A series of mega-trends are threatening to entrench disadvantage, with booming house and asset values, surging globalised knowledge jobs and poor education pathways combining to worsen social mobility, a symposium in Melbourne has heard.
The rich have enjoyed disproportionate disposable income growth in recent decades, stretching the gap between poor and wealthy, making it even harder to move up the social mobility ladder. While Australia has not fared as badly as the United States, inequality of income and wealth are higher than they used to be, with predictions social mobility will worsen if left unattended.
This is not just a social justice question — many economists believe higher inequality will dampen economic growth, as the wealthy stash away extra funds that would have been spent by low or middle income households. More evenly balanced economies also match employment opportunities more efficiently, driving stronger economic growth.
Globalisation and skill-based technological change are pushing income inequality in the wrong direction, University of Sydney Professor Deborah Cobb-Clark told a recent social mobility symposium. There is also some evidence that the decline of labour institutions is having a negative impact.
The symposium was hosted by The Mandarin and Victoria’s Department of Economic Development, Jobs, Transport and Resources.
The event heard big cities — and their central areas in particular — are increasingly hosting knowledge-intensive jobs connected to the global economy. Such opportunities have grown strongly over the past few decades. It’s great news for those at the top of the ladder, but means the gap is widening between high earners and those in lower skilled, lower paid jobs, which tend to be found in in outer suburbs and the country.
The top fifth of society increased its wealth by 28% from 2004 to 2012, but the bottom saw only a 3% gain. While the advancement of technology puts low-skilled employees with repetitive jobs out of work, it is helping to make high skilled workers more productive, allowing them to earn more. In addition, the world has seen earnings from capital consistently growing faster than labour-based income over the past three decades, giving the wealthiest of the wealthy investors an advantage even over the senior managers and lawyers.
The number of young people out of work for more than a year is now three times what it was before the global financial crisis. Worsening youth unemployment not only eats into total lifetime earnings, but threatens to transform perfectly capable young people into the long term unemployed.
Although Australia likes to think of itself as a land of opportunity, official measures of social mobility place us slightly worse than the middle of the developed country pack. Australia might not be as bad as the US, UK or Italy, but poor children are far more likely to end up as poor adults here than in Scandinavia or Canada.
Victoria is “comparatively good” says Tom Bentley, RMIT’s Principal Adviser to the Vice Chancellor. High educational attainment rates and more affordable housing mean Victorians are a bit more mobile than their cousins in New South Wales, though the fact that Sydney is slightly worse “should not make us feel good,” he adds.
It’s not all about money
But while money is obviously a big factor, if pecuniary poverty were the only problem, we would probably have seen more progress than we have.
“Poverty of experience, influence and expectation” conspire against kids from low socio-economic backgrounds, as economist Miles Corak puts it. There are many types of inequality — which tend to be correlated to having a low income — such as in access to health, education and housing. Such challenges are often mutually reinforcing.
Students whose parents are senior managers perform better at school than other white collar jobs on average, who in turn do better than students whose parents work in hospitality or blue collar jobs. Kids with unemployed parents come in even lower. 70% of students at the selective public school Melbourne High come from the most well-off quarter of the population.
Children whose father went to university are more than twice as likely to attend university as those whose father only attained year 10 or below.
Conversely, the children of prisoners are six times more likely to end up in gaol than their peers. Young Australians whose parents received disability support payments are nearly twice as likely to fall into unemployment than those who didn’t.
We know a lot about how kids who grow up in welfare-receiving households fare thanks to the comprehensive HILDA — household, income and labour dynamics in Australia — survey, as well as other information, such as Centrelink data. While Australia has one of the best collections of long-term data on this subject in the world, issuing an ID system for kids at birth — currently they are only tracked from 5 years old — would help researchers learn even more, Cobb-Clark noted.
Where you grow up has a lasting effect on your chances of success in life. Research shows that a child from a low socio-economic background will have a higher chance of becoming a high income adult if they grow up in San Francisco than nearby Oakland.
It’s not always obvious why some place have better outcomes than others, but five factors are important. “High mobility areas have (1) less residential segregation, (2) less income inequality, (3) better primary schools, (4) greater social capital, and (5) greater family stability,” says one influential paper.
This points to the less tangible aspects of inequality that are transmitted across generations. Things like childhood brain development and social networks are increasingly recognised as being impacted by inequality, in turn having an ongoing effect on life outcomes.
This suggests that worsening housing affordability in the most desirable areas of inner Melbourne and Sydney — the parts of the city with the best access to services, transport, jobs and influential social networks — may help to build in disadvantage for those already struggling against the tide of family circumstances and low wages. Countries around the world have seen housing booms in recent years as low interests rates have spurred massive household borrowing, but Australia’s has been particularly huge, undercutting our historically high levels of middle class home ownership.
Other measures of disadvantage, such as educational attainment, are geographically correlated with house prices — whereas the vast majority of Melbourne’s inner city dwellers are university graduates, a majority on the outer fringe did not complete year 12. While this in part reflects where different types of jobs are located, this trend seems likely to heighten economic segregation. Low investment in social housing not only leaves people without an adequate place to live, but worsens this sorting effect.
Many causes, many solutions
These interlocking problems mean any government looking to improve social mobility will need to take a multi-pronged approach. Last month’s symposium threw up many suggestions for areas governments must consider.
Macroeconomic settings are clearly important for lowering economic inequality — economists such as Thomas Piketty have argued that lower taxes and less income redistribution have contributed to the growth of inequality since the neoliberal revolution of the late 1970s and 80s. Full employment also remains one of the strongest tools for ensuring citizens can make a decent living and children and young adults have access to opportunity.
The importance of geography suggests housing affordability and the prevention of economic segregation need to be policy goals of any government wanting to undermine intergenerational transmission of disadvantage.
Good transport links will be increasingly important in the large cities as they become more congested. The suburbs with the worst connections to the rest of the city are often those most in need of new jobs.
Early childhood education is increasingly seen as another key plank in solving the social mobility problem, with evidence showing our future earning ability is more heavily influenced by early years development than previously thought. Education leaders need to ensure they are not only focusing on top university achievers, but are also shaping the tertiary system to provide easier pathways for those undertaking vocational education.
Health services also play an important role in ameliorating disadvantage, with a strong correlation between public health outcomes and disadvantage. Together with housing and job development, it was noted there are already major government programs focused on redressing disadvantage, such as programs for regions impacted by the decline of manufacturing.
Working across sectors and in place holds potential for improving the employment rate by building links between disadvantaged labour forces and businesses in need of workers.
Organisations such as Brotherhood of Saint Laurence are already facilitating coordination between local businesses, community groups and government in places like Broadmeadows and Frankston. These “community investment committees” work to match demand for workers — young people in particular — with existing and future skills and jobs. BSL encourages employers not to see these initiatives as charity, but “mutual investment for mutual benefit”.
The focus on place raises question about what is the best organising model to tackle systemic disadvantage. BSL’s head of research Professor Shelley Mallett is a strong advocate for letting local groups own the solution, rather than having it being delivered top-down by multiple agencies. This enables flexibility around delivery, but also requires a well-constructed governance framework to ensure accountability and measurement of outcomes.
The challenge for government is how to co-ordinate the delivery of the broad spectrum of programs targeting the root causes of disadvantage. This suggests a different model, with government acting as a partner in collaboration, rather than the primary deliverer of services.
Bentley offered the diagram below as an organising concept for tackling intergenerational disadvantage:
Although it is far from certain that social mobility will worsen in Australia, plenty of factors are pushing in that direction. Making progress will require sustained focus and effort.