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The Prince and the Pauper:

The Prince and the Pauper:. Movement of Children Up and Down the Canadian Income Distribution. Peter Burton and Shelley Phipps Dalhousie University. Lihui Zhang, for excellent research assistance Atlantic Research Data Centre for access to the data. Acknowledgements.

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The Prince and the Pauper:

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  1. The Prince and the Pauper: Movement of Children Up and Down the Canadian Income Distribution Peter Burton and Shelley Phipps Dalhousie University

  2. Lihui Zhang, for excellent research assistance • Atlantic Research Data Centre for access to the data Acknowledgements P. Burton and S. Phipps Dalhousie University

  3. Use Statistics Canada’s National Longitudinal Survey of Children and Youth (NLSCY) to study family income for a cohort of Canadian children between 1994 and 2004 • Children 0 to 7 in 1994; 10 to 17 in 2004 • Longest panel of data yet available in Canada • Links to sense of self, aspirations, well-being? Introduction P. Burton and S. Phipps Dalhousie University

  4. What happens to the level of family income as children grow up? • What happens to income inequality among children? • How much movement up and down the distribution takes place? • What are characteristics associated with being ‘stuck at the bottom’ or ‘secure at the top’ of the distribution? • What are the correlates of moving up or down the distribution? Five questions: P. Burton and S. Phipps Dalhousie University

  5. NLSCY representative of Canadian child population • Interviews every 2 years (6 cycles, spanning 10 years) • Use information provided by the ‘person most knowledgeable’ about the child • Select 7,163 children with complete income and family size data • Longitudinal weights; bootstrap for complex survey design Data P. Burton and S. Phipps Dalhousie University

  6. Expect real growth, on average • Parental life-cycle (finish education, gain seniority with higher wages and more job security) • Mothers returning to paid work and/or increasing paid hours • But, odds of parental divorce also increase Question 1. Trends in Income Levels? P. Burton and S. Phipps Dalhousie University

  7. Family size • Probability of living in lone parent family • Paid work participation and hours of participation • ‘High hours’ (greater than 80 per week for two-parent families; greater than 40 for lone-parent families) Changes in family characteristics P. Burton and S. Phipps Dalhousie University

  8. Changing Family Composition P. Burton and S. Phipps Dalhousie University

  9. Paid Work in Two-Parent Families P. Burton and S. Phipps Dalhousie University

  10. Paid Work Participation in Lone-Parent Families P. Burton and S. Phipps Dalhousie University

  11. Two parents more than 80 hours; lone parent more than 40 hours P. Burton and S. Phipps Dalhousie University

  12. ‘Person most knowledgeable’ about the child reports income • Pre-tax annual income from all sources including government transfers • Adjust for differences in need for families of different size using Luxembourg Income study ‘equivalence scale’ (square root of family size) • Actual income of $80,000 for family of 4 means ‘equivalent income’ of $40,000 Measure of Family Income P. Burton and S. Phipps Dalhousie University

  13. Mean equivalent family income, in 2004 dollars P. Burton and S. Phipps Dalhousie University

  14. Compute mean equivalent income in each year for each income decile • Decile cut points defined using the NLSCY (i.e., families with children) Is income growth the same at all points in the distribution? P. Burton and S. Phipps Dalhousie University

  15. Real growth in all deciles • Considerable inequality among children, but ratio of mean income in top decile to mean income in bottom decile 9.42 in 1994; 9.39 in 2004 Are children at the top ‘pulling ahead’ of those at the bottom? P. Burton and S. Phipps Dalhousie University

  16. Inequality among children would be expected to increase over time as some parents ‘make it’ in the labour market while others fall behind • On the other hand, some families may catch up as mothers increase paid hours Question 2. Trends in Inequality? P. Burton and S. Phipps Dalhousie University

  17. Compute standard measures of income inequality for each year for our cohort of children • Choose measures sensitive to different parts of the distribution (CV is sensitive to the top; Gini to the middle and Atkinson to the bottom) • Also compute all measures using six-year average income P. Burton and S. Phipps Dalhousie University

  18. Measures of Income Inequality P. Burton and S. Phipps Dalhousie University

  19. No obvious trend in annual income inequality for this cohort of children • High-end sensitive CV shows highest inequality in middle years • Low-end sensitive Atkinson shows lowest inequality in middle years • Inequality among children less than in population over-all; these inequality measures slightly higher because for pre-tax income Key findings P. Burton and S. Phipps Dalhousie University

  20. Inequality of six-period income lower than inequality in any particular year • True for all measures of inequality and regardless of comparison year Annual versus ‘permanent’ income inequality P. Burton and S. Phipps Dalhousie University

  21. Theil index allows de-composition of total inequality into ‘within group’ inequality plus ‘between group’ inequality • In our application, ‘within group’ is for the same child across six cycles; ‘between group’ is permanent income across different children • De-composition suggests inequality of ‘permanent income’ about 75 percent of total Theil Decomposition P. Burton and S. Phipps Dalhousie University

