Social Mobility - A Product of the Welfare State

In its May 27th edition, the Economist presents two research papers* on social mobility, which both confirm that European society is far less stable than America's.

The aim of the European welfare states and their redistribution of wealth and income is to rid society of class and move people up the ladder. At the same time Europeans maintain a static view of society. They dislike the extremes of wealth and poverty in America and believe that too much job mobility leads to insecurity. In addition, they are wary of capitalism and market powers. Social stability is thus desirable even if it comes for a price: inflexibility when it comes to market competition and the labour market.

Yet, in reality, European society - and especially in the Nordic countries - is far more mobile than America's. The two research papers define mobility as the difference of income between children and their parents or how long people in one income group stays there. Based on this factor, Nordic countries stand out.

The studies found that it is mobility at the bottom rather than overall social mobility that is most significant. And it is here where the difference between the Nordic countries and America is greatest. In the Nordic countries (as well as in Britain) over 70 % of the poorest childrens escaped from poverty within one generation. In America that figure is around 50 %. Furthermore, in the Nordic countries the link between the earnings of parents and children near the bottom is almost non-existent. However, when it comes social mobility at the middle-class levels the difference between Europe and America is not that big.

So what explains this situation? The first explanation is the tax and welfare systems (redistribution) in the Nordic countries.

One might expect social mobility and economic flexbility to go together - in fact, to be two sides of the same coin. But to the extent that redistribution is an explanation, it implies the opposite: that social mobility is a product of high public spending, a bit like the low incidence of poverty or longer life expectancy (on both of which Europe also does better than America). But greater public spending tends also to be associated with less economic flexibility - which is why Nordic countries have sought to limit the more arthritis-inducing features of their tax-and-spend programmes.

But redistribution is not the whole explanation. Education is the next crucial factor for social mobility, especially an education system that is less class-divided than the American one (or the rest of Europe for that matter). All four Nordic countries fair very well in international comparisons (e.g. OECD) of their education systems.

Eric Sundström provides some political commentary on these research findings and the article in the Economist (in Swedish).

* "Non-linerarities in Inter-generational Earnings Mobility" and "American Exceptionalism in a New Light" (multiple authors)