Social mobility and income inequality

Inter-generational mobility in education outcomes is significantly associated with static income inequality as measured by the Gini coefficient (Figure 3.8).²⁶ Societies that are less mobile tend also to exhibit high levels of inequality. In Latin America, only Costa Rica and Honduras seem to be outliers, with social mobility much higher than expected given their distribution of income.²⁷

There are several ways this correlation can be interpreted. According to the model by Solon (2004), the same factors that affect inter-generational mobility (private returns to human capital, progressivity of public investment in education, and other transmissible factors such as abilities, race and social networks) also determine the cross-sectional distribution of income in the long run. In the transition period, a decline in income inequality (perhaps due to changes in the skill premium or returns to education) or an increase in the progressivity of public expenditure on education would cause an increase in social mobility.

There is certainly a significantly positive correlation between lower mobility and higher returns to education (Figure 3.9, upper panel). In particular, most countries in Latin American present both higher returns to education than OECD countries, and a higher correlation between parental and child education.

Progressive investment funded by the public sector could, in principle, equalise opportunities for children of different social and economic background. The empirical evidence shows a negative relationship between the inter-generational correlation of educational outcomes and public expenditure on education,²⁸ suggesting that public investment in education could foster mobility in the region (Figure 3.9, lower panel).

The problem is that not only is little spent on education in the region, but its effectiveness in generating mobility is low. All countries, with the exceptions of Costa Rica and El Salvador, present lower levels of mobility than would be expected for their current rate of public investment on education. To be effective policy actions will need to address quality as well as quantity – a conclusion very much in line with findings for OECD countries which show that how spending on education is used often matters more than how much is spent.29

Public expenditure is only part of the picture. Limited access to credit or savings for disadvantaged and middle-sector households can also be a significant hurdle to investment in human capital,³⁰ and in Latin America access is limited to the point that it is likely to be holding children back from pursuing further studies. This is in spite of the fact that surveys suggest that the region’s middle sectors both value education and are able to contribute to its direct or indirect costs – see Box 3.1 for the Andean countries. There are thus good efficiency reasons in education for policy to seek to increase middle-sector access to finance, to which can be added the spin-off mobility benefits flowing from more developed domestic financial markets and greater access.³¹