Labor has criticised the Productivity Commission’s recent landmark report on inequality, saying it has taken an overly sunny view of the ability of Australians to move from rags to riches.
Andrew Leigh, Labor’s shadow assistant treasurer, says the commission’s failure to delve deeply enough into inequality data means it has produced a report that skates over the very real problems of Australia’s generational inequality.
Leigh, a former professor of economics at the Australian National University, will make his argument on Tuesday evening, when he delivers the Evatt Foundation NSW Parliament Lecture on generational inequality.
Leigh will use the speech, which Guardian Australia has seen, to explain how governments can improve intergenerational mobility rates in Australia.
He will talk about the need to give children the greatest possible start in life by reducing “pre-birth inequality”, emphasising the vital importance of healthy pregnancies, paid parental leave, properly funded legal aid for family violence victims, and the ability to visit a doctor without worrying about the cost.
But he will also criticise the Productivity Commission’s recent report on income and wealth inequality, which was published in August.
“I was surprised to see that the Productivity Commission’s recent report took such a sunny view about mobility in Australia, concluding that ‘economic mobility is high in Australia, with almost everyone moving across the income distribution over the course of their lives’,” Leigh will say.
“Implicit in this statement is that we should be pleased if we see some movement – in effect, that the benchmark should be feudalism rather than equal opportunity.
“If you think that any mobility is good, you’ll be pleased with the status quo. If you think we should aspire to be a nation where babies born into poor households have the same life chances as babies born into rich households, you’ll conclude that we could do a lot better.”
In 2007, Leigh conducted a study on how much parents’ income affects the incomes of their children, a measure known as “intergenerational elasticity”. It was the first internationally comparable estimate of Australia’s intergenerational elasticity.
Leigh says studies of intergenerational elasticity consider the impact on children’s incomes of a 10% increase in parental incomes – if a 10% increase in parental incomes boosts children’s incomes by 10%, we might conclude that it’s essentially impossible to jump up or down the social hierarchy.
But if the same increase in parental income had zero impact on children, then we’d be looking at a society where everyone moved across social classes based on their talents, not their parents.
Leigh says in the United States, a 10% increase in parental income translates into about a 5% increase in children’s incomes, while in Scandinavian nations, it means less than a 2% increase.
“In other words, parental income matters more than twice as much in the United States,” he says.
Leigh says in 2007 he judged that a 10% increase in parental income boosted children’s incomes by around 2.5% in Australia, which suggested Australia was less mobile than Scandinavia, but more mobile than the United States.
“But in 2017, researchers used the same methodology – with considerably more data – and revised the estimate upwards to 3.5%,” he says.
Leigh says in Australia, a more progressive tax system, a more employee-friendly industrial relations system, and competition laws that limit monopoly power are likely to deliver a more equal society, which in turn is likely to lead to greater mobility.
An increase in home ownership rates will also improve social mobility, he says.
He will reiterate that a Labor government would task the Productivity Commission to produce an Equality of Opportunity Report every five years.
“Like the Intergenerational Report, it would aim to focus national attention on how Australia is tracking in improving social mobility,” he said.