The nature of upward Danish mobility

This link is now about two weeks old, but I’m on my way to Denmark and you’re going to get whatever I am thinking about, like it or not:

The first big idea is that Denmark is not a nation of Horatio Algersens. Its high social mobility is not the result of an economy that is uniquely good at helping poor children earn middle-class salaries. Instead, it is a country much like the U.S., where the children of poor parents who don’t go to college are also unlikely to attend college or earn a high wage. Social mobility in Denmark and the U.S. seem to be remarkably similar when looking exclusively at wages—that is, before including taxes and transfers.

It is only after accounting for Denmark’s high taxes on the rich and large transfers to the poor that its social mobility looks so much better than the U.S.’s. America’s (relatively conservative) economic philosophy is that, with low taxes and little regulation, the market is an open savannah where the most talent will win out. But Denmark’s economic philosophy seems to be that the market is an unfortunate socioeconomic lottery system, and so the country compensates the poor with generous transfers paid by high taxes on the rich.

The second big idea in the paper is that Denmark’s large investment in public education pays off in higher cognitive skills among low-income children, but not in higher-education mobility—i.e., the odds that a child of a non-college grad will go on to finish college.

That is from Derek Thompson.  Here is his source:

…this Danish Dream is a “Scandinavian Fantasy,” according to a new paper by Rasmus Landersø at the Rockwool Foundation Research Unit in Copenhagen and James J. Heckman at the University of Chicago. Low-income Danish kids are not much more likely to earn a middle-class wage than their American counterparts. What’s more, the children of non-college graduates in Denmark are about as unlikely to attend college as their American counterparts.

Both the paper and the article are recommended.

Comments

'What’s more, the children of non-college graduates in Denmark are about as unlikely to attend college as their American counterparts.'

And to think that Danish students get paid to go to college - https://www.washingtonpost.com/news/worldviews/wp/2015/02/04/why-danish-students-are-paid-to-go-to-college/ - and not the other way round as in the U.S.

What nonsense. the Danes actually cap the total tax rate at 51.5 percent. They don't tax home sales either. Total US tax rates can go much higher after compulsory health insurance is figured in. Average Dane has more after tax disposable income than US average. People can't give up this notion that US is a low tax nation. They are much freer than the US is so paper should be no surprise. Bottom line is both countries would be better off under laissez faire.

I believe you're confusing marginal tax rates and effective tax rates. In Denmark, *effective* tax rates can go as high as 51.5 and even on only $100,000 of income, the effective tax rate is over 40% (as compared to 25% in the U.S.)

http://www.economist.com/node/21531016

And don't forget Denmark's 25% VAT (compared to a max of around 9% in state and local sales taxes in the the U.S. -- and that's generally in states that have low or no income taxes). Also, the wealthiest individuals receive most of their income in capital gains, not salaries. So what about capital gains taxes? The U.S. has a relatively high rate at 28%, but Denmark has an eye-watering, highest-in-the-world rate of 42%

You are probably right. I was just going off the Wikipedia entry on Taxation in Denmark which says there is a maximum income tax level. The sum of all income tax percentages (municipal, state, and central government healthcare contribution ) cannot exceed 51.5 percent. Another article at www.taxindenmark.com/article says that due to differences in pension scheme contributions and low employment taxes on employers results in average salaries being much higher than elsewhere. Wish I could find a good side-by-side of all the ways taxation differs between Denmark and the US. My impression is that all tax systems are not created equal and the Danes do better at not punishing employers.

Was it ever different?

The more I read about English intellectuals, for example, the more the same names come up. For example, I was reading a book about the history of evolutionary theory, and one of the names that came up as offering an opinion on the subject in the 19th century was Matthew Ridley, the great-great-great-grandfather of Matt Ridley, the contemporary science journalist and evolutionary theorist.

Gregory Clark's research on the matter is pretty definitive. Inter-generational mobility is pretty invariant across a wide variety of economic systems. From guilder-age American capitalism, to the modern Scandinavian social democracy welfare states, to Maoist China, to 16th century feudalism. Regardless of how the system is designed, social mobility is depressingly, constantly and persistently low.

