Inequality is passed down from parents to children. In the UK, the impact of family income on a child’s future income has increased over time. Today, 50% of a parent’s pay advantage is passed onto their children in the UK compared to just 15-25% in Nordic countries.

Up to half of the gap between what you and others make in society is accounted for by the family you grew up in^[1]:

Parental Income

Evidence suggests that parents with high incomes are more likely to have children with high incomes:

• In the UK 50% of a parent’s pay advantage is passed on to their children^[2]. 

• In the USA, 40-50% of a child’s income in later life is determined by the family they were born into, compared to just 15-25% of a child born in Nordic countries like Norway, Finland and Denmark^[3].

• Family income was a better predictor of income for those born in 1970 than those born in 1958 demonstrating a decline in social mobility ^[4].

Parental Income: The Direct Effect

There is also evidence to suggest that the income level of the family you are born into has an effect in itself on your later life chances, independent of other household and parental characteristics that may also be associated with parental income.

• A lack of parental income causes children to have lower cognitive development and poorer school achievements.

• Research has found that giving £7,000 to every child on Free School Meals (FSM) would increase their Key Stage 2 scores by more than 1.5 points and halve the gap between FSM and non-FSM children^[5].

Criticism and Issues

Research on the size of the effect of parental incomes on later outcomes is not conclusive.  One study estimates it only accounts for up to half of the similarity that you share with your siblings suggesting that family environment and neighbourhood environment may also be important^[6].

Family Wealth

Another powerful predictor of your future income is the level of wealth of the family you are born in to:

• Familial wealth can have an effect on later income. One major factor in people being able to start up a business is whether or not they have access to family assets^[7].

• The main form that wealth comes in is housing and land.  In the UK, this inequality of wealth is being bolstered by increases in house prices. As house prices increase those who already own housing become wealthier and those who do not become less likely to be able to buy property^[8]. This has important implications for the future of UK inequality.

Mechanism

There are several factors which research suggests could be responsible for the importance of the initial conditions that you are born into:

• Your family provide you with social connections which can be used in obtaining jobs and educational opportunities.

• They also provide a family culture which influences your beliefs, motivations and your ability to acquire new knowledge and skills.

• Your parents pass on the genetic material which may, to some extent, determine your skills and abilities^[9].

Criticism and Issues

There is disagreement about the desirability or otherwise of families transferring wealth, assets, attitudes and abilities: not all the processes above are seen as unjustly presenting advantage and there is consequently some acceptance of some intergenerational link between incomes. Nevertheless, the research agrees that intergenerational transfer of incomes has a strong effect on incomes and therefore is important to our understanding of inequality.

As with other drivers of inequality discussed on this site, this driver of inequality can also be seen as an impact of inequality, with further inequality increasing the effect that a child’s starting point in life has on driving inequality in future generations.

---

[1] (Bjorklund & Jantti, 2011)