In Episode 4 of the DIAL Podcast, Dr Jo Blanden from the University of Surrey talks about her research using the British Household Panel Survey and Understanding Society to look at home ownership and earnings for younger people and how the picture compares with that of their parents.
Jo is a keynote speaker at the DIAL Mid-Term Conference 2019.
Jo Blanden: How well are youngsters getting on compared with mum and dad?
In Episode 4 of the DIAL Podcast, Dr Jo Blanden from the University of Surrey talks about her research using the British Household Panel Survey and Understanding Society to look at home ownership and earnings for younger people and how the picture compares with that of their parents.
Jo is a keynote speaker at the DIAL Mid-Term Conference 2019.
Transcript
Christine Garrington 0:00
Welcome to DIAL a podcast where we tune into evidence on inequality over the lifecourse. In today’s episode, we’re discussing intergenerational mobility, and asking how the younger generations fare and compared to their parents when it comes to owning a home and what they earn. Our guest is Dr. Jo Blanden, from the University of Surrey, who is using data from the British Household Panel Survey and Understanding Society to look at these questions and also to see if the picture is different in the UK from elsewhere.
Jo Blanden 0:28
Intergenerational mobility is the relationship between the social and economic status of parents and children. And generally, we think of this in two ways. And most of my research has looked at relative mobility, which kind of thinks of, you know, success as a kind of ladder, and looks at what run your own compared to what run your parents are on and kind of keeps the ladders next to each other. So it’s a relative, it’s a relative measure. And it’s often seen as a measure of the openness of society, and sort of a kind of idea about equality of opportunity. And it’s not without its difficulties, but that’s something that’s commonly been looked at. Alternatively, we can consider absolute mobility. If you look at your parents’ life and your life, you can say, well, I’ve made progress compared to them. And that says everybody can make progress. It’s an absolute measure, not a relative one.
Christine Garrington 1:16
What specific aspects of intergenerational mobility have you been looking at and why?
Jo Blanden 1:22
Economists have often thought about this, and I am an economist, in terms of the economic wellbeing of generations by looking at relative income and earnings mobility. You know, a number of years ago, colleagues, and I looked at relative mobility in the UK, for people born in 1958 and people born in 1970. And what we found there is that there seemed to be a decline in relative mobility. In other words, you’re more tied to where your parents were, then in the 1970 cohort that had been the case in the 1958 cohort. And then I think the evidence suggests that things kind of levelled out. So they got worse, there was less intergenerational mobility, and then that’s kind of remained fairly static. And we also found around that time that the UK seems to be fairly immobile compared to other developed countries. Now, where the gap is, there’s been much less said about intergenerational wealth correlations, or this measure of absolute mobility. And both of these are clearly really important dimensions of how lay people and politicians conceptualise economic mobility. You know, a lot of people will think of mobility in terms of having wealth, because you kind of have this idea of a landed gentry having a lot of wealth and that being inherited across generations. So that is clearly an important aspect of what people think about as wealth. And it’s also true that when people think of mobility, they really are comparing themselves to the absolute living standards of their own parents. So that’s the absolute dimension that I’m going to consider as well.
Christine Garrington 2:47
Right. So one main focus of some of your most recent work has been home ownership. And what can looking at who owns a home and who doesn’t, within and across generations tell us?
Jo Blanden 2:58
In my work with Steve Machin and Andy Eals we argue about homeownership is an important driver of and proxy for wealth. And we estimate intergenerational correlations in homeownership across different countries and time periods. So we focus on the UK but we look at other countries for comparison. And that kind of makes sense, because housing equity is the largest component of overall wealth in a number of countries. And also inequality in home ownership is one of the important drivers of wealth inequality. So one of the reasons why we’re worried about and indeed, we think about the fact that young people are finding it hard to own their own home because of the impact on their that’s going to have on their ability to accumulate wealth. You might argue that intergenerational transmissions of wealth is kind of even more important to understand than correlations in income, which we’ve looked at more, because wealth is so important in people’s permanent consumption and their ability to kind of withstand shocks and plan for the future. So it seems really important to build wealth. But sometimes we can’t look at wealth directly, because we just don’t have very good data on that. So homeownership seems kind of a sensible proxy and that’s the argument we are building.
Christine Garrington 4:04
Indeed, and on that note, there’s been a lot of discussion here in the UK and elsewhere about how hard younger people are finding it to get on the housing ladder. This is something that you wanted to look at, specifically, what exactly did you do?