Interesting. I read Gregory Clark's book about Social mobility in England but I didn't know he looked at other countries. Can you point me to some of those resources?

For income mobility, I think that that suggests there haven't been any fast shifts in which inheritable cognitive skills / personality traits drive income that could disrupt any given generation. Could still be possible over a few generations though.

I would attribute it to something far more arcane. The first people willing to hire you are people who know you or have some connection. Neighborhood, uncles, etc. If your parents are educated upper middle class the natural path is to follow them and doors will open to you first based on the connections, then the abilities and skills acquired. Same with people in the trades. In my experience almost all the people who are in technical trades who depend on apprenticeships to get started have some personal connection that got them introduced. Talk to elevator mechanics and you find lots of multi generation lines of tradesmen. I worked for a fellow who trained his sons, and his grandson is now working in the same trade.

These are positive situations, but it can work the other way. A gangly kid out of high school (we hope) is pretty useless for the most part and depends on connections to get started, so if your neighborhood, church group, extended family doesn't include employers, you depend on either a hot labor market or some characteristic that would catch the eye of an employer to take a chance on you and give you a leg up. Otherwise, and this is what happens, we see generation after generation doomed to the same low expectations existence.

Sometimes there are individuals who rise above, usually the result of an exceptional parent. A good friend comes from a family who were shopkeepers, a long line of them. His mother was a school teacher who couldn't get a job once she had children, her goal was that her children go to university. He ended up a professor, his brother was a lawyer and in the Canadian foreign service as ambassador. But that is relatively rare.

And now a university education is not an automatic road to riches. They are filled with a surfeit of second and third generation of university educated kids with no marketable skills and needing a watering down of standards to keep the donations coming from their grateful parents. Now the shop keepers need to have spent four or more years in a school at great cost.

Are you talking about how hiring works for the last 30-40 years or how it worked before that?

Sure, but if a Marxist revolution of peasants that actually kills the landlords doesn't change mobility, what will?

I'm waiting to find out if the Khmer Rouge killing everybody who wore glasses increased social mobility in Cambodia.

Everywhere Clark looked at surnames had low social mobility, except India, which had practically no social mobility.

I'm still concerned about surname changing influencing Clark's results, however. For example, a social climbing ancestor who had become mayor of his small town in Switzerland changed the spelling of my name from lowly Seiler to classy Sailer.

The best book I've encountered about the history of evolution theory: https://www.amazon.com/Evolution-History-Peter-J-Bowler/dp/0520261283. It's good for understanding the pre-theory developments and a variety of the people who believe that God put everything on earth just as it is.

> The second big idea in the paper is that Denmark’s large investment in public education pays off in higher cognitive skills among low-income children, but not in higher-education mobility—i.e., the odds that a child of a non-college grad will go on to finish college.

Don't believe this. Decades of research and experimentation in education have failed to find any persistent way to raise people's fluid intelligence.

Doug - I think you are correct in terms of the inability to raise fluid intelligence, but I do think that great gains can be made in imparting life skills to people who are not academic. Unfortunately the prevailing blank slate philosophy makes that pretty much impossible in the US and many other countries. Instead they pretend that all children are headed to an academic degree and teach them accordingly, accepting the boredom and disengagement of most of the children who can't as simply collateral damage. A system where children are separated early between those who want and are capable of academic achievement (probably less than 10%) and the rest into practical life studies would be immensely less wasteful. Practical life studies should include things like how to open a bank account and budget, how to do home and car maintenance, cook healthy and cheap meals and so on. Since these life skils (or rather the lack of them) have substantial externalities, I as a libertarian, would support payment to children who passed exams in these subjects to avoid the goofing off, since there would be no signalling value in passing these subjects and most of the kids will have very high discount rates in terms of personal investment.

A guy working for me was telling me yesterday that his 11 year old son hadn't learned the months of the year at school. And BC has one of the highest rated educational systems. Essentially a kid that does well in school is one whose parent has already taught them to read and many basic life skills.

