Intergenerational mobility in a country is often used as a measure of the importance of merit rather than prejudice, political influence, and other similar considerations in determining success and failure in that country. Although intergenerational mobility is related to the importance of merit in determining success, the connection is more complex than one might think.
Economists usually measure intergeneration mobility by the relation between the earnings (or education) of parents and children. If children’s (lifetime) earnings tend on average to increase by 4% when parents (lifetime) earnings increase by 10%, the degree of intergenerational mobility would be 60% (=(100-40)/100), while if children’s earnings tend to increase on average by only 1% when parental earnings increase by 10%, intergenerational mobility would be 90%. This measure of mobility ranges among countries from about 90% to less than 20%. The degree of mobility for the United States equals about 50%, while it seems to be over 80% for several Scandinavian countries, and only about 30% for Brazil.
Success in a meritocracy depends mainly on a person’s abilities and skills. The relation between intergenerational mobility and such a meritocracy is complex. Consider, for example, cognitive abilities, as measured say by IQ score. Genes are a major determinant of IQ, although early environmental experiences and the covariance between genes and environment are also important. The significant role of genes in IQ means that children of parents with high IQs also tend to have higher than average IQs in part because children inherit their genes from parents. If earnings depended to a large extent on IQs because the economy heavily rewarded this measure of “merit”, parents with high IQs would tend to have high earnings, and their children would also have relatively high earnings because the children would also have high IQs.
Therefore, to the extent that earnings depend on cognitive abilities, such a “meritocracy” would have a strong correlation between the earnings of parents and children. In other words, intergenerational mobility would be relatively low in such a merit-based economy. To be sure, intergeneration mobility would also be low if family position were automatically passed on from parents to children, independently of the abilities of children (or parents). Therefore, intergeneration mobility would be low at these two extreme models of the role of merit in determining earnings. By contrast, if earnings were basically randomly determined in each generation without regard to merit or any other considerations, there would be complete intergeneration mobility even though merit had no role in determining earnings.
The relation between intergeneration mobility and meritocracy becomes still more complex after we recognize that earnings in a meritocracy would depend not only on cognitive abilities, such as IQ. For it depends also on investments in education and other human capital, on getting to work on time, on being able to take criticism, and on many other psychological characteristics. Families that are more educated and have high earnings tend to invest a lot in their children’s human capital, and in various non-cognitive traits. In a merit-based economy where earnings depend on the totality of abilities and skills, children of high earning parents would also tend to be high earners because their parents would pass on both cognitive skills and investments in various forms of human capital.
Even after including parental investments in education, non-cognitive traits, and other human capital of children, an economy where success and failure are determined by merit would still have low intergeneration mobility. To be sure, investments in education and many other types of human capital are not only determined by parents, but also by government policies and by philanthropists. To the extent that governments and philanthropists invest more in the human capital of children with less successful parents (as appears to be the case for governments in Scandinavian countries), a merit-based economy could have relatively high intergenerational mobility since children from poorer and less educated families might have high levels of human capital investments.
Nevertheless, a big jump is still required to make inferences from the intergeneration mobility in a country to the role of merit in determining success and failure in that country. In particular, although the United States has considerably lower intergeneration mobility than many Western European countries, this does not imply that merit is a less important determinant of success in the American economy than in these other economies.
Merit-based economies use the human capital of individuals more efficiently than other economies, but a country might be willing to trade off less efficiency for greater intergeneration mobility. Good policies would recognize that there is such a tradeoff, and that policies that lead to much greater mobility across generations may make the allocation of human resources considerably less efficient.