Where has income mobility been rising fastest? Britain.
Time to change the narrative.
Another report on social mobility, another round of gloomy headlines. The story writes itself and concludes, inevitably, with a ritual lament about the social stagnation of modern Britain. Saloon-bar sages and polemical pundits can take comfort: things are bad and getting worse.
Except the facts don’t fit with the cliché. The OECD’s recent report A Broken Social Elevator? — the title provides a clue to the preferred narrative — offers a forensic survey of social mobility across the world’s richest nations from the late 1990s to the start of the 2010s. Specifically it gives us new insights into how many working age adults in different countries moved up and down the income ladder (so it is primarily about mobility within a generation not between them; nor is it about social class). It tells us that Britain bucked the trend and, in some respects, became a more open society. Remarkably, it’s a trend that has received almost no attention.
Over recent decades the chances of someone who started poor moving up the income distribution rose sharply. In the late 1990s six out of ten of those at the bottom of the income pile were still stuck there four years later. By the early 2010s that had fallen to a bit more than four out of ten. This is the biggest fall in immobility among those on the lowest incomes in the OECD. It is in marked contrast to the situation in many other advanced countries. Look at the likes of Sweden, Finland and Holland and you’ll find seven out ten of those on the lowest incomes remain trapped at the bottom. In Canada it’s more than six out of ten, in the US it’s more than half — and rising in both.
This boost to mobility in the UK didn’t just affect the poor, it reached most of the way up the income scale. The most affluent, however, are drifting apart. While two thirds of those near the top of the income spectrum in the late 1990s maintained their position over a four year period this rose to more than seven out of ten by 2010. Just as Britain’s income floor got bouncier, its ceiling became even stickier.
What lies behind the findings isn’t totally clear, though there are some strong clues. Changes in overall inequality don’t explain the British story as the gap between rich and poor was broadly flat. Rising employment levels will have helped. And, as the OECD emphasise, social policy of that era weighed heavily. The minimum wage compressed the pay gap between those at the bottom and those in the middle; and the creation of a powerful tax credit system meant that those moving into work could make strides.
The greater income flux that resulted, particularly in the bottom half of the distribution, is in part another way of describing the shifting character of disadvantage in 21st Century Britain. A big fall in concentrated worklessness took place alongside a rise in the share of the working population who cycle in and out of poverty. This churn also points towards familiar failings on skills, retraining and the failure to create enough mid-level jobs that offer the promise of steady progression.
Yet this isn’t the full story. Britain has also seen some of the biggest increases in the OECD in ‘long haul’ mobility: those making the challenging journey from the bottom of the income scale all the way to the top, well beyond the reach of tax-credits (though it should be noted this rise was from a low base). The expansion of higher education is likely to have played a role.
Properly deciphering the dynamics of society is pre-requisite for clear thinking about how to improve it. In the UK changing job is central to upward mobility. Job-hoppers have a one in four chance of making a big upward leap in income — far better odds than apply to those who sit tight with their existing employers. Contrast this, say, with Norway where only one in ten of those who change roles take a big step up — indeed, Norwegian job-hoppers are less likely to win in the income stakes than those that stay put. By contrast the UK’s model means that policy-makers should be especially concerned about our post-crisis decline in job mobility. Social justice, as well as economic efficiency, is at stake.
To most ears greater mobility will sound preferable to stasis but — as any sportsperson will tell you — sharp twists and turns risk causing injury. A quarter of the UK’s working age population experienced a hit of 20% or more to their market incomes from one year to the next (around a fifth if we look at disposable income). That’s an awful lot of income-disappointment and positional anxiety. Sure, similar numbers enjoy a big upward jump in their fortunes. But loss-aversion tells us this will count for far less in terms of life satisfaction.
Those in the middle of the UK’s income spectrum experienced particularly large shifts in both upward and downward mobility compared to other nations. Our middle is less ‘squeezed’ than ‘volatile’ — indeed, on this score we resemble the likes of Greece or Chile more than France or Germany. And the UK social security system offers threadbare insulation: we are near the bottom of the OECD when it comes to the amount of income protection on offer to those in the middle following a shock.
Neither theory nor empiricism can tell us the ‘ideal’ amount of income mobility. But it’s a safe bet that you’d want to steer clear of societies characterised by regimented stratification or chronic short-term volatility. And we should feel an instinctive chill about nations — like Britain and many others — where the upper echelons of society are ever more hermetically sealed. That is the path to rent extraction, rule-rigging and opportunity hoarding.
Over recent years there has been an explosion of scholarly interest in the tight relationship between levels of inequality in a society and the extent of inter-generational immobility — the so-called Great Gatsby curve. Unequal nations are characterised by low mobility across generations. There has, however, been very little interest in the link between overall inequality and mobility within a generation. The chart above plots the OECD data and shows that, on this score, there is no Gatsby Curve. Indeed, to the extent that any pattern is decipherable at all (and there isn’t much of one) it is more suggestive of the opposite phenomenon: more equal societies appear to be characterised by lower levels of income mobility among adults. Which is interesting, and perhaps counter-intuitive, given that the ‘rungs on the income ladder’ will be closer together.
Look closely enough at a society and you will find its Achilles heel: it’s important to be aware of them. Lots of people in the UK would happily exchange the shape of our highly unequal society for that of more egalitarian Sweden. That might well be a good trade. But those favouring it should first ponder how they’d feel about accepting higher — far higher — levels of income segmentation for the poor than exist in contemporary Britain. Denmark alone has found what for many would be the sweet spot: high income mobility within a generation, high mobility across generations and low overall inequality.
Britain’s recent mobility boom for adults, when set against the dark backdrop of our original (and enduring) sin of huge social (dis)advantage passed across the generations from parent to child, should encourage balanced reflection on what has gone right, as well as very wrong, in our society. What to keep and what to lose.
For starters, it should remind us there is virtue in broad-based social protection that is strongly pro-poor while also insulating most families from the sharpest edges of market instability. And it should highlight the risk of becoming a nation overseen by an ever more detached group at the top.
But let’s also take heart. Our performance on a vital aspect of social mobility hasn’t stood still, even if the prevailing narrative about it has. Ignore the pub bore. On some counts, things have improved.