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The inequalitymobility paradox

MIKE HOUT University of California, Berkeley

The lack of correlation between social mobility and equality

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money, wealth, and opportunities at a specific ntuition tells us that inequality and mobility are two important pieces of society’s time; mobility is the difference between a puzzle. They link together. The good sociperson’s position at that time and at some time before (typically while the person was ety has low inequality and high mobility. We growing up). Attempts to anticipate the consuspect that growing inequality makes mobilsequences of recent increases in inequality ity harder for the offspring of the people left behind by today’s prosperity. And many hope have been frustrated by this difference. For example, we might ask whether that promoting social mobility is a way of offincreased inequality since 1977 setting inequality. To get from intuition to has made it harder for work“The distinction knowledge, it often helps to ing class young people to between rank and break big concepts like inequalprogress through school and reward matters for on to university. Examine any ity and mobility into smaller social policy because parts that are easier to think data during the period and it means that a about. Three distinctions in paryou will see that young people nation can reduce ticular are helpful here. Firstly, from affluent families progress inequality without we need to keep in mind that farther in school and go to unimoving some people inequality refers to a specific versity in greater proportion ahead of others” time while mobility compares than young people from workone time with another. Secing class and poor homes. But ondly, we need to separate our analysis of the that is a question of personal resources, not necprocesses that put one person ahead of anothessarily linked to the changing inequality per er from our consideration of how that person se. To say anything definitive about the conseis rewarded for being ahead. Finally, we need quences of changing inequality we would need to distinguish overall mobility from the extent evidence that the background factors we know of both upward and downward mobility. are important have become more important, and we would have to show that they increased Inequality time and mobility time when inequality increased. That is a high burInequality and mobility run on different den of proof. To date, the data has not yet been clocks. Inequality refers to the dispersion of available to meet it. 1070-3535/03/040205 + 02

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NEW ECONOMY

Rank and reward Facts about two people settle which of them gets ahead of the other in life, but it is facts about the society they live in that determines exactly what they get. Ability, effort, and connections affect the rank ordering among individuals on valued outcomes like credentials, jobs, and pay. What the credentials, jobs, and pay actually turn out to be, though, depends on the law, business practices, and public policy. Think about a race. It might be a 100 metre sprint at the Olympics or a local fun run. Either way the order of finish in the race is some combination of ability and effort. The winner probably honed native abilities through training and then exerted an all-out effort to beat others of less ability, worse training, or weaker effort. Yet knowing that, tells us nothing about the prizes. They are set independently of the things that affect who wins. In the Olympics the top three finishers get gold, silver, and bronze medals; the others go home empty handed. In the local fun run, everyone who runs the whole race gets a T-shirt, regardless of the order of finish. Ability, training, and effort put some people ahead of others in society. Privileges associated with property, wealth, gender, and ethnicity also matter when we speak of the economy. But as in a race, these factors in individual success do not set the rewards for high and low finish. Society-wide factors like the rules of educational selection, industrial policy, technological change, and the regulation of corporate governance determine whether the CEO pulls down a six-figure or seven-figure salary and whether the janitor lives in poverty or earns a living wage. Debates about the role of intelligence in rising inequalities demonstrate how people forget that rank and reward have different sources. Academic debates like the Bell Curve controversy in the United States and its counterpart in the United Kingdom pro-

vide a case in point. Nobody doubts that verbal and mathematical skills move those who have them up the rank order in post-industrial society. These skills are enormously useful in work that involves what Robert Reich calls ‘symbolic analysis’. But whether the reward for mastering these skills is to be a salary of $80,000, $180,000, or $800,000 depends on laws and corporate practices that cannot be derived from test scores or any other facts about individuals. We need social, political, and legal facts to understand rewards. The distinction between rank and reward matters for social policy because it means that a nation can reduce inequality without moving some people ahead of others. Capping executive and professional compensation while raising the minimum wage brings the standard of living of the CEO and the janitor closer together without equating them or devaluing the credentials or experience a CEO might bring to the job. Conservative critics of redistribution get great rhetorical mileage out of paeans to the incentive value of inequality. But no one knows how much inequality we need to provide incentives for innovation and effort. Research does show that people leave paid work when welfare benefits reverse the rank order of low-wage workers and welfare recipients. Getting that right is a transparent matter of either raising the wage floor or lowering the benefit ceiling or both. Getting high-end compensation right is trickier because the parties to contracts are not always required to report the details to stockholders or regulators. My point here is a general one. The individual factors that influence the rank order among people do not settle the rewards they get for ranking high or low. Legal and corporate policies and practices are far more important than facts about people for determining rewards. And the inequality of rewards is the nation’s inequality.

THE INEQUALITY-MOBILITY PARADOX

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Upward and downward moves heterogeneous than they would be under To make some progress we need to think strong inheritance. Many wealthy families about mobility in a new way. Most people, it will have middle-class relatives; many poor seems, think about mobility as a kind of families will too. These between-class contacts social advancement by increments. ‘Every within families slow the tendency for wealth child had a pretty good shot, to get at least as to accumulate. far as their old man got’ in Billy Joel’s memEven if family dynamics interfere with orable phrase in the 1980s hit ‘Allentown’. A these direct mechanisms, social mobility can man does better than his father did; his kids offer political cover for a given level of do even better. In a few generations the faminequality. Egalitarians have an easier time ily is secure. But nobody loses ground. This attacking an inherited elite but they are not is the prevailing myth of mobility. necessarily effective – easy parodies did not No society has ever exhibited this. While keep George W Bush from becoming presiupward moves have outnumbered downdent. On the flip side, conservative comward moves in both the US and UK throughmentators have an easier time justifying a out the last half-century, there regime of inequality when has been far more immobility high rates of social mobility and downward mobility than provide them with lots of “While upward the popular conception examples of how the new moves have acknowledges. economy has rewarded the outnumbered We need to think less about enterprise and hard work of downward moves in advancement only and more people of modest backboth the US and UK about taking turns. That is the grounds. Schwarzenegger throughout the last view most consistent with the missed few chances to menhalf-century, there academic research. We are not tion that he ‘arrived in Calihas been far more saying that nobody moves up. fornia as a penniless immobility and There is more upward than immigrant’ during his sucdownward mobility downward mobility. But while cessful run for Governor of than the popular downward mobility does not the Golden State. conception acknowledges” predominate, it is not restrictConclusions ed to a few sad tales of advanThe UK and the US today tages squandered and have more social and economic inequality opportunities lost. Short-range downward than they did a generation ago. Our moves of a rather undramatic character comeconomies have generated enormous wealth plement the modest success that many othfor some while others are relegated to the ers experience. I think of this as taking turns. ranks of the low-wage workforce. Most of the Turn-taking mobility can, in principle, mobility evidence shows no change in the reduce the social consequences of rather gross basic patterns linking classes and no change levels of inequality. Inherited privileges conin the overall strength of statistical association. centrate wealth and poverty in a small numTo redress the inequities of this situation we ber of families. The wealthy can then isolate need to recognise that inequality and mobilthemselves and further protect their assets. ity operate on different timescales, that rank The poor have poor relatives and know few and reward respond to different factors, and people who can help them in times of greatthat mobility works in both upward and est need. In contrast, a weak inheritance of downward directions  privileges renders some families far more