Social mobility takes generations
Oct 2020
Social mobility takes generations
While differences in income and wealth can be justified, low social mobility seems difficult to accept in meritocratic societies. A commentary by Joachim Voth.
This article was first published in the newspaper «Finanz und Wirtschaft» on 25 June 2019. Edited for layout purposes by the UBS Center.
A ghost is looming in the developed world - the ghost of decreasing social mobility. While children from the lower income groups often had quite good chances of doing better than their parents did in many countries in the post-war years, this kind of social mobility has since largely disappeared in many places. Instead of a dynamic economy in which the best prevail, regardless of their origins, many OECD countries seem to be on the way to a new class or caste society in which parents' income counts more for economic success than their own performance.
Many people today are no better off than their parents - their hopes for a better life are being dashed. Among those born in the United States in 1940, almost 90% earned more than their parents did. Among those born in 1980, only 50% did so - instead of the usual increase in income, advancement and descent in real income are now almost equally likely. However, the increasingly rare leap forward relative to parents’ income is more a consequence of declining growth dynamics - where per capita income no longer grows by 5 or 6% per year, as in many European countries in the 1960s and 1970s, but only by 1 to 2%, relative advancement is difficult.
If one subtracts the general change in economic performance and only looks at the relative position in the distribution of income, then the chances of social advancement or decline have remained relatively the same in recent decades. In other words, Peter almost always ended up among the relatively poorer people of his country, even though his father had earned little; but since all incomes rose, he earned considerably more than his dad.
While differences in income and wealth can be justified, low social mobility seems difficult to accept in meritocratic societies. A commentary by Joachim Voth.
This article was first published in the newspaper «Finanz und Wirtschaft» on 25 June 2019. Edited for layout purposes by the UBS Center.
A ghost is looming in the developed world - the ghost of decreasing social mobility. While children from the lower income groups often had quite good chances of doing better than their parents did in many countries in the post-war years, this kind of social mobility has since largely disappeared in many places. Instead of a dynamic economy in which the best prevail, regardless of their origins, many OECD countries seem to be on the way to a new class or caste society in which parents' income counts more for economic success than their own performance.
Joachim Voth, UBS Foundation Professor of Macroeconomics and Financial Markets
Upward social mobility slows down
A flourishing economy also made another kind of upward social mobility possible. The English sociologist Jack Goldthorpe shows how the composition of the working population affects the chances for advancement. In 1951, more than half of the population in Great Britain were unskilled workers - today it is only 30%. By the middle of the last century, 11% of the population were managers, 4% of them in leading positions - today the figures are 40 and 18% respectively. Thanks to the change in the employment structure, it became more and more likely that Peter not only earned more than his father, but also held a higher position. However, this kind of change has also radically diminished in recent decades; 35% of the population were already managers in 1991.
If the overall economic dynamics and the trend away from the simple worker position have already been slowing down social mobility over generations, then at least relative social advancement should be promoted - in other words, the chance that even the cleaning lady’s child will become a manager, right? The figures that the OECD has compiled on this type of social leap seem gloomy: relative social advancement still takes place, but it is extremely slow. For example, children from families in the bottom 10% of the income distribution usually need 4.5 generations to earn even as much as the average. In the Scandinavian countries, it is only two or three generations; in Switzerland, the United Kingdom, and the USA it is five, in India and China seven.
If you look at the upper end of the distribution, the situation becomes even worse. Of the people whose fathers were in the top quarter of the income distribution, almost half in the USA and Germany end up back in the top 25%; of the children whose fathers were in the bottom quarter, only just under 10% make it to the top. These drastic differences can be found almost everywhere, even if they are not so extreme.
These figures are politically explosive because they coincide with a significant increase in overall inequality. While differences in income and wealth can be justified because they reflect market incentives and encourage greater efforts, low mobility from generation to generation seems socially, ethically, and politically unacceptable.
The OECD thus pours out a cornucopia of proposals for policymakers to create equal opportunities - early childhood education, no separation of school routes, more universities for all. But before taking drastic measures, it is probably worthwhile to think more carefully about the causes of declining income mobility.
Unfortunately, it is far from evident how high the probability of relative social advancement should be in order to speak of a fair, meritocratic society. Should everyone have the same chance - that is, every tenth child from the bottom 10% of the income distribution should make it into the top 10%, and vice-versa every tenth child from the top 10% should end up at the bottom? If children’s abilities were distributed randomly, i.e. a person's inherited skills would be virtually unaffected by the parents’ skills, then one should indeed expect exactly that.
However, detailed studies now suggest that many properties are transferred from parents to children to a high degree. Whether in attitudes towards sports or driving, health or the importance of career - the apple does not fall far from the tree. Thus it is also shown that the children of particularly trusting parents are also particularly trusting, and if mummy likes to do a risky thing, then the children do the same. Important non-cognitive skills, which often determine success or failure in the economic and educational process, are transferred from parents to children.
