Breaking the parent trap with economic mobility
The ladder of economic mobility has several broken rungs in countries such as India. One clear solution is better access to quality education
Economic liberals are usually more concerned about equality of opportunity than equality of outcomes. Inequality is more acceptable in countries where mobility across generations is high, so that where you are born does not completely determine your path in life. A mobile society is far better than one frozen for the benefit of a plutocracy. No society where citizens are hostages to the incomes or educational qualifications of their parents can be deemed to be fair, especially a country such as India where the caste system also holds back millions.
A study published by the World Bank this month—Fair Progress: Economic Mobility Across Generations Around The World—has carefully examined how countries stack up on this front. The Indian data is sobering. It shows that economic mobility has increased over the past five decades. Indians born into poor families have better chances of breaking out today than in the past. However, there are also some important challenges that need a coherent policy response.
Of the six large developing countries the World Bank has lavished special attention on—India, China, Indonesia, Nigeria, Egypt, Brazil—most have seen an increase in economic mobility across generations. India is one of those countries where intergenerational mobility has increased. That is welcome. The two major developing countries where income mobility across generations has actually decreased are Nigeria and (hold your breath) China. The Indian left should ponder over this inconvenient truth.
However, it is also worth pointing out that India continues to have the worst record on income mobility among the six developing countries. A recent article by the Plain Facts team of this newspaper showed that parental education influenced the income of an Indian to a far greater extent than in the case of comparable countries. The result is that occupational mobility is also very low in India. For example, only 3% of the sons of farmers end up with white-collar jobs. Most remain trapped on the farm. On the other hand, 38% of the sons of white-collar workers eventually get similar jobs.
The ladder of economic mobility has several broken rungs in countries such as India. One clear solution is better access to quality education. There is a tight correlation between education mobility and income mobility, which is quite understandable. This is perhaps even more so in the case of girls, given the fact that property rights are not easily available to them in societies dominated by agriculture. The strong urge to get an education—though what is usually offered is of indifferent quality—is welcome news for all those who worry about the lack of economic mobility in India.
However, it is not just a matter of getting more children into school. The World Bank points out that income mobility is often low compared to educational mobility. Part of the answer lies in the labour markets—both their inflexibility as well as the discrimination embedded in them. The multilateral lender argues that policies to ease labour market access for disadvantaged and young people, improving competition among employers, and increasing the protection of workers against discrimination can help equalize opportunities in labour markets. The dominance of social networks in the labour markets of developing countries means that children of poor families tend to lack access to job opportunities. These social or caste networks will disappear only when labour markets begin to function efficiently, as often argued by economist Kaivan Munshi.
It is not just a matter of higher public spending on education or labour market reforms. Other factors also matter. For example, underdeveloped capital markets ensure that the poor are credit-constrained. They are also denied insurance that could help them smoothen cash flows. The enterprises of the poor suffer as a result. Along with education, reforms in factor markets—one of the failures of Indian economic policy—deserve more public attention in the context of higher economic mobility.
The rich countries have low levels of total economic mobility but higher levels of relative economic mobility. This means that societies as a whole are moving up the income ladder at a very slow pace because of tepid economic growth. Groups within these countries are more upwardly mobile because of easier access to education as well as quality jobs. The situation is exactly the opposite in the developing countries, where rapid economic growth lifts income levels of all social groups.
In his famous speech delivered on 15 August 1947, Jawaharlal Nehru spoke of the need to end “poverty, ignorance, disease and inequality of opportunity” (emphasis added). The four are linked more closely than most people believe.
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