North-East. The difference in earnings at age 28 between the most and least upwardly mobile areas is £8,100.
- Those with parents living in London stand to inherit about twice as much on average as those with parents living in the North-East or Yorkshire and the Humber. This makes it even harder for children from relatively low-income backgrounds in lower-wealth parts of the country to move up in terms of total lifetime income.
While getting a good education is an important driver of upward earnings mobility, other things are also very important:
- Children from most ethnic minority groups on free school meals out-perform their White peers in terms of educational outcomes. But for a number of ethnic minorities, this advantage is reversed upon entry to the labour market: men from Pakistani, Black African and Black Caribbean backgrounds who grew up on free school meals end up earning less than White men who grew up on free school meals.
- A lot of the differences in mobility between areas seem to be down to differences in local labour markets, family stability, and demographics of the local population, not just education. For example, areas with higher economic activity rates, higher shares of married households and better-performing schools have better later-life earnings for men who grew up on free school meals.
David Sturrock, a Senior Research Economist at the IFS and an author of the report, said:
“It is bad enough that it seems harder for children from poorer families to move up in the earnings distribution than it was 40 years ago. But this may understate the true challenges we face with respect to social mobility, which are made worse by a long period of overall earnings stagnation alongside the increased importance of wealth and growing wealth gaps between North and South. Poorer children from the North and Midlands face the combination of poorer educational outcomes, weaker local economies and relatively low levels of inheritance from their parents.
While the educational achievements of ethnic minority children from poor backgrounds are a success story, for many of them this is not translating into higher later-life earnings as we might expect, and on average they can rely much less on receiving wealth from their parents than White children.
It may be harder now than at any point in over half a century to move up if you are born in a position of disadvantage.”