The State of Social Mobility in the UK July 2017

80 years of social mobility in the UK Social class mobility plateaus Absolute social class and income mobility increasing 2 1 Relative and absolute social class mobility stable for those born between 1946-1984 Absolute upward social class mobility increasing for those born from 1900s to 1940s (aged 30 between 1930 to 1970s) Social mobility for individuals aged 30 Relative income mobility fell between those born in 1958 and 1970 (aged 30 in 1988 and 2000) Millennials (aged 30 from 2010) with lower average weekly pay than previous generations Average weekly pay increased in real terms generation on generation for those born between 1911 – 1980 Income mobility falling 3 Absolute income Relative income Multiple sources Absolute social class Relative social class

Driven by opportunity, capability and access Key drivers Underlying factors Job opportunities in the economy Economic growth (creation of opportunities) Structure of the economy Geographical distribution of opportunities / growth 1 Influence mobility through key drivers Structure & quality of education system Parental education Health outcomes Political attitudes Infrastructure development (e.g. broadband) Home environment Public transit investment Employment support Housing support Level of income inequality Social mobility Better & fairer opportunities for all Individual capability development Hard skills (e.g. literacy, numeracy) 'Non-cognitive' skills (e.g. resilience, motivation) Parental and community influences 2 Ability to access education & the job market Admissions & recruitment biases (e.g. race, gender) Understanding of opportunities (e.g. career paths) Networks and peer group norms 3

UK's educational and income mobility UK has worst income mobility of OECD... ... but relatively good educational mobility 3.3x Intergenerational earnings elasticity 0.48 0.50 0.47 0.41 0.32 0.32 0.27 0.19 0.15 0.17 0.17 0.18 Denmark Austria Norway Finland Canada Sweden Germany Spain France USA Italy UK Similar picture holds for underachievement at the secondary school level (1) Source: OECD, Going for growth, 2010.

Probability of automation 63% of occupations Source: Frey and Osborne (2013); Bank calculations

Automation will first affect routine tasks DEMAND INCREASING DEMAND DECREASING cognitive School Teachers Midwifery & Nursing Professionals Construction, Distribution & Production Managers Paraprofessionals (e.g. paralegals) Sales Assistants & Salespersons General Clerks Building and Engineering Technicians non-routine routine Food Trades Workers Horticultural Trades Workers Automotive Electricians and Mechanics Truck Drivers Hospitality Workers Bricklayers, Carpenters and Joiners manual Source: The Second Machine Age by Brynjolfsson and McAfee, BCG Analysis

'Hollowing out' in the UK workforce Change in employment shares, 2004-2014 Chart 1: Source: ONS

Three pairs of winners and losers 1. High skilled vs low skill workers Routine work in predictable environments can be substituted, non-routine workers less at risk Those in work that can be complemented / augmented by technology likely to benefit (as long as on the right side of labour supply) Likely continuation of income premiums for those with higher education 2. Superstars vs everyone else Digital technologies increase the 'winner takes all' dynamic of many markets/industries Talents, insights and decisions of a single person now able to dominate national or global markets and the 'good but not great' local competitors increasingly crowded out (e.g. music, sports, software) Evidenced by recent income growth of the top 1%, and even more so the top 0.1% and 0.01% 3. Capital vs labour Substitution of capital for labour leads to owners of capital being disproportionately better off Capital already capturing a growing share of GDP in recent years (plus corporate profits as % of GDP also at record highs) Even if a 'worst case' view is not adopted, clear that there will be a painful and (likely) long adjustment period Source: The Second Machine Age by Brynjolfsson and McAfee

Recommendations 1 2 3 Key recommendations Social mobility Increase job opportunities in the economy Support innovation & entrepreneurship to drive high value job creation, e.g. in FinTech Incentivise companies to establish and create jobs outside of London and the South 1 Social mobility Better & fairer opportunities for all Develop individual capabilities Agree a national definition of school readiness; establish local parenting initiatives Accelerate improvements in teaching quality, especially in disadvantaged areas Surgically target reductions in the 'Summer gap' in education Enhance the focus on building 'essential life skills' in less advantaged students Further promote the apprenticeship and vocational tracks Increase the study of STEM subjects 2 Ensure fairer and more equal access to education and the job market Establish common set of metrics for universities to report to the Director of Fair Access Roll out internship and apprenticeship schemes aimed at increasing participation 3