Jo Blanden 4:16
There’s a couple of things we did. The first thing we did, as you discussed, is to actually lay out the facts of what young people’s experience of homeownership has been over time. And we find something really striking there. For the youngest group that we look at under 35-year-olds, there’s been a really steep decline in home ownership rates. So in about 19, in 1996 50% of this group owned their own homes, and it’s now down to about 30%. And there have been similar smaller declines of people in older groups. Although, interestingly over 65 years and actually increase the rate of owner occupancy. There is a real cohort effect there because that group would have been the ones that were able to take advantage of buying a home say in the 80s where it was a bit more affordable, right to buy etc. So that’s one thing that we looked at was to kind of lay out those trends in homeownership among young people. The other thing we do is to look at this relationship between homeownership parents, and homeownership children. And what we find there is there is an important correlation there, so that if your parents own their own home, you’re more likely to own your own home. It is a strong affect and it also seems to have gotten worse. So that when we’re looking at these falls in owner occupancy, among younger groups, they’ve been much larger among people who parents didn’t own their own homes so there’s real inequality there.
Christine Garrington 5:33
And I’m interested to know where you got your information from Joe.
Jo Blanden 5:36
The Labour Force survey takes regular measures of who are owner occupiers. So we can use that to kind of look at the general trends. But the most important data we have used is what social scientist call longitudinal data, where you can come back and look at people over many years. So we can use the British Household Panel, which asked people every year questions about wealth, and homeownership, etc. But we can also use these British Cohort Studies, which have followed a group of babies all the way from birth, every few years, all the way up to adulthood. In fact, the National cohort, National Child Development Study, people born in 1958, now reached their 60th year, and I went to their 60th birthday conference last year, which was really interesting. So those dates are really, really valuable to this kind of study
Christine Garrington 6:22
How do what you can what you found in the UK compare with the other countries that you looked at? Because indeed, you did look at other countries.
Jo Blanden 6:32
Yes. And it’s really interesting, because the trends that we see in the declining owner occupancy among younger people in the UK, completely dwarfed those seen in the other countries that we look at. So we consider this in Germany, the US, in Australia over the same period. And while we do see slight declines, it’s nothing like what we see in the UK. And that’s interesting, because in Australia house price changes have been nearly as great as the UK, it’s been really big rises in house prices in Australia as well. But nonetheless, the UK has the largest rise in house prices, and the biggest shift against owner occupancy for people. And when we look at this idea of this question across generations, so whether parents and children have a correlation with owner occupancy, we see that we do see this in all the countries that we consider, but it’s stronger in the UK than in these other three countries. So young people whose parents own their own home are 25 to 30% more likely to own their own home in Australia, Germany and the US. And it’s really consistent across those countries, where in the UK, it’s about 40% more likely. When we look at the British Household panel it is really striking. And the next thing you want to do in this research is really think about how we can link this up to this idea that we’ve got in our heads about the link between this and the intergenerational correlation of wealth. And to also understand how the UK housing market which is quite different from those in other countries might be bringing that these changes as well. So we’ve got a little bit more work to do.
Christine Garrington 8:00
Yeah, indeed, it’ll be interesting to think about this in the context of Brexit, I’m sure, going forward. Now, the second aspect of your work, you’ve mentioned already in this area is what you described as absolute mobility or what’s referred to as absolute mobility, I wonder if you can just for those people, that might not be quite sure what that is, explain what it is, and why you think it is such an important consideration.
Jo Blanden 8:22
So we’ve already kind of touched on this in terms of the owner occupancy thing, you know, if your parents own a home, to be absolutely mobile, you would want to own a home as well. Or if your parents didn’t own a home to be absolutely mobile, you would then move on own one. So when we think about this more generally, kind of thinking of the idea of being better off than your parents. And that’s what we mean by absolute mobility. So despite this being the first thing that many people think of when they’re asked to consider, you know, ideas of intergenerational mobility, we don’t know that much about it. Firstly, because historically, it’s not been an issue, because earnings growth has always been strong. So you can kind of guarantee that you’re going to do better earn more than your parents in absolute terms, when you take it out in the effective prices. So nobody really worried about this very much. It was much more frequently discussed in the sociological literature, because there was this idea of people moving from a working-class background to a white collar jobs. And that was seen as absolute mobility in Sociology, whereas in economics, people didn’t really worry about it. Also, and this is kind of similar to the wealth story is a particularly good data, which gives you a really precise measure of income, which is comparable to a really precise measure of income of your parents. So it’s actually quite hard to measure. But we’ve used some methodological tricks to overcome that and actually consider that in the UK.
