Growth & mobility

Everybody knows we live in an era of secular stagnation. Everybody also knows that social mobility has stalled not just in the UK but around the world. For example, a recent OECD report found that:

Since the 1990s there is a general trend towards more persistence of income positions at the bottom and at the top of the distribution. This translates into both lower chances to move upward for those at the bottom, and into even lower risks to fall down from the top.

I wonder, though: are these two facts related?

It’s obvious that economic growth provides room at the top – more good jobs which can be filled by people from poor backgrounds. And it also makes us better off than our parents: even 2% growth per year compounds to an 80% gain over 30 years. I’m thinking, though, of another mechanism – that slower growth causes hirers to become more risk averse.

A key insight here comes from Marko Tervio. He argues that what matters isn’t so much talent as proven talent. Many hirers would prefer the known quantity who is just above a threshold of competence to the unknown one who might be brilliant but might also be a duffer. In hiring a factory manager, you want someone who isn’t going to blow the place up. In hiring a journalist, you want someone who can be relied upon to file something literate and on time. And so on.

This explains a lot. It explains why there is a merry-go-round of football managers who keep getting sacked and rehired: club owners want bosses with some kind of track record – if not a management CV then at least a stellar playing career. It explains why Jeremy Corbyn and John McDonnell employ friends and family: when you have a siege mentality you look to those you can trust. And it explains why “Failing Grayling” keeps his job: May can at least trust him to toe the party line, and it’s only other people’s money he’s wasting.

What matters is just merit, but the expected variance around that merit. Hirers sometimes want to reduce this variance. When they do, trust trumps ability. And this is bad for social mobility. We trust people like ourselves and distrust outsiders – so posh white men trust other posh white men more than they do others.

And herein lies the link between slower growth and slower social mobility. It’s simply that slower growth makes us more risk averse. If you can look forward to big growth in revenues you can afford to make one or two risky hiring decisions. If you’re hiring dozens of graduate trainees you can take a risk on some potentially brilliant outsiders. If, however, your firms’ prospects are gloomier and you are hiring fewer, you’ll not take such risks.

It’s for this reason that industries that are growing rapidly tend to be meritocratic whilst those that are shrinking tend not to be. Compare, for example, finance in the 80s or IT in the 90s to journalism today.

I suspect that two other trends are exacerbating this. One is increased accountability. If you fear a bad hire will cause your boss to ask “why did you hire that twat?” you’ll not take a risk. Just as nobody got sacked for buying IBM so nobody got sacked for hiring the white male Oxford graduate. Another is the increased importance of soft skills. Yes, the distinction between the public school boy with his easy charm and the geeky state school boy is something of a cliché. But it has a grain of truth. It’s easier to win people over if they are like you than if they are not, which gives those from posh backgrounds an advantage in top jobs.

My point here is a variation on one that I’ve made before, following Ben Friedman. If you want an open, tolerant society in which people are treated on merit you need economic growth. And no UK politician to the right of John McDonnell seems to have any idea or interest in promoting this. Which makes any pretence they have to believe in meritocracy rather hypocritical.

Comments

[UserFriendly]

It also explains why you might as well just kill yourself after a year of unemployment, especially if that happened as you were entering the labor market. Advice I will inevitably be taking sooner or later.

[Scratch]

This seems not to account for the currently fashionable expedient (it seems) of cramming diversity hires into executive class sinecures from Silicon Valley through the rest of the existing fastnesses of bourgeois power down to to Tooting Bec District Council.

I suspect there are two reasons for this - they're perceived by their sponsoring class to be too dumb/malleable/unthreatening to menace the echt executive class and they create the fraudulent impression of an egalitarian double movement to preserve the equally fraudulent liberal narrative of "progress" intended to mask the collapse of the broad-based egalitarianism and ( limited and ephemeral it turned out) social mobility that characterised the post war consensus.

[Staberinde]

Chris, good points.

May I add another?

People are hired for either performance (eg: rainmakers, subject matter experts) or potential (interns and graduates). In the former, references can be taken and outcomes judged. In the latter, there's always a risk as candidates are functionally identical and there are many of them. Faced with 1,000 applications for an entry-level role, the hiring manager may as well pick at random. Of course people will hire in their own image. It's entirely logical.

