The reason for the decline in upward mobility

Posted on under Today's research

Australians pride themselves on having a classless society, where wealth is determined not by how rich your parents are but by your own efforts. However new research, for the first time using actual income numbers from two generations of Australians, paints a less egalitarian picture.

The Paper, published in the journal Economic Record, used data from the Household Income and Labour dynamics Australia (HILDA) survey, which has followed a sample of Australian households for 18 years.

What the researchers say: The researchers found that people born into low-income families in “the land of the fair go” don’t move easily into higher-income bands later in life. Their analysis also suggests that family structure—who you’re married to, when you have children and how many you have—matters when it comes to what’s known as income mobility.

The researchers were able to put a number on this using a scale of zero to one, where 0 means people’s incomes have no relationship to those of their parents and 1 means advantage or disadvantage is completely transferred. The result was not as close to the zero end of the scale as some people might expect, with the researchers estimating the intergenerational “elasticity” of income in Australia at 0.4. In the US, the researchers say, the number is higher (less mobility).

“Income mobility matters because it is one of the best measures we have of equality of opportunity,” says the co-author.

Some argue that if there is a high level of inequality in society—a big gap between rich and poor—this is simply a reflection of effort, that those with high incomes have worked harder or are more productive.

However, intergenerational income mobility—not just the gap between rich and poor in one generation—is important to consider because it is more closely related to equality of opportunity, say the researchers.

The research also found that family makeup plays a role in income mobility. When researchers measured household income, not just individual income, they found greater persistence of income advantage or disadvantage between generations.

“Household income depends not only on your own income but also whether you have a partner, your partner’s earning capacity, how young you are when you have children, and how many children you have,” says the lead author.

“Studies that seek to measure the transmission of economic wellbeing may need to consider broader measures of income that account for differences in family structure,” she says.

Aside from being central to the concept of fairness, there are strong economic reasons for equality of opportunity being a desirable social outcome.

“Society is better off if someone who has the potential to achieve great things is able to develop their skills and talents and fulfil that potential, thereby contributing to the economy. It is also better for social cohesion”, she adds.

Educational policies are the clearest and most obvious policy lever that governments have to improve income mobility, the researchers claim.

“It’s important for governments to tackle disadvantage at an early stage, in schools, and to facilitate broad access to higher education, so income advantage isn’t entrenched,” says the co-author.

“There tends to be greater persistence of advantage across generations in countries where having a university degree provides a big boost to lifetime income,” he adds. “I think the most obvious thing to do is to focus on access to higher education, to facilitate that pathway from high school through to university.

“It is also important to channel the greatest amount of money into schools that have the greatest level of disadvantage,” he says.

So, what? This by no means the first study to look at the issue of upward mobility. Nor is it the first to recommend that more money be spent on the educations system. I think we get that. We also get that the society we all live in is becoming increasingly unequal. There is an increasingly sharp divide between the very rich who own most of the assets (property, shares, corporations) and the rest. The same is true of earning ability.

Recently Yuval Harari, the author of Sapiens and Homo Deus, in a speech in California, said that the world is becoming divided between the wealthy and the highly rewarded (who do the bidding of the wealthy) on the one hand and what he called the “useless” majority who will soon be entirely dependent on those with high income or wealth for their existence. I fear he’s right. It’s one of the reasons I see inequality as one of the horsemen of the coming apocalypse. We see this already in the US with the administration reducing the benefits paid to the poor and the working class and increasing benefits paid to the rich and at the same time doing nothing to stop the frightening increase in suicides among the “useless.” After all, if they’re “useless” why should the privileged encourage the “useless” to live?