Economic mobility

I recently read the conclusions of a report on economic mobility in the US. The report shares two important statistics:

  1. Over 50 percent of Americans find themselves among the top 10 percent of income-earners for at least one year during their working lives
  2. Over 71 percent of the 400 wealthiest Americans and their heirs lost their top 400 status between 1982 and 2014.

The first statistic looks at economic mobility in terms of annual income, and the second in terms of wealth. Annual income fluctuates more than wealth. However, no matter how you slice it, these two statistics show that there is a lot of economic mobility in the US. Starting off poor is a disadvantage, but you have a strong chance of getting rich. And starting off rich doesn’t guarantee that you’ll stay that way.

A high degree of economic mobility is very important for the progress of entrepreneurship. Entrepreneurs and early stage startup employees need to believe that their work will be rewarded in order to engage in it. Great entrepreneurs and startup employees are often driven by more than money, but money is also an important reward. Very few would do it if there were no money involved. So the high degree of economic mobility is an important contributor to entrepreneurship in the US.

A low degree of economic mobility is likely an indicator of barriers to entrepreneurship. These include formal barriers like the costs (financial, paperwork, time) of setting up a business, a high cost of firing employees, and personal liability in the event of corporate bankruptcy, as well as informal barriers like nepotism and cronyism.

It would be valuable to perform and review the results of the same study in other countries, and to compare each country’s degree of economic mobility with the strength of its entrepreneurial ecosystem and the degree to which there are formal and informal barriers to entrepreneurship in the country. I think we’d see that countries with higher degrees of economic mobility have better addressed the formal and informal barriers to entrepreneurship and produce more successful startups.