Labor Should Fight for Economic Mobility

11 October 2013

Originally published by the Chifley Research Centre

Two things will happen this Sunday in Australia. A new leader of the federal parliamentary Labor Party will be elected. And approximately eight hundred and fifty children will be born into families of all shapes, sizes and backgrounds.

First published on the Chifley Research Centre blog on October 11, 2013.

Under either prospective leader, Labor should make intergenerational mobility a key part of the Opposition’s economic agenda, writes Jim Chalmers and Mitchell Watt.

Two things will happen this Sunday in Australia.  A new leader of the federal parliamentary Labor Party will be elected.  And approximately eight hundred and fifty children will be born into families of all shapes, sizes and backgrounds.

There is much that is already known about what the future holds in store for these children. The unfortunate reality of the situation is that a child born today into a high-income household in an affluent suburb of Sydney’s northern beaches enjoys a distinctly greater prospect of future success than a child born to working class parents in Logan, in my electorate of Rankin.

The ease with which a child from a disadvantaged background can become a prosperous adult is referred to by economists and sociologists as social mobility. Social mobility is really economicmobility as well.  It is a desirable feature of modern nations as it means that your chance of financial success in life is not determined by your parents’ income, background or postcode.

The opportunity to improve your hand in life is a critical component of Labor’s mission, and giving people the tools to be successful participants in the labour market is the its role in the modern economy.  This is how we help create the economic mobility from one generation to the next, which feeds and fuels the dynamism and creativity central to new sources of growth.

In most research done on the subject, Australia has performed fairly well on measurements of social mobility. Ironically, the United States, the land of the ‘American Dream’, sits alongside the UK close to the bottom of the list of socially mobile countries around the world. In the US, a family which earns just ten per cent less than the average household will have children who grow up to earn about five per cent less than the average wage. In comparison, the children of a similar family in Australia will earn approximately 2.5 per cent less than average.

The lack of social mobility in the United States has captured the attention of President Obama. In an influential presentation to the Centre for American Progress last year, Professor Alan B Krueger, the Chairman of President Obama’s Council of Economic Advisers, adapted Miles Corak’s ‘Great Gatsby curve’, which illustrates the negative relationship between social mobility and income inequality.

Countries with higher levels of inequality, like the US and China, tend to exhibit much lower levels of social mobility than their less unequal counterparts from Scandinavia and Canada. The great cause of concern is that the rising levels of inequality that we have witnessed in the world over the last few decades could result in a decrease in social mobility and reduced prospects for economic success.

Low rates of social mobility are bad not only from an equity perspective but also from the perspective of future economic growth. A decrease in social mobility can result in a rise in working-age citizens becoming disenfranchised from the labour market, which draws on a diminishing pool of talent. And if smart children from poor families face institutional barriers to escaping their backgrounds, society as a whole will experience a distinct loss in human capital, hurting economic output.  These should be the key concerns of Labor’s policy development in this 44th parliament.

The difference between Labor and Liberal is that we believe an inclusive society and a growing economy are complementary, while the conservatives believe they are at odds.  The Abbott Government is showing all the signs of attacking economic mobility via likely changes to the industrial relations, tax and payments systems. Ditching the Better Schools Plan and the NBN will also deny people access to vital tools of personal economic development and leave Australia vulnerable to future increases in inequality.

Proving that a more inclusive society creates the dynamism and innovation necessary for new sources of economic growth should be the core of Labor’s policy vision going forward, under either prospective leader. Developing effective ways to nourish that link between a better society and a more powerful economy is the key to meeting the aspirations of people who want nothing more and nothing less from Labor than the skills and capacities to improve their own lives, creating the economic mobility that every Australian craves for themselves and especially for their kids.

Jim Chalmers is the Labor Member for Rankin in Queensland and the author of ‘Glory Daze: how a world beating nation got so down on itself’.

Mitchell Watt is the current President of Queensland Young Labor. He has degrees in mathematics and economics from the University of Queensland, where he was Graduate of the Year in 2012. Mitchell is currently an adviser to Jim Chalmers, the Member for Rankin.