Why inequality matters, not just social mobility

Income inequality isn’t the real issue: what matters is social mobility, the ability that people have to move out of poverty.

That, at least, is the line that some commentators are taking in response to the irrefutable evidence of widening income gaps, both here in New Zealand and elsewhere.

The most fundamental problem with this argument is that it takes income gaps as a given, something you don’t challenge if you’re interested in social mobility. But even if you value social mobility, you can still argue that people’s movement up and down the scale should only happen within a relatively limited range of incomes. There’s no good justification, either moral or practical, for really large income gaps.

In many cases, social mobility isn’t the right answer anyway. Think about an aged care worker on a typical pay rate, for that sector, of $14.80 an hour. It’s not really the best solution (for them or us) to try to make them more mobile, to encourage them to leave their job in order to find better paid work. They are doing hugely valuable work, and will be building up skills that would be wasted if they went elsewhere. The solution is not social mobility: it’s a system with narrower income gaps, in which they are better paid for their vital work.

Finally, even if people still really care about social mobility, it’s false to argue that you can achieve that without more equal incomes. After all, in a society with very large income gaps, where wealthy children have far more advantages than poor ones, the advantages of wealth will get reinforced, the disadvantages of poverty will be compounded, and it is very likely that wealthy children will remain wealthy, and poor children remain poor.

The evidence bears this out. In very equal countries, such as Denmark, less than one fifth of your income as an adult can be predicted from what your parents earned; in an unequal country like Britain, fully half of your income can be predicted from your parents’. You clearly don’t have equal opportunities, or good social mobility, if so much of your success depends on what your parents did.

Another fact: in highly unequal America, just 8% of children born in poverty ever make it to the top (defined as the top fifth of income earners); in Denmark, with its narrower income gaps, that figure is 14%. If you want the American dream, just go to Denmark.

In short, if what matters is good social mobility, equal opportunities, and a chance for people to break cycles of advantage and disadvantage… you still need more equal incomes.

(For an extended version of this argument, I’ve just written a 4000 word article for Policy Quarterly, the Journal of the Institute for Governance and Policy Studies at Victoria University, available here.)