Can we increase mobility by reducing inequality?

By Francisco Ferreira | The World Bank

This week's Free exchange column discusses new research on rates of inter-generational social mobility (summary here). We are inviting experts in the field to comment on the piece and related research. Miles Corak, an economist at the University of Ottawa, responded here. Next is a contribution from Francisco Ferreira, lead economist at the World Bank's Development Research Group.

The work by Gregory Clark and his co-authors on “long-term immobility”—captured by how elite surnames in one generation are still over-represented among the rich many generations down the line—makes for depressing reading. In particular, the fact that privilege seems to persist over the centuries even in egalitarian places like Sweden might lead us to conclude that this is just the natural order of things. As some commentators in this column have suggested, intelligent people marry other intelligent people, and bequeath both better genes and more money to their children. And so on, indefinitely…

And perhaps the inequality we observe at any particular point in time is simply a reflection, in the snapshot, of that long-term process of assortative mating (the ugly name economists give to people marrying those like them) and bequests: a pre-ordained, natural inequality in human endowments.

But if that were the case, surely one should observe roughly similar levels of inequality and immobility across countries—unless we were also prepared to believe that the distribution of “natural talents” (whatever those may be) is widely more unequal in, say, Peru than Greece. Yet that is emphatically not what we observe. The “Great Gatsby Curve”, of Miles Corak and Alan Krueger fame, shows that the two indicators are correlated, but also that there is considerable variation along both margins.

My co-authors and I recently looked at how three corners of this inequality triangle—income inequality, inequality of opportunity, and intergenerational immobility—are associated. As the graph below shows, our Inequality of Economic Opportunity index and income inequality are strongly and positively correlated. But more importantly, there is a world of difference—on both margins—between countries like Norway and Slovenia, at one end, and Brazil, Guatemala and South Africa on the other. Our measure of inequality of opportunity is not the same as the intergenerational earnings elasticity typically estimated in this literature, but the two also move closely together: on our sample we find a correlation of 0.59.

So the upshot is that, indeed, as the rungs of the ladder grow further apart, it gets harder for people to climb up (or move down). Conversely, countries with institutions that promote a level playing field, and redistribute income or opportunity, may also promote mobility. It would be much worse if the Great Gatsby curve sloped downwards—implying that we would have to choose between inequality in outcomes and in opportunities. As it happens, the two go together. And given that the richer, more successful countries in the scatter plot are broadly those where both inequalities are lower, it looks like we may not have to choose between a high standard of living and less inequality of opportunities either…