The Fourth Industrial Revolution is triggering fundamental changes in our economic, social and political systems.1 These rapid changes are presenting economies and societies globally with new opportunities but also challenges. For example, the share of the world’s population living in extreme poverty decreased from 44% in 1980 to less than 8.6% today;2 but despite significant progress in living standards, there is also severe polarization of income inequalities.3
Across the first three industrial revolutions, increasing equality of opportunity brought about by each subsequent industrial revolution’s reconfiguration of economic forces has been a major driver of social mobility, leading to more inclusive and dynamic economies and societies over the long term. For example, industrial modernization during the nineteenth and twentieth centuries had a significant impact on the economic and social participation opportunities of women across the global economy.4 Expanding equality of opportunity has traditionally created a virtuous cycle promoting social mobility across societies, not least because there were commensurate investments such as in widespread primary and secondary education to provide a societal ecosystem where people could leverage new opportunities. However, in recent years, this cycle has increasingly come under strain due to the underlying impact of both evolving economic and technological forces as well as recent policy choices.
Over the past 40 years, a number of countries have deregulated labour markets5 and financial systems,6 changed tax codes7 and reduced public investments—often with insufficient attention to the consequences on income distribution and to potentially negative social externalities. Insufficient policy attention was also granted to preparing workers and entrepreneurs to embrace the Fourth Industrial Revolution and to mitigate the effects of globalization for those parts of society that have not fully benefited from it.
Increasingly, an individual’s chances in life are determined by their starting point (socio-economic status at birth, where they were born, etc.), resulting in economies and societies that too often reproduce rather than reduce historic inequalities. Across most socio-economic systems today—a person’s background often predetermines the level of education they will attain, the type of work they will do and the level of income they will earn. This “lock-in” from birth has consequences for growth, cohesion and innovation across societies.
For more people to thrive in the Fourth Industrial Revolution and navigate the transition towards a more inclusive economy, the present state of social mobility is not economically or socially desirable, nor sustainable. As demonstrated in this report, achieving higher levels of social mobility is a crucial element of a more general move toward a genuinely stakeholder-based model of capitalism, to the long-term benefit of all economies and societies globally. It is crucial to promote policies and business practices which ensure that everyone has a fair opportunity to achieve their potential and fulfil their aspirations, and to re-think the structure of our socio-economic systems, as they too often reproduce rather than reduce inequalities. Effective policies and business practices can ensure that every child, young person and adult has a reason to believe in the prospect of a better future.
The economic dynamics of digital platforms, big data and automation are increasingly promoting market concentration and ‘winner-takes-all’ markets. The main beneficiaries of these changes have been owners of technology or intellectual or physical capital—innovators, investors and shareholders—which has contributed to the rising wealth and income gap between those who depend on their labour and those who own capital.8 Therefore, ‘business-as-usual’ approaches for creating equality of opportunity that were characteristic of previous industrial revolutions are in urgent need of an update for the new economic age.
In response to these challenges—and as a stepping stone toward creating engagement on a new, multistakeholder collaboration agenda for promoting social mobility in the new economy—the World Economic Forum has created a new tool: The Global Social Mobility Index.
The index benchmarks a country’s ability to foster social mobility across its population. It measures the extent to which fundamental drivers—both old and new—of equality of opportunity are in place as well as the enabling environment factors that help translate these drivers into actual social mobility outcomes. Covering 82 economies and 51 indicators in this first edition, the index identifies the best-performing economies globally when it comes to creating equally shared opportunities, regardless of socio-economic background, gender, origin and other factors.
The Global Social Mobility Index is designed to equip policy-makers and other leaders seeking to take informed action on a reinvigorated social mobility agenda with a useful tool to identify areas for improving social mobility and promoting equally shared opportunities in their economies and societies. Ultimately, the index aims to point the way toward the need for establishing a new standard to identify priority policy actions and business practices focused on improving social mobility, as part of a global shift towards stakeholder capitalism and equitable and sustainable economies.
Social Mobility: What It Is and Why it Matters
The concept of social mobility is a broad one. It can be understood in relative or in absolute terms between generations. Further, while the discussion in this section is largely confined to the economic, it can be measured in reference to a wide range of outcomes—such as health or educational achievement—in addition to income levels. Social mobility can also be understood as moving ‘upward’ and ‘downward’, whereby people see their circumstances become better or worse off than those of their parents or within their own lifetimes (see Box 1).
Box 1: The different dimensions of social mobility
- Intragenerational mobility
The ability for an individual to move between socio-economic classes within their own lifetime.
- Intergenerational mobility
The ability for a family group to move up or down the socio-economic ladder across the span of one or more generations.
- Absolute income mobility
The ability for an individual to earn, in real terms, as much as or more than their parents at the same age.
