A little secret Denmark shares with Canada about social mobility that Americans and Brits should know

In an article that appeared earlier this year, The New York Times described the extent to which rich parents can expect to see their children grow up to be rich adults, as well as the likelihood that the poor raise children destined for poverty.

Surprisingly enough, the article came close to concluding that if Americans are interested in living the American Dream—where family background has little influence on adult outcomes—they should move to, of all places, Denmark, or if crossing the Atlantic seems daunting, then, as a second best, to Canada.

Indeed, Denmark has been a darling of sorts ever since Richard Wilkinson and Kate Pickett highlighted in their book, The Spirit Level, that Danish life is so much better along a whole host of dimensions because income inequality is so much lower.

But Denmark has a little secret, one it shares with Canada, about how kids get jobs, and about how this determines life chances even in places with low inequality.

The Russell Sage Foundation has just published a collection of essays, edited by John Ermisch, Markus Jäntti, and Timothy Smeeding, that examines the transmission of advantage and disadvantage across generations.

Some of the chapters in the book, called From Parents to Children, deal with the important influence of early childhood education in determining adult outcomes, reflecting both parental investments and school quality.

This theme reinforces existing research in economics, psychology, and sociology, but the chapter I co-authored with two Danish researchers, Paul Bingley and Niels Westergård-Nielsen, argues that parents make a whole host of investments in their children throughout their lives, and in particular the support they offer in getting them a job is also important in determining life chances.

Our research examines the degree to which sons end up working in the very same firm as their fathers, an aspect of social mobility that is directly related to equality of opportunity.

We find three remarkably similar outcomes in Canada and Denmark. These findings may have a broader relevance for other countries because we are comparing two very different labour markets, one in North America and another in Europe.

First, the transmission of employers between fathers and sons is a common feature, with about 30% of young Danes and 40% of Canadians having at some point been employed with a firm that also employed their father.

In large measure this is associated with the first jobs these individuals get during their teen years, but for four to about six percent it also refers to their main job in adulthood.

These may appear to be rather high levels, but they may not be out of line with some of the basic facts of how young people find jobs. Families and friends are often cited as the most important source of information for new jobs. This is as true in Canadian and American labour markets as it is in European.

Even if the transmission of employers across generations is in large measure about temporary employment as teens make the transition from school to work, it still represents a type of parental investment that may have longer-term consequences.

Sons inheriting a job may be more likely to gain work experience, job tenure and associated general and firm-specific skills. They may also avoid unemployment, and can be imagined to gain a head start in establishing themselves in the labour market.

Our second major finding is that the transmission of employers between fathers and sons is greater, the greater the father’s earnings, and rising distinctly and sharply for top earners.

This picture illustrates a similar pattern in both countries of ever having worked at a firm that ever employed your father, with the sharp rise for sons whose fathers were in the top 10% clearly evident. In fact, if the father’s earnings placed him in the top 1%, the majority of sons—indeed almost 7 out of 10 in Canada—had worked for an employer at which the father had also worked.

This pattern holds up when the focus is on the career employer, the employer accounting for the majority of earnings in adulthood, as the following picture shows. The chance a son of a top earning father is working for the same employer as his father did during the child’s teen years is over 10% in Denmark and about 15% in Canada.

There are a number of reasons for these patterns.

Some firms may give preference to the children of employees when making their hiring decisions, but this falls short of outright nepotism since parents do not necessarily control the hiring process.

Networks may also matter. It may be that richer parents are able to offer better information to their children about job openings with more stable employers, those likely to have stayed in business over the 15 to 20 years of our study.

Our research also finds that self-employed fathers are more likely to pass jobs along to their sons, but this is not so great as to suggest that direct control over the hiring process is the main reason why 30 to 40% of sons at some point worked for the same firm as their fathers.

Parental networks and information are a more likely explanation, and should be seen as another type of investment that parents make in the prospects of their children.

This said, there is a sense that nepotism may be part of the story for some segments of the population, particularly those at the very top.

Our third finding is that the transmission of employers between fathers and sons has implications for earnings. The degree to which a son’s earnings are related to his father’s is very similar in Canada and Denmark, with similar tendencies for those born to low and high-income fathers to become low and high income adults.

In both countries sons born to fathers in the bottom 25% of the earnings distribution have about a 30% chance of ending up in the bottom 25% as adults, and about a 15% chance of rising to the top 25%. These are enviable rates when compared to other countries like the United States or the United Kingdom.

At the same time sons born to fathers in the top 25% show similar rates of mobility in both countries, over a third staying in the top 25% as adults, and about a fifth falling to the bottom.

This is what the two panels of the following figure show.

But mobility out of the bottom has little to do with inheriting an employer from the father, while the preservation of high income status is distinctly related to this tendency.

The fraction of sons working at the same employer as their father is the same for sons born to bottom-earning fathers whether they stay stuck in the bottom or move to the top, about 2 to 4%. But sons of high earning fathers are much more likely to be working at the same firm if they grew up to be high earners, than if they fell to the bottom. The two panels of the following figure illustrate.

These three findings are certainly open to interpretation, and their prime value is the description offered of an issue never before addressed in two very different countries.

But our analysis also explores the extent to which the transmission of employers across generations influences equality of opportunity, and suggests that the inheritance of employers cuts against this commonly held value.

My co-authors and I feel that this research raises the importance of recognizing that child outcomes are related not just to the quality of the early years, but also to the structure of labour markets, and the resources parents have—through information, networks, or direct control of the hiring process—to influence the final transition children make in becoming self-sufficient and successful adults.

Most importantly it also makes us wonder what is happening in other countries.

If the inheritance of employers is this strong in a country with a great deal of equality like Denmark, and if it is even stronger in Canada, where inequality is somewhat greater, then how do labour markets function in the United Kingdom and the United States where inequality is even greater and generational mobility lower?

[A first draft of the chapter “The Intergenerational Transmission of Employers in Canada and Denmark” can be downloaded here, and the final draft ordered from the Russell Sage Foundation here as a part of the book From Parents to Children.]