Education, social mobility and earning inequality: towards a new model

1. Education, social mobility and earning inequality: towards a new model Craig Holmes, Oxford University “Social mobility: what has been said and what hasn’t?” ESRC Festival of Social Science, November 6th 2012

2. Introduction • The creation of a highly educated workforce has long been seen as the key to improving social mobility and lowering inequality • “Education goes to the heart of all we stand for...to make Britain a fairer and more equal society” Tony Blair, speech to the Fabian Society, 2004 • “As a result of low skills, Britain risks increasing inequality...skills are increasingly the key lever” Leitch Review of Skills final report, 2006 • “Education is critical to our hopes of a fairer society” – Nick Clegg, speech to the Sutton Trust, 2012 • “Education is the silver bullet. Education is everything” – Sam Seabourn, ‘The West Wing’, 1999

3. Policy models • New Labour: “We must transform...aspirations...through helping people get the skills they need for better jobs...only in this way will we drive up social mobility, the great force for equality in dynamic market economies.” Tony Blair, speech on welfare reform, June 9th 2002 Earnings inequality Educational attainment Social mobility

4. Policy models • Coalition: “Myth 1 is that social mobility is simply a sub-set of income inequality. According to this myth, mobility will follow automatically in the wake of greater equality...[b]ut unfortunately it’s not the straightforward route to social mobility that its proponents suggest.” – Nick Clegg, speech to Sutton Trust, May 24th 2012 Earnings inequality Educational attainment Social mobility

5. Education and inequality Correlation = -0.36 (p-value = 0.002) Sources: World Bank, OECD

6. Education and inequality Correlation = -0.28 (p-value = 0.063) Sources: World Bank, OECD

7. Education and mobility Correlation = -0.59 (p-value=0.003) Sources: World Bank, Corak (2006)

8. Education and mobility Correlation = -0.41 (p-value = 0.007) Sources: World Bank, Blanden (2009)

9. Inequality and mobility Correlation = 0.78 (p-value=0.0004) Sources: World Bank, OECD

10. Education, inequality and mobility • There is obviously correlations between these variables • The causal links are less clear • If key causal relationship is between inequality and mobility, which then drives educational attainment, current policy is misplaced • Each of the three elements may mediate the relationships between the other two • e.g. level of inequality in an economy may affect how expansion of education affects mobility • Remainder of this paper discusses some important issues and hints towards what a better model might look like

11. Education, inequality and mobility • Human capital (supply side) view: • Earnings and employment prospects depends on education and training • Therefore, the strength of correlations between the generation’s educational attainment is key • Strong correlations maintain a distribution of education based on family background, which replicates a distribution of earnings and jobs • Weak correlations lead to a distribution of education based on ability (more efficient) • This does not necessarily, in itself, lead to falling inequality • Increased equality of outcomes result from increased equality of educational attainment

12. Education, inequality and mobility • Demand side view: • The supply of jobs creates a constraint on the earnings-education link • One role of education is to sort young people into these jobs (Thurow, 1975) • As under HC, strength of correlation of educational attainment would be predicted to affect social mobility • However, increased equality of educational attainment does not lead to increased equality of outcomes • The process of recruitment and the structure of occupations directly affects mobility and inequality, regardless of educational attainment • May feedback into educational attainment

13. Education, inequality and mobility • Policy to increase educational attainment at the low end may not weaken intergenerational correlation in schooling (Goldthorpe, 2012) • Richer families can attempt to maintain the gap in education in response: • Move to expensive areas near best schools • Private tutors • Entry to Russell Group/pre-1992 universities • Family background (social capital and networks) • Possible disincentive effects on educational attainment at low end • Inequality  education (and social mobility)

14. Towards a new model • Expanding secondary education has coincided with rising inequality Correlation = -0.13 (p-value = 0.239) Source: World Bank, OECD

15. Towards a new model • Depending on sample, expansion of secondary education is correlated with smaller increases in inequality Correlation = -0.47 (p-value = 0.003) Source: World Bank, OECD

16. Towards a new model • However, expansion of tertiary education is not associated with falling inequality Correlation = 0.05 (p-value = 0.387) Source: World Bank, OECD

17. Towards a new model • Potentially a positive correlation between HE expansion and inequality (removing Honduras, Mexico and Luxembourg) Correlation = 0.38 (p-value = 0.017) Source: World Bank, OECD

18. Towards a new model • Composition effect from expansion of education increased inequality in the UK between 1987 and 2001 Source: UK Family Expenditure Survey, adapted from Holmes and Mayhew (2012)

19. Towards a new model • Little evidence of changing patterns of wage returns that would counteract this: Source: UK Family Expenditure Survey

20. Towards a new model • Institutional changes – independent of education but occuring simultaneously – also matter: Source: UK Family Expenditure Survey

21. Towards a new model • Focus of the discussion is largely on intergenerational mobility (parents to children) • Intragenerational mobility (throughout working life) is also important: • If low-wage work is a persistent reality, progression reduces its effects from a lifecycle perspective • Not all educational interventions targeted at young people • Many structural or institutional changes affect those in the workforce rather than those yet to enter – ability to move within labour market in response to these changes affects earnings and employment outcomes

22. Towards a new model • Structural change in work towards more non-routine jobs: • Age and progression opportunities are not constant over time: Source: Holmes and Tholen (forthcoming)

23. Towards a new model • Internal labour markets and recruitment practices create: • additional demand side barriers to mobility • increase earnings inequality at the top end • The signalling role of education becomes increasingly important here: • Skills are specific to firms and require further training • and career ladders within firms • Linked to the issue of ‘talent’ and the ways top firms recruit

24. Towards a new model? Earnings inequality Educational attainment Social mobility (inter- and intra-) Everything else?

25. Contact Details Craig Holmes ESRC Centre on Skills, Knowledge and Organisational Performance (SKOPE), Department of Education, Norham Gardens, Oxford Email: craig.holmes@education.ox.ac.uk