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This generation might become the first not to earn more than their parents

Parental pay packets have little bearing on where most Australian incomes end up, but the long-term trend of children earning more than their parents may be starting to falter.

Jul 11, 2024, updated Jul 11, 2024

People raised by the highest and lowest earners were more likely to follow in their parents’ footsteps, research from the federal government’s independent productivity body found.

Almost 70 per cent of people aged between 41 and 48 were found to be earning more than their parents did about the same age, the Productivity Commission said in a report.

The outcome leaves Australia nestled between Scandinavian countries on income generational mobility, in a welcome finding for commission chair Danielle Wood.

“We do turn out to be more mobile than just about any other country in the world,” she told AAP.

Yet it was an “interesting question” as to whether the trend would continue, she said, with younger Millennials born in the 1990s not making the same progress as previous generations because of negligible income growth.

“That really speaks to me about the importance of economic growth and ensuring future income growth if we are going to see each generation be better off than the one before,” she said.

Wealth also tends to be “stickier” than incomes, with the former more transmissible from one generation to the next.

Inheritances, investment in education, as well as parents helping children onto the property ladder all contributed to the persistence of wealth across generations.

“We shouldn’t take the ‘fair go’ for granted,” Ms Wood said.

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Despite Australia’s strong track record on income mobility, the commission found evidence of advantage and disadvantage passing onto children at the top and bottom of the income distribution.

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

Similarly, those with the highest-earning parents were more likely to remain there themselves.

Economic mobility was the most strained for people in poverty, especially for those trapped there for some time.

“If I was a policymaker looking at this report, breaking that cycle seems to be a really important message,” Ms Wood said.

 

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