This article originally appeared in Discourse Magazine on March 8, 2023. It has been republished with permission.
When it comes to social mobility, are the kids really alright? Maybe so.
In the academic literature, social mobility measures a person’s opportunity to earn more income than their parents at a similar age. Usually, studies compare the income of an individual between 32 and 40 years old with the income of their parents at that same age. Other studies use a measurement called intergenerational income elasticity to measure how much a child’s income is dependent on the parent’s income—a higher elasticity indicates more dependence and less mobility. And those studies aren’t painting a pretty picture. Recent studies on intergenerational mobility show that there’s been a steady decline since the 1970s. More than nine in 10 people born in the 1940s outearned their parents as adults; only about half of people born in the 1980s could say the same. As a result, some researchers have determined that the American Dream is fading. While other studies conclude that the situation is somewhat less dire, it’s clear that by the academic literature’s definition of social mobility, the trends aren’t very promising.
However, social mobility can be better understood as the economics of flourishing, or the opportunity to better oneself and those around them. The economics of flourishing is about climbing the income ladder, yes, but it is also about achievement, purpose, aspiration, poverty reduction and developing the skills and personal characteristics necessary to thrive in our current economy. Understood this way, an abundance agenda is critical to increasing social mobility and enhancing human flourishing. If we embrace such an agenda, we’ll find that we’re a more socially mobile people—with greater opportunity and a brighter future—than we thought.
Bucking the Conventional Wisdom
Let’s first return to discussions on mobility. In the context of economic mobility, much of what we hear about abundance centers on inequality. Commentators and politicians such as Bernie Sanders assume a direct relationship between growing inequality and low levels of income mobility. The popular narrative is a familiar one: Too much abundance is flowing to too few people, and some people have amassed too many resources. This leaves others with very few, making it impossible for them to climb the income ladder.
Part of this argument comes from research by economist Miles Corak and what was later popularized by economists in the Obama administration as the “Great Gatsby Curve.” In a series of papers comparing mobility rates across OECD countries, Corak found a correlation between inequality and economic mobility as measured by the intergenerational income elasticity. His work showed that higher rates of income mobility correlated with lower levels of inequality. Such was the case in Scandinavian countries and other countries such as the United States, which had higher inequality levels and lower income mobility. Not to speak of other less developed countries like Peru or Brazil.
Despite the widespread acceptance of this explanation, research has not proven a direct causal link between high levels of income mobility and low levels of income inequality, or vice versa. Further, recent research shows that the United States is not as far behind Scandinavia on measures of mobility as previously thought.
How Social Mobility Relates to Abundance
One explanation is that a common set of factors is affecting both economic mobility and inequality. Taking the Corak approach of analyzing scatter plots on mobility and inequality, I have shown that countries with low levels of income inequality and high levels of economic mobility tend to have other similarities—namely, strong environments for entrepreneurship and business creation, sound institutions, low corruption and competitive marketplaces. Additionally, research by economist Justin Callais highlights the importance of rule of law and the environment for entrepreneurship in enabling economic mobility.
How does this relate to an abundance agenda? Abundant resources mean high levels of economic growth, as well as a dynamic and vibrant economy that encourages and fosters job creation. In discussions about enhancing social mobility, policymakers and researchers often debate how to tweak the welfare system, or how to tax and redistribute. They forget that most people’s main source of income is a job, which remains the only way to climb the income ladder.
In surveys in the United States, my Archbridge Institute colleagues and I asked participants to identify the main path for an individual to climb the income ladder. The most popular response (50%) was a job. Other options were a college degree (16%), a high degree of family or social support (15%) and well-designed welfare programs (8%). When asked about the main precondition to enable people to climb the income ladder, most people identified a strong labor market and high levels of economic growth (34%). Other responses included increased access to higher education (24%), stable family structure (17%), low levels of income inequality (6%) and a strong government safety net (5%).
Economists Veronique de Rugy and Tyler Cowen, among others, have done an excellent job explaining economic growth and its impact on society. In his recent book “Stubborn Attachments,” Cowen writes: “The truth is that economic growth is the only permanent path out of squalor. Economic growth is how the Western world climbed out of the poverty of the year 1000 A.D. or 5000 B.C. It is how much of East Asia became remarkably prosperous. And it is how our living standards will improve in the future. Just as the present appears remarkable from the vantage point of the past, the future, at least provided growth continues, will offer comparable advances, including, perhaps, greater life expectancies, cures for debilitating diseases, and cognitive enhancements.”
To see this point in action, we can look at the international experiences of countries like Scandinavia or Chile. According to the OECD, Scandinavian countries have experienced above average growth rates, and more importantly, they have vibrant entrepreneurial environments and high degrees of labor force participation, higher even than the United States. There have big welfare systems, yes, but they are underpinned by strong growth, institutional quality and very low barriers to entrepreneurship.
Contrast that with the economic story of Chile. For a long time during the 1980s and 1990s, Chile experienced strong economic growth that led to high levels of economic mobility and an immense reduction in income inequality. However, the engine of abundance began to slow down in the late 2000s and 2010s, with stagnating levels of economic growth and social mobility. People who were used to ever-increasing levels of mobility and growth felt the negative impacts the most. In that sense, rising mobility become a self-reinforcing cycle that requires even greater levels of mobility as people become accustomed to higher living standards. One of the few ways to keep this engine going is to focus on generating more abundance, growth and business dynamism.
Different Kinds of Abundance Matter
I want to briefly mention other types of abundance that matter for the economics of flourishing—for example, abundance of family life. Social mobility research has discovered family structure has a massive influence on upward mobility and a child’s opportunities later in life. These findings come from economists James Heckman and Rasmus Landerso’s work comparing rates of mobility in the United States and Denmark, as well as research by Raj Chetty and his team at Opportunity Insights. Strong family structure and two-parent households provide an abundance of parental engagement and early childhood education in the home. Heckman and Landerso showed those conditions matter because they promote the skills development that drives mobility later in life, both cognitive skills like using a specific piece of software or being proficient in a certain trade and soft skills like the ability to work in groups that help them both in the labor market and in having flourishing personal lives.
Notably, the importance of family structure does not rely on an abundance of financial resources. Income might matter, but it is the cognitive and noncognitive resources rather than the material that is transferred to kids. These “soft skills” are mostly learned at home, both at a very young age and during the teen years. Financial resources really only matter to the extent that they allow parents to spend quality time transferring those skills and knowledge.
Lastly, in the United States, social mobility is represented by the American Dream, the opportunity to pursue better, richer and fuller lives. It is about an individual’s ability to project oneself into the future and have a positive sense of aspiration and upward mobility—upward in terms of material fulfillment and greater human flourishing. The American Dream is a dream of abundance—material abundance to climb the income ladder, but also an abundance of purpose and meaning. That is the promise and potential of an abundance agenda. An abundance agenda would enable more people to rise and deliver the promise of the American Dream.
In sum, an abundance agenda could deliver higher rates of upward social mobility and propel more human flourishing. But to do so, the focus on policies that promote more social mobility needs to be more closely intertwined with an abundance agenda that delivers more economic growth, more dynamic markets, sound institutions and more focus on the importance of family structure. The misplaced focus on Band-Aid solutions like tweaking welfare plans, a universal basic income or higher taxation to reduce inequality—rather than going to the root causes of low or stagnated levels of upward social mobility—does not display the urgency we require. The resolve to address these issues and change the focus in the social mobility debates to more of an abundance framework would help us decrease complacency, rekindle the American Dream of higher mobility and opportunity and even ultimately reduce inequality.