Social and Income Mobility

We hear a lot about income inequality. I find this to be a fairly unsophisticated measure, as it assumes people stay at the same income level thoughout their life. Of course people at age 18 earn a lot less than someone at age 50 with 30 years experience.

What I think is much more important is that people born into a poor household, have the opportunity to earn more than their parents did, and that wealth is earnt not just inherited.

A CIS publication has this graph from Australia.

So only a quarter of those born to a father in the bottom quintile end up in that quintile themselves. 74% move into a higher quintile including 54% who move into the middle or top two quintiles. That’s a good thing. It is not a perfect distribution (which would be 20% in each quintile) but it is far far from static.

Also 17% of those born to the wealthiest quintile, end up in the bottom quintile. So wealthy parents do not guarantee that you are wealthy. In fact 72% end up outside the top quintile.

This is what policy makers should focus on. Social and income mobility and equality of opportunity. Not on insisting an 18 year old should be paid the same as a 50 year old, or that an intern should be paid comparable wages to a group general manager.