Mobility, the other determinant of inequality

Emmanuel Flachaire, July 2019

The Conversation

In recent decades, inequality has been the focus of attention and the subject of numerous economic studies. Indices and indicators have multiplied in an attempt to compare countries and regions. Although neglected, mobility – whether in terms of income or social position – is a useful tool for shedding light on issues related to poverty, equal opportunities and social reproduction.

Is inequality always harmful? The use of mobility primarily addresses this question, which has been explored in several disciplines, including economics. While some individuals can climb the social ladder quickly and easily, others argue that this is not the case. Those at the bottom of the ladder then take turns with those at the top. Thomas Piketty himself writes, ‘It is often thought that increasing inequality is not important in cases of high mobility.’ This question refers to Rawls’ egalitarian theory, which favours equal opportunities over equal income. For him, there is no point in achieving perfect income equality as long as the initial circumstances are fair and equal for all individuals. Individuals are then judged on merit and effort.

Are inequality and low mobility inseparable?

Equal opportunities refer to mobility. Intergenerational income mobility questions the possibility of a child easily increasing their income compared to their parents. But it can also be compared from one period of an individual’s life to another, on an intragenerational basis. How many people could, like Gatsby the Magnificent – a character who came from a family of poor farmers and became a millionaire – climb to the top of the social ladder? The answer differs from country to country. But one constant runs through many situations. According to the ‘Gatsby curve’, high inequality is linked to low social mobility.

It is as if the further apart the rungs of the ladder are, the harder it is to climb. In the United States, this logic calls into question the figure of the self-made man. In reality, the ‘American dream’ is not so easy to achieve. A study conducted by Chetty, Hendren, Kline and Saez in 2014 shows that social mobility remained unchanged between 1970 and 1990. For the younger generations, the chances of achieving higher salaries remained the same, while the income gap widened. Income inequality therefore does not facilitate mobility, but rather acts as a barrier to the poorest. At the same time, however, mobility linked to social position has remained broadly similar. Their estimates confirm the high level of inequality that prevails in China. Those who benefited from rising incomes already came from wealthy families. The Gatsby curve holds true: high inequality reveals low social mobility.

So what are we measuring?

International comparisons analyse inequality using the Gini or Theil coefficients. These measures make it possible to study the distance between a given country’s situation and that of a perfectly egalitarian society. However, few assessments provide a picture of intergenerational mobility in each country. The measures are scattered, unharmonised and sometimes even erroneous.

Cowell and Flachaire have shown that the most widely used intergenerational mobility index can be blind to certain upward or downward movements, depending on the situation. This is particularly true given that results vary between the tools commonly used. To address these limitations, the two authors have created a new indicator based on a set of basic principles.

To be effective, the measure must take into account the different types of mobility that may exist. The Cowell-Flachaire index therefore captures both income mobility and rank mobility, in other words, an individual’s position on the social ladder. It is important to compare these two measures because even if all individuals increase their income equally, social mobility may remain unchanged even as income mobility increases.

What kind of mobility are we talking about?

The above observation can be applied to China during the turn of the millennium. During the 2000s, the Middle Kingdom experienced rapid growth, but its impact on mobility is ambiguous. In their article, Cowell and Flachaire show that upward income mobility increased, meaning that a number of individuals achieved higher wages than before 2000. At the same time, however, social mobility remained broadly similar. Their estimates confirm the high level of inequality that prevailed in China at the time. Those who benefited from rising incomes already came from wealthy families. The Gatsby curve holds true: high inequality reveals low social mobility.

The example of China illustrates the importance of distinguishing between different types of mobility in order to present a more accurate picture of a region’s economic landscape. Because it is static, the inequality index does not allow us to examine movements between generations or between different periods. To refine the picture further, the geographical dimension is often used. This highlights the fact that, depending on the geographical area and within the same country, income or ‘rank’ mobility can be completely different.

While China is clearly divided between rural and urban areas, the United States presents a diverse mosaic. Some states strongly symbolise the American dream, while in others the chances of escaping poverty are negligible.

When calculating mobility, whether in terms of income or rank, geography is not the only variable to consider. Cowell and Flachaire’s indicator breaks down to examine other aspects in detail. It thus makes it possible to identify the share of the richest individuals, or the share of young people, in the result obtained. Above all, it breaks down to capture upward and downward mobility in the calculation of movements. Finally, the two authors show that by studying the distance – in terms of income or rank – between two given periods, the mobility index encompasses that of inequality. This is a special case, where the period studied is compared to a situation of perfect equality.

Social mobility has not yet been systematically measured in international barometers. Assessing it would be a valuable tool for public policymakers and would provide an accurate picture of the opportunities available to individuals in the face of persistent inequalities. This is what Cowell and Flachaire have set out to do in order to improve our understanding of mobility by going beyond the limitations of previous indices and providing a detailed description of inequalities around the world.

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