A flourishing economy also made another kind of upward social mobility possible. The English sociologist Jack Goldthorpe shows how the composition of the working population affects the chances for advancement. In 1951, more than half of the population in Great Britain were unskilled workers - today it is only 30%. By the middle of the last century, 11% of the population were managers, 4% of them in leading positions - today the figures are 40 and 18% respectively. Thanks to the change in the employment structure, it became more and more likely that Peter not only earned more than his father, but also held a higher position. However, this kind of change has also radically diminished in recent decades; 35% of the population were already managers in 1991.
If the overall economic dynamics and the trend away from the simple worker position have already been slowing down social mobility over generations, then at least relative social advancement should be promoted - in other words, the chance that even the cleaning lady’s child will become a manager, right? The figures that the OECD has compiled on this type of social leap seem gloomy: relative social advancement still takes place, but it is extremely slow. For example, children from families in the bottom 10% of the income distribution usually need 4.5 generations to earn even as much as the average. In the Scandinavian countries, it is only two or three generations; in Switzerland, the United Kingdom, and the USA it is five, in India and China seven.
Genetics plays a role
The same phenomenon can be seen in intelligence tests. For example, the entire Norwegian population was examined: If the father had a 10% higher score on the test, the son ended up 3.2% higher. It is difficult to say how much of this transfer between parents and children is socially determined and how much is genetic. However, twin studies suggest that the genetic proportion is not necessarily small. In terms of their characteristics that are important for the job market, children are to a large extent a copy of their parents. So ask yourself the following: If you could clone yourself, where would your twin end up in the income distribution? Probably where you are. How unfair would that be? Not particularly, one could argue. This does not mean, of course, that education systems should distribute opportunities according to parents' income. Especially in the USA, many of the famous universities are considered a meritocracy, even if extremely mediocre students are only accepted because daddy or grandpa was an alumni and made a sizeable donation. But while investing in equal opportunities in the education system is important, as long as the rules of the game remain broadly the same, one should not have overly high expectations of changes in the income position, even in a meritocratic environment.
The same phenomenon can be seen in intelligence tests. For example, the entire Norwegian population was examined: If the father had a 10% higher score on the test, the son ended up 3.2% higher. It is difficult to say how much of this transfer between parents and children is socially determined and how much is genetic. However, twin studies suggest that the genetic proportion is not necessarily small. In terms of their characteristics that are important for the job market, children are to a large extent a copy of their parents. So ask yourself the following: If you could clone yourself, where would your twin end up in the income distribution? Probably where you are. How unfair would that be? Not particularly, one could argue. This does not mean, of course, that education systems should distribute opportunities according to parents' income. Especially in the USA, many of the famous universities are considered a meritocracy, even if extremely mediocre students are only accepted because daddy or grandpa was an alumni and made a sizeable donation. But while investing in equal opportunities in the education system is important, as long as the rules of the game remain broadly the same, one should not have overly high expectations of changes in the income position, even in a meritocratic environment.
Quote
Many people today are no better off than their parents.
Joachim Voth
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UBS Foundation Professor of Macroeconomics and Financial Markets
Joachim Voth received his PhD from Oxford in 1996. He works on financial crises, long-run growth, as well as on the origins of political extremism. He has examined public debt dynamics and bank lending to the first serial defaulter in history, analysed risk-taking behaviour by lenders as a result of personal shocks, and the investor performance during speculative bubbles. Joachim has also examined the deep historical roots of anti-Semitism, showing that the same cities where pogroms occurred in the Middle Age also persecuted Jews more in the 1930s; he has analyzed the extent to which schooling can create radical racial stereotypes over the long run, and how dense social networks (“social capital”) facilitated the spread of the Nazi party. In his work on long-run growth, he has investigated the effects of fertility restriction, the role of warfare, and the importance of state capacity. Joachim has published more than 80 academic articles and 3 academic books, 5 trade books and more than 50 newspaper columns, op-eds and book reviews. His research has been highlighted in The Economist, the Financial Times, the Wall Street Journal, the Guardian, El Pais, Vanguardia, La Repubblica, the Frankfurter Allgemeine, NZZ, der Standard, der Spiegel, CNN, RTN, Swiss and German TV and radio.
UBS Foundation Professor of Macroeconomics and Financial Markets
Joachim Voth received his PhD from Oxford in 1996. He works on financial crises, long-run growth, as well as on the origins of political extremism. He has examined public debt dynamics and bank lending to the first serial defaulter in history, analysed risk-taking behaviour by lenders as a result of personal shocks, and the investor performance during speculative bubbles. Joachim has also examined the deep historical roots of anti-Semitism, showing that the same cities where pogroms occurred in the Middle Age also persecuted Jews more in the 1930s; he has analyzed the extent to which schooling can create radical racial stereotypes over the long run, and how dense social networks (“social capital”) facilitated the spread of the Nazi party. In his work on long-run growth, he has investigated the effects of fertility restriction, the role of warfare, and the importance of state capacity. Joachim has published more than 80 academic articles and 3 academic books, 5 trade books and more than 50 newspaper columns, op-eds and book reviews. His research has been highlighted in The Economist, the Financial Times, the Wall Street Journal, the Guardian, El Pais, Vanguardia, La Repubblica, the Frankfurter Allgemeine, NZZ, der Standard, der Spiegel, CNN, RTN, Swiss and German TV and radio.