How many parents teach their kids to cook? That was a basic skill passed on from mother to daughter at one time, probably due to the need for another set of hands to do all the work, but nonetheless a passing on of life skills. I learned how to fix cars and build things by being taught by my father who was always building or fixing something. I found the school curriculum books boring and uninteresting compared to the history books dad was reading and the eclectic reading choices of my mother.

The paper Belief in a Just World and Redistributive Politics by Bebabou and Tirole shows that for given level of social mobility (which is remarkably similar in the US and Europe) there can be multiple equilibria of endogeneous levels of redistribution and beliefs over ehether bad luck or laziness are to blame for poverty. The Denmark story fits this narrative.

It sounds like any Western country would 'fit this narrative'.

What's your point?

The point is that a priori it is not clear that similar levels of actual social mobility can support such different sets of beliefs/redistribution. The Benabou/Tirole paper shows that it can in a full game-theoretic setting where beliefs and redistribution are endogenously determined.

s/Bebabou/Benabou

I think the evidence is showing that the Dane's social compact has decided that merit is seen less as a factor for success than the USA. Not zero mind you, just less. And if your society believes that your success was due more to luck than grit (relative to USA social compact) there would be a greater agreement that you needed to make more transfers to help out the lives of those at the bottom. I certainly haven't been following this debate all that closely, but id there agreement that being poor in Denmark leaves you better off than 'poor' in America? Is my last sentence agreed upon?

+1

And to put not too fine a point on it, many in America believe that losers in a genetic lottery should not be compensated.

Yes.

Although critically, they are realistic about how much the state can do. This model relies on the fact that the genetically unlucky will not be so numerous as to overburden the productive capacity of the genetically lucky.

https://en.wikipedia.org/wiki/Demographics_of_Denmark

According to 2012 figures from Statistics Denmark, 89.6% of Denmark’s population of over 5,580,516 was of Danish descent, defined as having at least one parent who was born in Denmark and has Danish citizenship. Many of the remaining 10.4% were immigrants

Of these 590,000 immigrants and their descendants (34%) have a Western background

http://www.theatlantic.com/international/archive/2016/01/denmark-refugees-immigration-law/431520/

These moves bear the imprint, in part, of the right-wing, populist, anti-immigrant Danish People’s Party (DPP), which has been Denmark’s second-largest party since last year’s general election. While the DPP isn’t a formal member of the ruling government, its support is essential for keeping the minority Liberal Party in power. But Papademetriou told me that stringent immigration policies and demands for newcomers to assimilate predate the DPP’s rise, and have been present in Denmark for more than a decade.

Papademetriou distilled the general Danish attitude as such: “I want to protect the fact that my country, a small country, is an extremely wealthy country; that it provides these exceptional benefits to its people; and I don’t want to compromise my ability to receive those benefits simply because more and more people want to come in.”

---

Likely Papademetriou is a net payer into the Danish system, but what does it matter. Almost everyone in Denmark will be both a payer and receiver at some point in their life, and they like the kind of society Denmark is. This relies on the fact that the Danish bell curve has relatively few people that lost the genetically lottery, so the burdens of these programs are relatively light.

I am in too good a mood this morning (kids delivered to stake out Kanye's new drop, pork in the kamado) to worry about this too much ..

But I think (as a Dane!) that the idea you have to be Danish to be a productive member of society is pretty silly. Or even smart. Or even good natured. There are plenty of slots for people who can show up on time, and do the work. That isn't such a high bar. It certainly does not require +1 SD IQ.

And after a day lugging boxes and scrubbing vegetables, why not pick up the kids from state day care?

Showing up on time and doing the work is actually harder then you think. The whole premise of Gregory Clark's book was providing evidence that past a certain threshold people can't really be relied upon to do those things. That people in the British Empire tried to relocate manufacturing to the colonies where labor was cheaper, but the locals just didn't have the conscientiousness and other abilities necessary to be adequate factory workers.