But what happens when all those entry level roles are automated? Suddenly there are no junior KPMG accountants auditing away in a FTSE's basement whom Deloitte can later poach for their performance. There's no pipeline of future partners for a law firm, because machines and software are doing the photocopying and searching the library instead.

I fear that social mobility is under much greater threat from the automation of entry level roles because it shifts the entry level upwards. The damage a poor hire at intern or graduate level can do is extremely limited. But if you're suddenly hiring on the basis of potential into roles with actual responsibility, there's no way you'll choose someone who doesn't look like you and come with buckets of middle class confidence.

Everyone has to start somewhere? Not any more. Some people might not get to start anywhere.

[Phil]

"the distinction between the public school boy with his easy charm and the geeky state school boy is something of a cliché. But it has a grain of truth."

A bigger grain than you're allowing, I think.

If you're rich - or Daddy is - people are going to be pleased to see you quite a lot of the time, and act like they're pleased to see you even more of the time. Add to this that privately educated kids are regularly told that they're pretty special, while demonstrably being treated that way. Spend your school years under those conditions and you'll naturally grow up thinking, not only that you're pretty great, but that everyone else thinks so too - which makes for confidence, self-assurance and openness, all of which are attractive qualities.

[Bob W]

To provide one counter-example:

In my industry, finance, the heydays are clearly over. 'Headcounts' are shrinking as firms are under pressure to operate much 'leaner' operations.

One result is that it has become extremely difficult for anyone, even 'rainmakers', to employ children of clients in any capacity, not even as interns. This used to be quite common and perfectly accepted before the crisis. There was not even any pretense that these were meritocratic hires. Today, however, this sort of hire wouldn't fly anymore. Which is not to say that hiring decisions in finance are perfectly meritocratic; far from it. But it's one of the excesses of a nepotistic system that have vanished in recent years.

[Robert Mitchell]

Society was far more open and tolerant in the 1970s with stagnating economic growth. Watch Rockford Files to see free access to the Malibu beach; today, thanks to economic growth, the formerly free parking is enclosed and costs $30. Thanks, Reagan growth! Friedman is wrong.

[georgesdelatour]

Probably the most important factor reducing social mobility is assortative mating. It’s making it harder to do the kind of social climbing via marriage which often features in Jane Austen novels. Today, PhDs marry PhDs, BAs marry BAs, and so on down. My dad married his secretary; his boss married the barmaid of the local pub. Such non-meritocratic unions are now much rarer.

Bear in mind that if any aptitude has a genetic component, assortative mating will tend to increase its intensity.

[Staberinde]

I think @GDLT makes a very good point - one I've seen raised with increasing frequency.

We can't force people to marry down the social ladder, nor can we force companies to employ labour instead of capital. As less of both of these occurs, two of the most important ladders of social mobility are removed.

What's left? Education is often touted as the great lifter-upper. But consider that since Blair's expansion of higher education in the UK, we now have many more people with degrees than jobs which require them.

Faced with the deluge of commoditised applicants all offering potential rather than performance, we return to arbitrary sifting criteria: effectively status/class indicators and recruitment in one's own image.

I'm struggling to identify a reliable ladder for social mobility.

[georgesdelatour]

Gregory Clark’s “The Son Also Rises” claims that social mobility has never been very great.

Social mobility born of meritocracy may even have unintended consequences, especially for the left. For instance non-meritocracy stranded some very smart people in the working class, where they became trades union leaders. Now they’ve been selected out of the working class and have mostly become university professors. It’s good for them, but maybe not good for the working class.

I feel like there was a quarter century post-WW2 when our leaders thought, “we have a population, so how do we change the economy to suit it better”. And that led to a lower Gini coefficient. Then they flipped over to thinking “we have an economy, so how do we change the population to suit it better”. And that led to a raised Gini.

Ultimately I think a lower Gini - especially a lower Gini before taxes and transfers - matters far more than high social mobility.

[Ryan T]

@Bob W

I don't think your example suggests what you think it does, if anything it proves that slowing growth makes an industry more risk-averse.

Regulators have a far tighter grip on finance these days and hiring the children of clients looks a lot like bribery to the modern legal system.

The larger investment banks also started tracking the amount of business this type of hire generates and found that very few of them were actually "earning" their salaries.