Entering the highest and the lowest incomes: Intergenerational determinants and early-adulthood transitions

Highlights

• Intergenerationality in income is strongest at the ends of the income distribution.

• Among the highly educated, parental income more positively affects women than men.

• High parental income prevents low adult income associated with unemployment.

• No parental income effect is found among women with a more highly educated partner.

Abstract

Early-adulthood transitions contribute to socioeconomic attainment, and these early-adulthood life courses are partly influenced by family background. Less is known about how parental background and early-adulthood transitions jointly determine chances of entering the most and the least affluent positions in society. Using a longitudinal, register-based data set, this study examines the intergenerational and life-course mechanisms related to entry into income quintiles in Finland among those born between 1972 and 1975, with follow-up until their mid-30s. The specific focus is to test whether a more affluent origin compensates for less favorable transitions in early adulthood.

Parental income predicts entry to the lowest and the highest incomes in adulthood. Those with high-income parents are less likely to enter the middle income than those with low parental income, especially among men. The effects of lower educational achievement are compensated for by higher parental income among men, whereas women with higher education are more likely to benefit from their higher origin. High-income parents also protect from the harmful effects of long-term unemployment on adult income, although this compensatory effect disappears when long-term unemployment spells are very frequent. The positive parental income effect does not vary according to the age of having the first child, however, and does not apply to women with a more highly educated partner.

These results indicate that the effects of early-adulthood transitions on income attainment differ across parental background groups, implying that those with higher origin have more beneficial resources. The mechanisms also vary by gender, possibly reflecting the strongly segregated labor markets in Finland.

Introduction

Offspring originating from families with fewer socioeconomic resources are at greater risk of entering lower social positions. Life events in early adulthood, such as educational transitions, labor market success, transition to parenthood and union formation also contribute to socioeconomic attainment. It is likely that different life events and parental background resources have interdependent impacts, for example, on the possibility of attaining higher social position compared to family of origin. However, the conventional research on intergenerational social mobility seldom incorporates information on events over the life course.

Our aim is to analyze the joint effects of intergenerational determinants and early-adulthood transitions on reaching the lowest and highest incomes in adulthood. This is a novel approach, as the modifying effect of life course determinants on the intergenerational transmission of income have scarcely been studied before. As a Nordic welfare state, Finland provides a research setting with comparatively strong social policies aimed at reducing income inequality and securing its citizens adequate economic resources through universal and de-commodified social benefits. However, despite these policies, previous studies suggest that income level is strongly related to parental social characteristics (Aaberge et al., 2002, Björklund et al., 2002, Österbacka, 2004, Sirniö et al., 2013); accordingly, we expect to observe large differentials in the chances of entering high and low income based on parental social characteristics. We will also provide new insight into the research on socioeconomic attainment by focusing on gender disparities, a topic still insufficiently studied due to the lack of proper data and low female labor force participation rates in many countries and in older cohorts.

Reaching high income is most typical among those with higher education and occupational status, and having a low income is most likely for those with low education and prolonged unemployment (e.g., Hansen, 2001, Mastekaasa, 2011, Sirniö et al., 2013). Less is known about the interaction between characteristics of family origin, events and achievements during early adulthood, and the income level achieved in adulthood. In order to address these issues, we study the joint effect of parental background and specific life-course transitions on adult outcomes. The data in use are particularly fitting to the analysis of life courses, as they include annually updated information on the young adults’ education, labor market, and family transitions. In socioeconomic attainment research, educational pathways and labor market outcomes during the first years after the school-to-work transition are considered the key factors that lead to inequalities in adulthood. As an indicator of a person's position in adulthood, we use income level: we focus on ranking in income distribution rather than on absolute income because the former facilitates analyses of income as a relative societal position. Income is one of the main signals of class-related resources that reflect an individual's life chances and well-being. Compared to occupation-based social class, income levels capture the actual affluent and underprivileged population sub-groups more accurately.