By Sally Sara: The Productivity Commission has found that around two-thirds of Australians aged in their mid-40s earn more than their parents did at a similar age. While younger workers are being left behind for the first time in decades and some women aged over 55 are also falling into poverty, Australia’s rates of economic mobility are among the best in the world. Danielle Wood is Chair of the Productivity Commission.
Danielle Wood: When it comes to mobility, we actually sit as one of the leading countries in the world. So when we look at how children fare relative to their parents, we are the land of the fair go and so we find that we sit actually right up the top, higher even than the Nordic countries and certainly higher than places like the United States.
Sally Sara: Why do we sit so high? What’s happening in our economy and society that allows that to take place?
Danielle Wood: Well, the first thing we should say is this is looking for a particular group of Australians. So this is people in their mid-40s today and what seems to be going on is that I think they’ve benefited from a strong education system. We’ve also had the benefit of many decades of economic growth, which has meant that that group has been able to perform well in the labour market. And I think as well we have a sort of relatively egalitarian culture, lots of sort of mixing of different groups in society and that also can contribute to economic mobility.
Sally Sara: What does Australia look like when we look at the measure of whether people are earning more than their parents did at a similar age? What do you see?
Danielle Wood: That group in their mid-40s today, about two-thirds of that group earns more than their parents at the same age. The slightly less good news is if we look at a younger cohort, so if we look at the sort of younger millennials, those in their late 20s, early 30s today, we haven’t seen that same income progress. So if we compare their incomes at that age to people born in the 1980s at the same age, their incomes really haven’t shifted. There’s at least some warning signs there.
Sally Sara: This report is a snapshot, but with our knowledge of the economy and history, is that the first time in a while that that’s happened?
Danielle Wood: It’s certainly the first time that we can see it in the data. So we can go back to people from the boomer years onwards and it’s the first time that we haven’t seen that progress. And what’s really going on is if you think of that cohort, they entered the labour market in the last 10 years or so. We had pretty stagnant wages growth. We also had a pretty weak labour market. We know that real incomes and real wages have gone backwards since the start of the COVID period. And so that’s particularly biting those young people at the starts of their career.
Sally Sara: Wealth is one thing and income is another. If the bank of mum and dad is going to be the key to some from this generation having a chance at getting a home, is it possible that we’ll see less mobility and greater inequality because people’s chance to buy a home may be quite dependent on the wealth of their parents?
Danielle Wood: I think that is a real risk. And as a general rule, wealth tends to be less mobile than income. You get a lot more stickiness when it comes to wealth. Bank of mum and dad I think is now the fifth biggest lender in the country and potentially inheritances down the track may well concentrate wealth inequality going forward.
Sally Sara: Even though Australia does well internationally when it comes to economic mobility, it doesn’t apply to everyone. Some people miss out. What does the information tell us about which groups are finding it very difficult to have that economic mobility?
Danielle Wood: What we find is that it’s really the very top and the very bottom of the income distribution. So if your parents were in the top 10% of income earners, you’re more likely to be in that group yourself. And similarly, if your parents were in the bottom 10% of income earners, you’re more likely to get stuck at the bottom. And most people that have a period in poverty, so they may lose a job or have a relationship breakdown, will come out of poverty relatively quickly. But we do find this big group that gets stuck there and we can see some intergenerational transmission of that as well. So children whose parents received income supports are twice as likely to end up on income supports themselves when they enter adulthood.
Sally Sara: That’s Danielle Wood there, the Chair of the Productivity Commission.
