Category Archives: social mobility

11/1/18: Physical Mobility and Liberal Values: The Causal Loop

One of the key arguments relating the decline in the Millennials' support for liberal democratic values to socio-economic trends, identified in our recent paper on the subject (see Corbet, Shaen and Gurdgiev, Constantin, Millennials’ Support for Liberal Democracy Is Failing: A Deep Uncertainty Perspective (August 7, 2017): the argument that reduced socio-economic mobility for the younger generation Americans (and Europeans) is driving the younger voters away from favouring the liberal economic system of resources allocation.

In this context, here is an interesting piece of supporting evidence, showing how the rates of physical migration across the states of the U.S. have declined in recent years - a trend that pre-dates in its origins the Great Recession:

In basic terms, two sets of factors are hypothesised to be behind the declining mobility in the U.S. and these can be related to the broader theses of secular stagnation:

  • On the demand side of the secular stagnation thesis, as the article linked above states, "social and demographic factors such as an aging population and declining birth rates; older people tend to stay put more and starting families often motivates people to go out on their own";
  • On the supply side of the secular stagnation thesis, "The decline in mobility is due partly to what has become a less-dynamic and fluid American labor market, some economists believe".
Note: I explain the two sides of secular stagnation theses here:

On balance, these are troubling trends. Jobs churn has been reduced - by a combination of structural changes in the American economy (e,g. rise of corporatism that reduces rates of new enterprise formation, and lack of new business investment), as well as demographic changes (including preferences shifting in favour of lower mobility).  But there are also long-term cyclical factors at play, including rampant house price inflation in recent years in key urban locations, and the significant growth in debt exposures carried by the younger households (primarily due to student debt growth). There is also a structural demographic factor at work in altering the 'normal' dynamics of career advancement in the workplace: older workers are staying longer in their positions, reducing promotional opportunities available to younger workers. Finally, the rise of low-security, high-volatility types of employment (e.g. the GigEconomy) also contributes to reduced mobility.

In simple terms, lower mobility is a symptom of the disease, not the cause. The real disease has been ossification of the U.S. economy and the continued rise of the status quo promoting rent-seeking corporates. Lack of dynamism on the supply side translates into lack of dynamism on the demand side, and the loop closes with a feedback effect from demand to supply. 

20/7/16: McKinsey’s "Generation Worse"…

A new study from McKinsey looks at the cross-generational distribution of income as a form of new ‘inequality’, in words of the authors: “an aspect of inequality that has received relatively little attention, perhaps because prior to the 2008 financial crisis less than 2 percent of households in advanced economies were worse off than similar households in previous years. That has now changed: two-thirds of households in the United States and Western Europe were in segments of the income distribution whose real market incomes in 2014 were flat or had fallen compared with 2005.”

In other words, McKinsey folks are looking at the “proportion of households in advanced economies with flat or falling incomes” - the generational cohorts that are no better than their predecessors.

Key findings are frightening: “Between 65 and 70 percent of households in 25 advanced economies, the equivalent of 540 million to 580 million people, were in segments of the income distribution whose real market incomes—their wages and income from capital—were flat or had fallen in 2014 compared with 2005. This compared with less than 2 percent, or fewer than ten million people, who experienced this phenomenon between 1993 and 2005.”

So that promise of the ‘sharing economy’ and the ‘gig-economy’ where people today are enabled to derive income (and thus wealth) from hereto under-utilised ‘assets’… pwah! not doing much. The ‘most empowered’ - web and gig-economy wise cohorts? Ah, they are actually the “worst-hit” ones. “Today’s younger generation is at risk of ending up poorer than their parents. Most population segments experienced flat or falling incomes in the 2002–12 decade but young, less-educated workers were hardest hit”.

For those of us who, like myself, tend to be libertarian in our view of the Government, McKinsey study tests some of our accepted ‘wisdoms’: “Government policy and labor-market practices helped determine the extent of flat or falling incomes. In Sweden, for example, where the government intervened to preserve jobs, market incomes fell or were flat for only 20 percent, while disposable income advanced for almost everyone. In the United States, government taxes and transfers turned a decline in market incomes for 81 percent of income segments into an increase in disposable income for nearly all households.”

Except, may be it did not, because counting in disposable income while allowing for taxes and subsidies is notoriously difficult and imprecise. And may be, just may be, all the fiscal imbalances that were accumulated in the process of achieving these supports in some (many) countries will still have to be paid by someone some day?

There is a reduced connection between current growth metrics and income outcomes on the ground (don’t we know as much here in Ireland, with 26.3% jump in GDP in 2015?): “Before the recession, GDP growth contributed about 18 percentage points to median household income growth, on average, in the United States and Europe. In the seven years after the recession, that contribution fell to four percentage points, and even these gains were eroded by labor market and demographic shifts.”

