Income inequality persists, affecting employment, education, and wealth in intergenerational mobility
Understanding the factors that drive economic mobility is critical for designing policies that promote equality of opportunity and reduce income disparities. In our recent study, we highlight significant differences in the factors driving the intergenerational transmission of income, depending on whether children grew up in low, middle or high income families.
The research is based on data from Denmark, covering more than 600,000 children and their parents. This dataset includes detailed information on parents’ and children’s incomes, as well as children’s employment and educational achievements.
The study underscores a clear conclusion: despite Denmark’s welfare initiatives being heavily focused on education and employment opportunities, differences in education, employment and wealth accumulation play a significant role in the intergenerational transmission of income. The patterns, however, vary significantly across income groups.
Among low-income families, the primary driver of intergenerational income persistence is differences in children’s employment as adults. Approximately 81% of the link between parents’ and children’s incomes can be attributed to employment differences, while only 10% is explained by differences in education. The remaining 9% is unaccounted for by education or employment.
For children from middle-income families, education plays a larger role compared to low-income families. Here, 24% of the intergenerational income relationship can be explained by differences in educational attainment, while employment differences contribute 45%, a smaller share than for low-income families.
Among high-income families, education is the most significant factor, explaining 49% of the intergenerational income relationship. Interestingly, employment differences play no role in this group, while 51% of the relationship cannot be explained by education or employment alone.
For the wealthiest families, income is primarily derived from capital rather than wages. For children from the top 5% of families, 83% of the parent-child income link is attributable to returns on wealth, such as capital income.
The study also sheds light on how public redistribution affects intergenerational income inequality. When public transfer incomes (e.g., unemployment benefits, social assistance, and disability insurance) are included in the analysis, the strength of the parent-child income link weakens significantly. Before accounting for public transfers, differences in children’s employment and education explain 18% and 5%, respectively, of the inequality transmitted across generations. After transfers are included, these figures drop to 5% and 4%, respectively.
These findings suggest that the barriers to social mobility differ by family background. For children from low-income families, the main challenge is securing employment, highlighting the importance of addressing barriers to workforce entry. For children from middle-income families, education is the primary driver of social mobility. For children from very high-income families, wealth accumulation, often initiated early through bequests and transfers, is the dominant mechanism.
Finally, the study illustrates that while Denmark’s welfare system reduces income inequality, persistent differences in three key factors — employment, education, and wealth accumulation — continue to shape the intergenerational transmission of income across social strata. These findings have significant implications for economic policy, suggesting that tailored interventions are needed to address specific barriers faced by different income groups.
© Anders Hjorth-Trolle and Rasmus Landersø
Anders Hjorth-Trolle is Researcher at the Rockwool Foundation Research Unit in Denmark
Rasmus Landersø is Research Professor at the Rockwool Foundation Research Unit in Denmark and IZA Research Affiliate
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We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.
Related IZA World of Labor content:
Intergenerational income persistence by Jo Blanden
Intergenerational return to human capital by Paul J. Devereux
School tracking and intergenerational social mobility by Tuomas Pekkarinen
Income inequality and social origins by Lorenzo Cappellari