Does Economic Inequality Account for Cross-Country Discrepancies in Relative Social Mobility: An Empirical Investigation

Abstract

This paper makes use of the Markov Switching model and the K-Means Cluster analysis to estimate the transition probabilities of social mobility and to analyze the impact of social inequalities on intergenerational social mobility. The dataset is a sample of 44 countries and comprises the 2018 social mobility indices, and the 2018 or latest income inequality measures. The data are collected from the OECD Income and Wealth Distribution Databases, and from the world economic forum. It was found that the likelihood of moving upward or downward the social ladder is minimal in both developed and emerging countries. In addition, the paper found that the hypothesis according to which high-income countries have a higher relative social mobility is not necessarily true. The United States, a high-income country, was found to have a lower social mobility, similar to that of Turkey and South Africa. Furthermore, it was found that when poverty decreases, intergenerational social mobility increases in both lower and higher mobility countries. Policies that promote equality of opportunities at all stages of life are therefore recommended to improve intergenerational social mobility.

Keywords

• social mobility
• intergenerational mobility
• transition probabilities
• K-means
• Markov-switching process
• Great Gatsby Curve