The increase in inequalities in Western societies has polarized public debates. Many debate the trends, levels and causes of these, but this is like letting the tree hide the forest. Even more important is the debate on the consequences that these inequalities have, and more particularly the consequences that they have on intergenerational mobility.
In short, those who advocate redistributive state intervention—tax hikes to fund social programs, for example—argue that current income inequality undermines equality of opportunity now and in the future. . They justify this position by invoking the concept of relative mobility, evaluating the change in economic situation in comparison with the income of the rest of the population. Another way to assess their situation would be to measure what is called absolute mobility, considering the change in an individual’s situation in relation to their parents.
The distinction may seem semantic, but it is important. In a highly unequal society, for example, it would be possible to observe strong absolute mobility without there being any relative mobility. For example, if everyone’s income increased by 10% relative to that of their parents, there would be absolute mobility without relative mobility. Linking income inequality to relative mobility means that, other things being equal, individuals born into well-to-do families have more opportunities for upward social mobility than those born at the bottom of the income scale. This implies a reproduction of social classes from generation to generation. There is thus a vast scientific literature validating the hypothesis that less unequal societies – in particular thanks to the state’s redistribution efforts – are better able to promote relative mobility.
However, validity should not be confused with importance. In a article published in the Southern Economic Journal – a scientific journal – we observe that economic freedom is also important in promoting relative mobility.
Link between economic freedom and higher growth
The concept of economic freedom refers to the following criteria: the level of respect for property rights, the size occupied by the State, the weight of regulation, openness to international trade and the stability of the currency. A minimally interventionist state, which imposes few legal barriers to individuals on access to employment, for example, can help promote relative mobility. This while maintaining a more modest size. Another more indirect effect of economic freedom also helps relative mobility: higher economic growth. The link between economic freedom and higher growth is very clearly established. More than a hundred scientific articles observe and confirm it. Higher growth results in greater improvement in the standard of living for the less well-off, as it helps meet basic needs. Consequently, a direct link exists between economic freedom and absolute mobility, with which relative mobility is linked.
By comparing intergenerational mobility data for individuals born in the 1970s and 1980s, compiled by the World Bank, with the index of economic freedom established by the Fraser Institute, we find that the indirect effect of economic freedom is particularly powerful. By taking the sum of these two effects, ie the direct effect of reduced regulatory barriers and the indirect effect through economic growth, we find that economic freedom is a particularly powerful factor of mobility. Comparing its effects to those of inequalities on mobility, we quickly come to the conclusion that at worst, they are of equal strength, at best economic freedom has a greater effect.
If this finding matters, it is because the measures most frequently put forward by those who care about relative mobility amount to increasing the size and action of the state. These approaches that reduce economic freedom are very likely to have no effect, or even to reduce social mobility. When we talk about the state, doing better is often synonymous with doing less.