The intergenerational transmission of financial disadvantage across Europe

Abstract

Growing income and wealth inequality have rekindled interest in questions of social mobility versus intergenerational persistence. Specifically at the low‐end of the inequality distribution, rising poverty risks amongst working‐age households have raised concerns regarding later‐life consequences of childhood poverty. This paper investigates cross‐country and ‐cohort variations in the intergenerational transmission of financial disadvantage, by pooling cross‐sections from EU‐SILC (2005‐2011‐2019) for 31 European countries. Similar to previous research, adolescent financial disadvantage contributes significantly to income poverty risks in adulthood. In only about half of European countries, such impacts are explained by close relationships between parental family structure and adolescent financial disadvantage, or mediated by labour market‐related status attainment from parents to children. Next, compared with older cohorts, for younger respondents coming of age in the era of enhanced globalization and dualization since the 1990s, and during the post‐financial crisis and austerity years, a trend towards enhanced stratification of current poverty with regard to adolescent financial disadvantage emerges. Multilevel analyses based on these younger cohorts indicate that more generous active (outsider spending) and passive (social exclusion spending) welfare benefits aimed at compensating poorer households for the consequences of labour market and welfare state dualization significantly mitigate current income poverty of those who experienced financial disadvantage in adolescence. Welfare reforms implying reductions in social spending disproportionally affecting ‘outsider’‐households (intended or unintended) may therefore be costly in the long run, as the intergenerational transmission of financial disadvantage might intensify.