- Absolute educational mobility
The ability for an individual to attain higher education levels than their parents.
- Relative income mobility
How much of an individual’s income is determined by their parents’ income.
- Relative educational mobility
How much of an individual’s educational attainment is determined by their parents’ educational attainment.
The notion of absolute upward social mobility refers to the ability for children to experience a better life than their parents. This can be the result of an increase in affluence within any one country or region as much as a decrease in inequality. In an economy such as the United States, overall economic growth has meant the previous generation saw great improvements in their lives in contrast to their parents even if inequalities persisted. However, many situations exist where, despite high levels of absolute income mobility, relative social mobility remains low. For example, in economies such as China and India, economic growth can lift entire populations upward in terms of absolute income, but an individual’s status in society relative to others remains the same.
The notion of relative social mobility is more closely related to the social and economic status of an individual relative to their parents. In a country with a society with perfect relative mobility, a child born in a low-income family would have as much chance to earn a high income as a child born to parents who earn a high income. Relative social mobility focuses on the social and economic standing of individuals at any one point in time. In economic terms, it is often approximated by looking at the measure of intergenerational income elasticity.9 If the intergenerational income elasticity is equal to zero there is no relationship between family background and the adult income outcomes of children. A child born into poverty would have exactly the same likelihood of earning a high income in adulthood as a child born into a rich family. At the other extreme, if intergenerational income elasticity is equal to 1, all poor children would become poor adults and all rich children would become rich adults.
Empirically, in countries with high levels of relative income mobility, there is still an advantage to being born into a high-income family; however, its impact on children’s future income is relatively small. In Denmark or Finland, for example, if one’s parent earns 100% more than another, it is estimated that the impact on a child’s future income is around 15%, compared to about 50% in the United States, and 60% in China.10 In high-income countries, since the 1990s, research has shown stagnation at both the bottom and the top end of the income distribution—a phenomenon which social mobility experts describe as ‘sticky floors’ and ‘sticky ceilings’.11
By extrapolating existing social mobility levels, one can evaluate both the speed (how long it takes for individuals at the bottom of the scale to catch up with those at the top) and intensity (how many steps it takes for an individual to move up the ladder in a given period) of social mobility.12 As illustrated in Figure 1, the number of generations it takes for a low-income family to reach median income differs significantly in different countries. For example, assuming constant relative social mobility levels in these countries, it would take six generations to reach median income in France, in comparison to just two in Denmark or three in Sweden, Finland and Norway. In South Africa or Brazil, the number of generations necessary to reach median income jumps to nine generations.13
Figure 1: Income Mobility Across Generations
Number of generations it would take for those born in a low-income family to approach mean income
Sources: World Economic Forum; OECD, A Broken Social Elevator? How to Promote Social Mobility, 2018.
Notes: Number of generations refers to the number of generations needed for those born in low-income families (bottom 10% of the income distribution) to approach mean income in their society.
Across economies, children born in less affluent families tend to experience greater barriers to success than those born in more affluent families. These inequalities of opportunity may become entrenched and foster long-term economic inequalities as well as deep economic and social cleavages. Figure 2 illustrates the relationship between a leading measure of economic inequality (the Gini coefficient14) and the degree to which one’s parents’ income predicts one’s own income (i.e. intergenerational income elasticity). This graphic, also known as “The Great Gatsby Curve”, reveals a strong linear relationship in which countries with high levels of relative social mobility—such as Finland, Norway or Denmark—also exhibit lower levels of income inequality. Conversely, countries with low relative social mobility—such as China or Brazil—also exhibit high levels of economic inequality. As highlighted by thinkers such as John Rawls and Amartya Sen, in an ideal world, individuals would have the capabilities to prosper, irrespective of their background or personal characteristics.15
Figure 2: The Great Gatsby Curve
Source: IGE from 1970’s cohort based on Global Database on Intergenerational Mobility, World Bank.
Notes: Average Gini 1990-1995 from Standardized World Income Inequality Database (SWIID).
Furthermore, while the above analysis holds true across countries and generations, it is important to recognize that, in most countries, individuals from certain groups—whether defined by gender, religion, ethnicity, race, socio-economic background or geographic location—are historically disadvantaged, and low social mobility perpetuates and deepens those inequalities. These circumstances contribute to less cohesive economies and societies, in which much human potential continues to be tragically wasted.