  22. What percent of children who start in bottom quintile in 1994 are again in bottom quintile in 2004? • What percent of children who start in top quintile in 1994 are again in top quintile in 2004? • Considerable ‘stickiness’ of position evident Question 3. Are the Same Children Always at the Bottom (or Top) of the Income Distribution? P. Burton and S. Phipps Dalhousie University

  23. 1994 to 2004 Transition Matrix P. Burton and S. Phipps Dalhousie University

  24. Transition Matrix for Children of Immigrants P. Burton and S. Phipps Dalhousie University

  25. What happens during intervening years? • How many children ever exposed to a position of low income? • How many children always (in all six cycles) in a position of low income? ‘Lenses’ P. Burton and S. Phipps Dalhousie University

  26. Link P. Burton and S. Phipps Dalhousie University

  27. More children ‘ever’ exposed to low income than cross-sectional data suggest (42 percent were ‘ever’ in bottom quintile) • Only about 5 percent ‘always’ in the bottom quintile, but this group of great policy relevance • Links to social exclusion? • Note: children of immigrants especially likely to be ‘stuck’ at bottom Key points from lenses P. Burton and S. Phipps Dalhousie University

  28. P. Burton and S. Phipps Dalhousie University

  29. Estimate probit models of the correlates of ‘ever’ and ‘always’ being in the bottom quintile • Dependent variable uses full six-cycle history • Explanatory variables ‘starting point risks’ (1994 values): • Region • Age, education, ethnicity, immigrant, marital and employment/student status of parent • Age of child and number of siblings Question 4a. Characteristics of Children ‘Exposed to’ or ‘Stuck’ at Bottom P. Burton and S. Phipps Dalhousie University

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  31. P. Burton and S. Phipps Dalhousie University

  32. P. Burton and S. Phipps Dalhousie University

  33. In order of size of association, a child is at greatest risk of ‘ever’ being at the bottom of the distribution for his/her cohort if he/she: • Lives in a lone-mother family • Parent has less than high-school education • Parent has no paid hours • Parent is an immigrant • Family lives in Atlantic Canada Key results from probit regressions for ‘ever’ in bottom quintile: P. Burton and S. Phipps Dalhousie University

  34. In order of size of association, a child is at greatest risk of ‘always’ being at the bottom of the distribution for his/her cohort if he/she: • Lives in a lone-parent family • Has a parent with no paid work • Lives in the Atlantic region • Has a parent who is non-white Key results from probit regressions for ‘always’ in bottom quintile: P. Burton and S. Phipps Dalhousie University

  35. Simulated Probability of Always Being in the Bottom Quintile P. Burton and S. Phipps Dalhousie University

  36. Repeat probit analyses with 2 new dependent variables; same explanatory variables • Results mostly symmetric Question 4b: Characteristics of Children ‘Exposed to’ or ‘Secure’ at the Top P. Burton and S. Phipps Dalhousie University

  37. Estimated conditional logit models of movements into or out of the bottom quintile (14,790 movements in/out of bottom; 12,864 movements in/out top) • Procedure excludes children who never move in or out • Explanatory variables are now ‘changes’ (so ethnicity and immigrant status dropped) Question 5. Which characteristics are associated with movements up or down? P. Burton and S. Phipps Dalhousie University

  38. In order of size of association, the most important changes associated with moving into or out of the bottom quintile are: • Divorce/re-marriage of parents • Regional migration • Changes in employment status of parent • Parent finishing or returning to school • Change in number of siblings See odds ratios Key results from conditional logit models P. Burton and S. Phipps Dalhousie University

  39. P. Burton and S. Phipps Dalhousie University

  40. Not just ‘in or out’ of top/bottom, but ‘how far’ up or down the relative income distribution does child move with particular change in co-variate? • Estimate fixed effects models for change in percentile position Fixed Effects Estimates of Change in Percentile Rank P. Burton and S. Phipps Dalhousie University

  41. Largest movements up/down the distribution associated with changes in marital status; regional migration Key points: P. Burton and S. Phipps Dalhousie University

  42. Use longitudinal data tracking a cohort of Canadian children from 1994 to 2004 (from ages 0 to 7 until ages 10 to 17) • Real growth at all points in income distribution; no trends in inequality as this cohort of children grows up • Lower measured inequality of ‘permanent income’ • 75 percent of inequality is attributable to ‘permanent income’ Conclusions P. Burton and S. Phipps Dalhousie University

  43. Considerable beginning to end of period ‘stickiness’ of relative income position • Only 5 percent ‘always’ in bottom quintile, but this is a group of particular policy concern • But, more exposure to low income than cross-sectional data suggest • Parental marital and employment status, region of residence and ethnicity key correlates of relative income position • Largest movements up/down the distribution associated with change in parental marital status and regional migration P. Burton and S. Phipps Dalhousie University

  44. P. Burton and S. Phipps Dalhousie University

  45. P. Burton and S. Phipps Dalhousie University

  46. P. Burton and S. Phipps Dalhousie University

  47. P. Burton and S. Phipps Dalhousie University

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