Poverty and equality of opportunity: three pictures to motivate policy for social mobility

Read my comments presented to the Public Economics Forum on “Intergenerationally Disadvantaged: Newest Evidence and What it Means for Policy,” organized by the Melbourne Institute for Applied Economic and Social Research, on November 26th, 2019 in Canberra, Australia.

Social mobility varies across countries, but it varies in a particular way, a way that I argue is relevant for the conduct of public policy.

Inequality begets inequality. Up to 50% of income inequality is passed on to the next generation in countries like the United Kingdom, Italy, and the United States, but only 20% or even less in countries like Norway, Denmark and Finland, where there is a much smaller gap between parent incomes.

But different kinds of inequality matter in different ways for social mobility.

Research using the variation of social mobility within countries like the United States and Canada shows that intergenerational cycles of low income are more likely in communities that have more bottom half inequality, the correlation with overall inequality and with top end inequality being much weaker. Upward mobility is easier when the poorest incomes are not that far off from middle incomes.

The bottom line for public policy is don’t let inequality increase in the bottom half of the income distribution, indeed strive to reduce it in a way that encourages labour market and social engagement.

This is something that is pretty accurately flagged by a commonly-used measure of low-income, the fraction of the popultIon with incomes below half of the middle income.

The proportion of children living in households with less than half the income of those half way up the income latter also varies significantly across countries, averaging about 13 per cent across the rich countries, but more than 6 percentage points higher in the United States, but about 10 percentage points lower in Finland and Denmark.

Eliminating child poverty goes hand-in-hand with promoting social mobility.

Australia finds itself at about the average, with 13 out of every 100 children living in households with low income during 2015. My country, Canada, is well above this average but more recent data for 2017, released by Statistics Canada and also the OECD, shows an important drop, documenting rates below the overall rich country average, and now below that for Australia

What happened?

I would like to argue that what happened is a change in policy and policy priorities, changes that offer concrete examples for policy learning across countries.

The election of a progressive government in October 2015 opened the door for policy that was of relatively more advantage to the middle class and the relatively disadvantaged. This included a number of measures spearheaded by the then Minister of Families, Children and Social development, Jean-Yves Duclos. These included important improvements in housing, education, and income transfers, most notably the introduction of the Canada Child Benefit.

These changes culminated with the passing into law of Canada’s Poverty Reduction Strategy, an overarching framework to guide policy, to monitor progress, and to engage citizen feedback in a spirit of continual improvement.

Canada’s poverty reduction strategy has three elements: (1) it establishes an official poverty line and sets associated targets for significant yet feasible reductions in poverty; (2) it establishes a series of supporting indicators that recognize aspects of poverty beyond income; and (3) if offers an implicit “contract” to future governments, embedding poverty reduction as a social priority in the future.

The strategy—particularly an appropriate country-specific definition of poverty and associated targets for its elimination—is concretely informed by the UN Sustainable Development Goals, but also more abstractly by Michael Barber’s approach to policy implementation, targets being intended to promote public engagement, making government accountable in a transparent and timely way.

With poverty falling in a way that closes the gap between what the less advantaged have and what they need to participate normally in society, in a way that facilitates opportunity for children, and in a way that fosters resilience and security among the middle class, my guess is that the playing field is becoming a bit more leveled, and the odds of less advantaged children growing up to become the next generation of less advantaged adults are falling. This is both an aspiration and a concrete policy lesson for other countries.

 

You can download a copy of the slides I used  to frame my comments to the Public Economics Forum held on November 26th, 2019 in Canberra, Australia. : Poverty and equality of opportunity .