The Negative Impact of Low Social Mobility on Economic Growth, Inequality and Social Cohesion
In the Fourth Industrial Revolution, human capital is the driving force of economic growth, and frictions that prevent the best allocation of talent and impede the accumulation of human capital may significantly limit growth.16 Inequalities of opportunity and low social mobility underpin such frictions, and also hinder the drivers of productivity.17 For example, a recent impact assessment estimates the cost of low levels of social mobility on the economic growth of the United Kingdom. According to this analysis, low social mobility will cost the UK economy £140 billion a year over the period to 2050, amounting to £1.3 trillion in lost GDP over the next 40 years. The same study also estimates that even modest increases in social mobility could increase the UK’s GDP growth by 2–4% a year.18 In high-income economies, increasing the level of social mobility could therefore act as an important lever to relaunch economic growth in a context of stagnating productivity growth and median income growth as well as the technological and climate transitions underway.
Moreover, recent research suggests that low social mobility is an important component of the negative relationship between income inequality and economic growth, whereby low levels of equality of opportunity may act as a magnifier of the negative impact of income inequalities on the rate of economic growth. Low social mobility entrenches those inequalities and acts as a drag on economic growth.19
Globally, a significant driver of economic inequality and declining equality of opportunity within economies has been the declining income share of labour—the proportion of the benefits of economic growth accruing to workers in the form of wages—relative to an increase in the income share of capital over the past several decades (Figure 3).20 In parallel, the total share of the gains of economic growth going to those at the top of the global income distribution has increased significantly over the same period. In the United States, for example, the top 1% of income earners in 2018 earn 158% more than in 1979, in comparison to a mere 24% for the bottom 90% (Figure 4).21
Figure 3: Trend in labour shares, 1962-2017
Source: European Commission, AMECO database.
Notes: Labour shares are defined as compensation per employee as a percentage of GDP at market prices per person employed in total economy.
Figure 4: Cumulative percent change in real annual wages, by wage group, 1979–2018
Sources: Economic Policy Institute analysis of Kopczuk, Saez and Song (2010, Table A3) and Social Security Administration wage statistics.
The two most frequently-cited causes of this polarization of economic inequalities are globalization and technology. Globalization has increased inequality within countries by transferring low-skilled jobs in high-productivity sectors from high-income economies to lower-income ones and, consequently, penalized workers in specific locations and jobs.22 Technology has impacted inequality by reducing demand for low-skilled jobs and rewarding high-skilled jobs disproportionately.23 In addition, recent research has found that an important contribution to the decline of the labour share of income and polarization of economic opportunity has been the impact increasingly played by a small group of the most productive firms in each industry, as markets are increasingly dominated by ‘superstar’ firms with high profits and a low share of labour in firm value-added.24 Many of the underlying elements of the Fourth Industrial Revolution—such as the economic dynamics of digital platforms, big data and automation, promoting market concentration—risk further accelerating these trends, without proactive measures to enhance opportunity for all. The economic shifts necessary to move towards a greener economy may further exacerbate the burden on low income individuals and further entrench or worsen mobility patterns.
Whatever the exact combination of factors that has recently led to low social mobility outcomes in various economies and geographies, it is clear that the corresponding inability for individuals to fulfil their potential and aspirations has been provoking an increasing erosion of social cohesion globally. The resulting sentiment is a growing pessimism by individuals about their ability to improve their own economic and social situation defined by these systemic trends, rather than individual merit or effort. Such perceptions may have a profound impact on people’s well-being and life satisfaction, as well as affecting an individual’s engagement with social, political and economic life. In fact, empirical behavioural economic studies have revealed that when people believe that income and opportunity distribution is unfair, they disengage from social and economic life.25 This, in turn, may contribute to societal polarization, the weakening of social fabric and a rise of extremist sentiment. In a world where information is ubiquitous, people are increasingly aware of the distribution of wealth not just within their own communities but across their countries and globally. Dissatisfaction with inequality and social immobility are now a global concern.
Given these concerns, one conclusion from the Global Social Mobility Index stands out: economies that follow a model of stakeholder capitalism perform better on the index than those focused on either shareholder capitalism or state capitalism. For example, the Nordic countries have succeeded in combining an extensive social system with a flattened pay scale and a competitive environment for individuals and companies to thrive in. The index thus calls for global policies that more optimally combine a drive for economic growth, social mobility and environmental sustainability.
Structure of this Report
This report is structured as follows: The first part of the report reviews the underlying concepts employed in creating the Global Social Mobility Index and briefly outlines the methods used to calculate it. It then presents the 2020 rankings, overall trends and commentaries for selected countries. In addition, an in-focus section provides a big data-driven exploration of wages across various industries and job categories in the United States as well as a key component of social mobility, the extent of professional networks, based on research conducted in collaboration with LinkedIn, ADP and Burning Glass Technologies. The Economy Profiles contained in the second part of the report give a more detailed picture of the relative strengths and weaknesses of each country’s performance. Interactive versions of the Economy Profiles are available on the report website (wef.ch/smr2020).