Inequality persists in society due to basic economic truths about the nature of human capital development, Institute Chair Gary Becker explained in a talk at the World Bank headquarters in Washington D.C.
Only through deeper understanding of how human capital grows and varies across generations can we hope to develop policies and programs that mitigate the negative effects of inequality.
Disadvantaged kids tend to face mobility limited by factors outside of their control—what country they're born into, the educational attainment of their parents, and the income level of their family as they grow up. “The fundamental objection to inequality is that we have no choice in what family we're born into, despite the huge effect it can have on our lives,” says Becker.
Displaying income data from the U.S., Canada and China, Becker observes that intergenerational income mobility tends to adhere to the so-called Great Gatsby Curve. The chart shows that, as in the famed F. Scott Fitzgerald novel, class mobility remains largely aspirational. Children born to people at the top of the income scale tend to stay there; kids born into poor families tend to stay poor, with a slim chance of climbing into the middle class. And middle class parents have to work hard to maintain the same or slightly improved income level for their children.
Well-intentioned “neutral” policies that call for equal levels of government spending on each child can have unintended affects that lead to greater inequality, the Nobel laureate warned. “Government spending has a multiplier effect on human capital investment in children," says Becker. Public spending on children of wealthier parents who have more resources to invest in their offspring amplifies their advantage.
The dividends on investing in poorer children might appear lower—with smaller overall gains in educational attainment or future income—but Becker says that for government programs to truly be "neutral," they must invest a disproportionate amount in kids who are at a real disadvantage.
The fundamental insight from the data is that the transmission of human capital between parent and child makes a difference in their lives. That might be the only point at which policy can affect meaningful change in addressing persistent inequality, Becker concludes.
A recorded webcast of Becker’s talk is available on the World Bank website.