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Weekly Economic Briefing


How far does the apple fall?


Last week, this column discussed the populist upswing that has taken hold in the Eurozone in recent years, highlighting the importance of disillusioned, disenfranchised younger voters as a key driving force for this phenomenon. Further to this, older middle class voters have also provided support to populist leaders in Europe and the US. This should come as little surprise given the rise in income inequality over recent decades, which has affected this group of voters. If mainstream policymakers wish to address the issues driving the populist agenda, difficult questions must be answered regarding income inequality. One of the tougher ones to answer is whether at least some of the problems around income inequality in European economies could be related to deeper issues around social mobility which are determined at the school level and, indeed, even earlier.

Like father like son? The catchment effect

In a piece of research from 2010, the OECD made this case, highlighting that the building blocks around wage inequality often begin at home, although the degree of mobility differs significantly across European countries. Intergenerational earnings elasticity – measuring the strength of the link between parents' and children's wages – was found to be lowest in Denmark, Austria, Norway and Finland, suggesting comparatively high rates of social mobility in these economies. However, parents' incomes were found to have a much larger effect on their children's earnings in France, Spain and Italy (see Chart 6), signalling poor mobility. The OECD paper also presented similar findings around educational attainment. Access and equality in secondary education are likely to influence tertiary education attainment, which brings a wage premium in many countries (although this varies depending on the economy). The authors note that success at secondary school and tertiary educational attainment is affected by parental levels of education – the impact is strongest in France and Belgium at secondary level and Italy, Finland and Denmark at tertiary level. However, the catchment area is key in Europe, with the average socioeconomic background of pupils in the school a key driver of performance (see Chart 7).

So, should policymakers focus their efforts on education? It wouldn't be a bad place to start. There has been a movement towards early age intervention, which can be very effective in redressing the birth lottery effect within countries. This might be especially useful in the context of the refugee crisis and associated influx of young children from non-native language backgrounds into European countries. Finding solutions later on is tricky, given that schooling at the secondary level varies so much from member to member within the EU. More broadly, targeted redistributive policies like unemployment benefits and housing planning can dampen the intergenerational socioeconomic effect according to the OECD. Beyond domestic policy solutions, the EU's single market creates opportunities for addressing social mobility in another way. Free movement of labour can allow for EU workers to 'follow the money' to more lucrative careers in other member states. In practice, labour mobility between member states has been disappointingly low. EU policies are attempting to address some of the practical barriers to movement by improving the comparability and recognition of qualifications and removing red tape.

Stephanie Kelly, Political Economist