Christine Garrington 9:43
On that note, that’s going to be my next question. You’ve been looking at it in the UK, as you said, what have you found?
Jo Blanden 9:48
So we have had to use some methodological tricks here to think about where you are in your own earnings distribution, the earnings distribution of parents, the earnings distribution of children, and how those two match up. So we actually use a number of different data sources to bring this story together. But that doesn’t matter so much. The important thing is that we look at where the young people in their 30s, earned more than their parents did, at a comparable age. And what we find there is that this idea of absolute mobility had been rising. So each generation had a higher possibility of doing better than their parents in the previous one. And that went up to the mid 1970s, about my cohort. But then it’s really fallen, it’s absolutely tanked. So for kids born in 1975, who were 30, in 2005, half of them out earned their parents at the same age. Okay? But in the decades since, there’s been a really steep decline. So now only about a third of children who were born in 1987. In other words, who were 30 in 2007 will match or exceed their parents’ earnings. And actually, it’s interesting, because what seems to be really important here is the time that you measure the earnings. It’s not to do with which cohort your born in so much as when we observe your earnings. So the key thing there is the people who do well in terms of absolute mobility were those who were 30 before the recession, and after the recession it has tanked. And it is the same for 40 year olds. If we observe their earnings before the recession, they were doing really well. But after the recession, they’ve tanked not quite as bad for them as the 30 year olds. But there’s still a really strong story that recessions got a lot to do with this.
Christine Garrington 11:32
Really important finding. So what would you say then this body of work tells us about how younger generations, I’ve got a daughter in her 20s. So I’m keen to know and I know she’s keen to know, how they’re faring compared with me, their parents, it would seem to paint, unfortunately, rather a bleak picture, especially here in the UK, which is, which is something that you’ve clearly found.
Jo Blanden 11:55
Yeah, I think that’s absolutely true. And kind of preparing for our chat today, I was trying to think of something positive to say, and it’s not that easy. So when you look around, see what think tanks says the resolution Foundation, I’ve got to say about this, they proposed things like a universal inheritance. So everybody will get £10,000 when they are, you know, I guess the 21 or 25. And that might help kind of even things out, they also talk a lot about helping young people get on to good career paths, which I think is really important. And actually I kind of chuckle at my students sometimes, because they seem to be so career focused at such a young age. But actually, maybe it’s just different now. And maybe that’s kind of how you how you need to be unfortunately, so any kind of government policy that can kind of smooth out and help young people get on the career ladder, I think, does seem to be quite useful. But it’s definitely not an easy, not an easy question at all. And I think, partly because what we’re seeing is we’re seeing an overall decline in earnings, which is really hitting young people very hard. Before the recession, real earnings were growing by about 2% each year. Okay. Now, if that growth had carried on after 2007 and Brexit had hit, we wouldn’t have a problem. In terms of absolute mobility, it would have stayed constant. So it really is all about earnings. And that raises some big macro and micro economic questions as to how we can really improve those young people.
Christine Garrington 13:25
From your perspective, Jo, I wonder if you think there are any particular sort of key takeaway points for policymakers who would keep telling us that they want you to generations to fare better than the earlier ones?
Jo Blanden 13:36
So the UK has been in this kind of productivity puzzle ever since the Great Recession. And economists have spent quite a lot of time thinking about this. So has this problem come about because we’re not innovating enough? Because maybe we have run out of ideas? Is it because actually we are innovating, but it’s just in ways that are really hard to measure, so we can’t capture the kind of value added of technology etc. So that’s one possibility. The other the other possibility is that actually, a lot of this is caused by the austerity before the Great Recession. And actually, you know, we need to kind of ease up a little bit for demand to actually be created so that output can rise. So that’s one side of the story is this productivity, productivity puzzle, and I think that’s essential for young people. And the other side of it, of course, is prices. The way that we look at this is whether earnings are actually growing faster than prices. Well, the recent events with Brexit have actually led to quite a strong price rise with the fall in the pound. And so that’s not going to help young people if that continues or worsens. There are some really kind of quite important big economic stories here that government needs to address. And it’s not particularly clear how they can how they can do that. But of course, the current kind of political nonsense that we’re in does make it really hard in the UK at least to focus on any of these big issues.
Christine Garrington 14:55
Jo Blanden is one of the keynote speakers at the Dynamics of Inequality Across the Lifecourse midterm in June 2019. More information is available on the DIAL website at www.dynamicsofinequality.org. Thanks for listening to this episode of our podcast, which is presented and produced by Chris Garrington and edited by Elina Kilpi-Jakonen.