1 Mobility and Meritocracy A B Atkinson, Nuffield College, Oxford LABOR June 2007

2 1.Meritocracy as a political objective 2.Mobility seen as key to meritocracy 3.Concern (in UK) that becoming less mobile and meritocratic Why? How? True?

3 Amartya Sen: “The idea of meritocracy may have many virtues, but clarity is not one of them”. Instrumental : “the incentive view of merit is underdefined, since it is dependent on the preferred view of a good society” Intrinsic : “quality of such actions, judged in a result-independent way”.

4 How relate to standard welfare economics? Trade-off between equity and efficiency embodied in Social Welfare Function based on individual welfares. Mirrlees model: Assume wage rate = marginal product = ability Net earnings E = Aℓ – T(Aℓ) where A denotes ability and ℓ = effort/hours (leave effort on one side ℓ = 1). SWF W ≡ ∑ i V(A i -T i ) Where does meritocracy come in?

5 Roland Bénabou: Two-dimensional measure of meritocracy: Assignment based on talent rather than background Extent to which reward is based on talent Taken for granted in Mirrlees model

6 Assignment Model (Mayer, RE Stat 1960) Self-employed produce A Entrepreneur employs (λ-1) people, generating profit λA-w-c Workers receive wage depending on match w = w 0 +(1-θ)λA Workers decide on basis of E{w}

7 If all A ≥ A* are entrepreneurs, and distribution has a Pareto tail, then E{A} = hA* (h > 1) determines A o such that all with A ≤ A o are workers. Ability Workers E{w} Entrepreneurs Self- employed Reward Assignment A*AoAo

8 E t = α A t + βE t-1 + ε t What to do with mobility?

9 Mobility between and within generations A F E F e F A S E S e S r(E S, E F ) or r(e S, e F ) or r(E s, e F ) ? Depends on mechanisms

10 Relation with economic model (demand side) Assignment model without self employment and λ=2 (set median A = 1) With random assignment, output = 2; With perfect meritocracy, output = 2h > 2.; With β inheriting position, output = 2h - 2β[h(1-γ)-1] where γ is the degree of heritability of ability

11 NCDS (born 1958): total income of parents in 1974 and earnings of sons in 1991 BCS (born 1970): total income of parents in 1986 and earnings of sons in 2000 “We see sharp falls in cross- generational mobility of economic status between the cohorts” (Blanden, Goodman, Gregg and Machin). Inter-generational mobility in the UK

12 York and NCDS 1974 and 1991/9 special sample (York) small sample size (287) not a cohort Compare elasticity for men (age adjusted earnings) York (Atkinson et al) (0.097) NCDS (Jäntti et al) (0.03)

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16 Conclusions Need to clarify meaning of meritocracy Need model of labour market that separates different elements Relation to mobility is complex Intergenerational mobility in UK either ∩ or