And the forward outlook? Bleak: “Longer-run demographic and labor trends will continue to weigh on income advancement. Even if economies resume their historical high-growth trajectory, we project that 30 to 40 percent of income segments may not experience market income gains in the next decade if labor-market shifts such as workplace automation accelerate. If the slow growth conditions of 2005–12 persist, as much as 70 to 80 percent of income segments in advanced economies may experience flat or falling market incomes to 2025.”

There are some wrinkles in the study. For example, in the U.S. case - cross time comparatives do not provide for the same data base, as pre-2014 data does not include state and local taxes. VAT and sales taxes are omitted across the board. And some other, but overall, the paper is pretty solid and very interesting.

So here is the key summary chart, positing the massive jump in the numbers of households on the declining side of market incomes:

And the chart showing that the taxes and transfers side of income supports is no longer sustainable over time:

Which brings us to the main problem: on the current trend line, politics of income supports from the fiscal policy side are unlikely to be able to contain growth in political discontent. Advanced economies are heading for serious tests of democratic institutions in years to come. Buckle your seat belts: the ride is going to get much rougher.

18/4/16: Taxing 1%?.. Make My Day…

An interesting paper on the dynamics of income inequality from Xavier Gabaix, Jean-Michel Lasry, Pierre-Louis Lions and Benjamin Moll (December 2015, CEPR Discussion Paper No. DP11028:

Take in the abstract alone for key conclusion:

“The past forty years have seen a rapid rise in top income inequality in the United States. While there is a large number of existing theories of the Pareto tail of the long-run income distributions, almost none of these address the fast rise in top inequality observed in the data. We show that standard theories, which build on a random growth mechanism, generate transition dynamics that are an order of magnitude too slow relative to those observed in the data. We then suggest two parsimonious deviations from the canonical model that can explain such changes: "scale dependence" that may arise from changes in skill prices, and "type dependence," i.e. the presence of some "high-growth types." These deviations are consistent with theories in which the increase in top income inequality is driven by the rise of "superstar" entrepreneurs or managers.”

So the key to alleviating inequality increases (if the key were to be found in income / wealth tax territory so frequently inhabited by socialstas) is not to tax all high earners, but to tax the very left tail of the high earners’ distribution, or so-called “"superstar" entrepreneurs or managers”. It’s not a 1% tax, nor a tax on wealth (capital), nor a tax on “anyone earning more than EUR100,000” (the latter being commonly bandied around the countries like Ireland), that is a panacea. It is, rather, a tax on Zuckerbergs and Bloombergs, Bezoses and Ellisons et al.

Which, sort of, means taxing exactly those who create own wealth, rather than inherit it from mommy or daddy… Perverse? If it is the “high-growth types” that are the baddies, not the Rothschilds or the Kochs who inherited wealth, at fault, then the entrepreneurs should be taken out and fiscally shot.

And if you do, here’s what you will be fiscally shooting at: innovation (see The linked paper conclusion: “our findings vindicate the Schumpeterian view whereby the rise in top income shares is partly related to innovation-led growth, where innovation itself fosters social mobility at the top through creative destruction”.

Dust out that ‘tax the 1%’ argument, again… please.

Education is failing poor, white, working class boys

Education Secretary Nicky Morgan hasn't yet explained why she thinks Academies are the answer to failing schools.  In fact, of course, they are an ideological expedient with very little educational thinking behind them.  the ones we have vary hugely in type, quality and success.

The reason this is important is because there is a crisis in education and the political fixes so far designed aren't dealing with it.  The Sutton Trust have produced their report "Missing Talent" - the high achievers (top 10%) at primary school who, after five years of secondary education, rank outside the top 25% of pupils in achievement terms.  That is some 7,000 pupils each year according to the Sutton Trust, and the largest proportion of these are white, working class boys.

There is more to mull on and consider in this important report, and the New Statesman gives an early commentary.  There are no easy or pat solutions, but in an age which has so vigorously set itself against formal academic selection, it is worth considering the words of the left-wing writer Iris Murdoch, in her contribution to the 1975 Black Papers:

Selection must and will take place in education and those who banish rational methods of selection are simply favouring irrational and accidental ones.  The children who will be lost forever are the poor clever children with an illiterate background….Why should socialist policy, of all things, be so grossly unjust to the under-privileged clever child, avid to learn, able to learn, and under non-selective education likely to pass in relaxed idle boredom those precious years when strenuous learning is a joy and the whole intellectual and moral future of the human being is at stake?

There's an open goal still waiting to be scored in by the party with some credible answers to raising educational attainment amongst bright pupils in secondary schools.