Clark:
"In the most dramatic example, Indian raw cotton was exported through Bombay over 6,800 miles to Lancashire mills, where workers paid four to five times the daily wages of mill operators in Bombay manufactured it into cloth, which was then shipped back over 6,800 miles through Bombay to be sold back to the cultivators of the raw cotton. The net raw material exports of In- dia in 1912 were about 4 percent of the country’s GDP. Since the agricultural sector experienced little measurable productivity growth in the years from 1870 to 1949, India benefited from the Industrial Revolution largely through improving terms of trade for its manufactured imports."

Clark goes on to show that absenteeism, lack of discipline, and general low productivity was the problem in the Indians cotton mills.

I wonder how driven you would be as an Indian to show up at a British Colonial cotton mill? Was that a good gig?

I heard the same story in northern Quebec. The industrial operations depended on a reliable 24 hour staff, and it took a generation before the locals were up to the task. In the mean time they imported white bread english from other parts of Canada, creating the english/french divide.

A local automotive electronics plant found the opposite. They moved all the boring manual assembly stuff to Mexico where the beatings will stop when morale improves. Or something. They had trouble finding enough white english speaking people locally to do the boring and repetitive assembly work. To be expected, the largest industry at the time in our area was supplying the vibrant US market with recreational chemicals.

In this book,

https://www.amazon.com/Bad-Samaritans-Secret-History-Capitalism/dp/1596915986

There are some great quotes about British investors in Germany (well, it was prior to Germany existing) complaing about how lazy/dumb German workers were.

Same in Japan with Japanese workers.

I think think this is a normal productivity path of modernization.

I've seen Chinese factories improve from being brain dead about defects to the light bulb slowly flickering on.

That said, every society still has its brutes who are lazy, violent, shirkers, etc.

Though note, re: asdf's comment on Clark, IRC Mokyr / McCloskey have demonstrated that industries finishing raw cotton to cloth were established in areas of the United Kingdom which had become specialized towards cottage production (as a complement to the British agricultural revolution) and often managed / owned by religious non-comformists with a particular bourgeois identity favourable to production and commerce, employing their family members.

So it's not necessarily that this difference was one of British vs Indian generally, as of very productive segments of British society vs everyone else. And your EIC employees are not necessarily particularly good at reproducing that segment in India, if they'd even wanted to (which I doubt they considered overmuch).

Later, culture of particular attitudes to work spread, as prospective employees start to see the prosperity (and thus prestige) of early factory workers (and later still, these norms probably retreat, to a degree in Britain, with Marx as one of proximate causes...).

(Danish-Californian, 3rd gen)

The idea that genetics is to blame is not widely acknowledged, therefore it is a stretch to say that people have even thought to consider compensation based on genetics.

It is an interesting idea though. What if welfare was dispersed based on IQ?

Pretty easy to game that system

Situations change. What was fit yesterday may not be fit tomorrow.

This reality is a fundamental misunderstanding by the vast majority of people who think they understand evolution.

Which leads me to propose that we should cull all of those with IQ>130 before we go full retard and destroy everything. Or ... being smart and all ... maybe there's a better way?

you’re going to get whatever I am thinking about, like it or not

This ought to be the epigraph for your comments section.

Could be the epigraph for every blog. We all have the right of exit.

Not sure what to think of this. A 2009 article.

The Danish Illusion: The Gap Between Principle and Practice in the Danish Welfare System
http://www.humanityinaction.org/knowledgebase/59-the-danish-illusion-the-gap-between-principle-and-practice-in-the-danish-welfare-system

Highlights,

"Although Danish society claims to uphold the basic principles of a welfare state – solidarity among citizens and provisions for the needy – in practice, public discourse and government policies have been creating a more libertarian, individualistic model that strays from its founding principles."

"...on paper, current welfare policies live up to the principle of providing for the social welfare of all; however, in practice, the policies do not amount to a substantive welfare system."

The paper originates from Humanity in Action, a non-profit human rights organization with clear socialist leanings. Maybe this is just a case of "There is never enough socialism."

Perhaps they think more libertarian than they used to, while still retaining a safety net stronger than anything the US ever had.

Perhaps, that is the case. So is "the policies do not amount to a substantive welfare system.” just not justified.

