Non-Technical Summary:
Across the globe there is a growing divide between the wellbeing of those at the top of the socioeconomic ladder and those at the bottom. Despite tremendous economic growth, more than 75 percent of people in developing countries are living in societies that are more unequal today than they were in the 1990s. The link in social and economic wellbeing across generations makes redistributive policy design extremely challenging. Thus, it is important that we look beyond traditional tax-and-transfer programs to find new approaches to supporting disadvantaged families. To this end, it is crucial to understand the mechanisms underpinning the transmission of disadvantage from parents to their children (intergenerational disadvantage).
We examine the factors underlying intergenerational disadvantage by analyzing the correlation between parents’ and their children’s receipt of social assistance across different social assistance payments. We use administrative social security (Centrelink) records linked over time and within families; giving us detailed social assistance trajectories – across the entire social safety net – for a birth cohort of young adults and their families over an 18-year period. Our strategy is to exploit differences in how strongly linked is the receipt of social assistance from parents to children across programs – which differ in their target population and eligibility rules – to learn about how disadvantage is transmitted.
We find that young people are not only more likely (1.8 times) to need social assistance if their parents have a history of receiving social assistance; they also need more intensive support, receiving an additional $12,000 of social assistance over an 8-year period. The intergenerational correlation is particularly strong in the case of disability payments, payments for those with caring responsibilities, and parenting payments for single parents. Parental disability and single parenthood are the clearest pathways through which disadvantage is being passed from Australian parents to their children. In contrast, other forms of disadvantage, in particular those stemming from parents’ poor labor market outcomes, seem to be easier for young people to overcome. Parental disadvantage may be more harmful to children’s later life outcomes if it is more strongly driven by circumstances rather than personal choice.
Our results suggest that the playing field is not level for all children. Disparities in young people’s outcomes are not simply the result of their – or their parents’ – differential efforts; unequal opportunities also play a critical role. Greater policy effort must be devoted to leveling the playing field for children growing up in particularly vulnerable families.
An updated version of this paper has been published as Cobb-Clark, DA, Dahmann, SC, Salamanca, N, Zhu, A. (2022) Intergenerational disadvantage: Learning about equal opportunity from social assistance receipt. Labour Economics, 79, DOI: 10.1016/j.labeco.2022.102276