Has anyone checked out this claim that the US safety net is so weak?

There are a lot of programs, public and private, that help people financially and otherwise.

From section 8 to reduced utility payments. Free phones to free medical care. Food stamps to WIC.

EITC to child tax credits. Plus free school meals. Disability, easy to get even if you're not really disabled, per se.

But the claim is always "Europe is far more generous."

Is this simply a giant tick for genetics? Or on the nurture side, is it some form of intergenerational parenting skills?

Maybe it isn't quite either. Rather, those on top always fight (and usually succeed) in skewing any society into keeping them and theirs on top.

Neither of those two makes sense to me over many generations unless there is a *lot* of assortative mating. Otherwise, eventually the Rockefeller marries the party girl and the IQ component of the genetics regresses to the mean, and parenting skills probably do too. The Ridleys that Sailer brings up share 1/32 of their DNA, or even zero if any of the five wives along the way cheated.

Are Danish kids' school districts and peer groups sorted by income pre- or post- interventions?

Obviously I mean 1/32 normalized for the population, I'm well aware we share XX% of our DNA with earthworms and so on.

The ancients compared good families to good lines of horses. That there is a genetic component to success is not new. So I don't even take that as an interesting part of the study.

The public policy choice is what you do about the others. Perhaps with outsourcing and automation US economic anxiety now extends to the average person, the median voter.

We face choices.

"It is only after accounting for Denmark’s high taxes on the rich and large transfers to the poor that its social mobility looks so much better than the U.S.’s."

Well, no duh! That's kind of the idea that animates discussions about why it would be good to bring the high tax, large transfer model to the US. In the article it seems both societies have similar levels of market inequality, but Denmark has lower inequality post tax and transfer. So it seems the tax and transfer system doesn't hold back the proud and mighty entrepreneurs, those Danish Makers. So it kind of undercuts the argument you hear against bringing a similar tax and transfer system to the US, that our Betters will be so upset with having to share the spoils of their good fortune they will go on strike or something gulch something something.

Denmark has similar ratios of market inequality, but lower incomes even unadjusted for demographics. Which could very well be because some of the highest potential earners in the country opt out of working 80+ hours a week and don't show up in the 1%.

Or they are showing their revealed preference for more leisure at a certain point. The preference may be related to taxes but it might also be related to cultural factors. Considering Denmark isn't poor it doesn't seem like anyone is losing anything because a certain very high earners would rather not work themselves to death.

"it doesn’t seem like anyone is losing anything because a certain very high earners would rather not work themselves to death"

1) "working yourself to death" doesn't really happen that much.

2) You don't know what you're missing. Could be a lot.

3) Some people enjoy work.

I can't pretend to really understand the maths in the Fantasy paper but as I browsed through it, I got the feeling that what is was capturing in part was the means testing and relatively uniform transfer payments. Their social security, for example, is means tested and significantly reduced for higher income individuals. Payment amounts also seem to be more uniform regardless of lifetime earnings - if I understand it correctly you pretty much get the same amount of old age pension once you've lived there for 40 years regardless of how much you earned so less incentive to seek out higher paying jobs:

"Old-Age Benefits
Old-age pension

Universal basic pension (earnings-tested): 5,096 kroner a month is paid for single, married, or cohabiting pensioners with 40 years of residence in Denmark before the pensionable age. The full amount is reduced by 1/40 for each year of residence in Denmark less than 40.

Earnings test: The benefit for a single pensioner may be reduced for annual earnings greater than 259,700 kroner; if living with a spouse or partner, the pension may be reduced for annual earnings greater than 179,400 kroner.

Universal pension supplement (income-tested): 5,130 kroner a month is paid for a single pensioner; 2,396 kroner a month for a pensioner living with a spouse or partner.

Earnings test: For earnings greater than 259,700 kroner per year, the supplement is reduced by 30%; for earnings greater than 115,000 kroner per year for each person in a married couple the supplement is reduced by 30% (if the insured's spouse does not receive a pension, his or her earnings up to 210,000 kroner are not taken into account); for earnings greater than 57,300 kroner for a single person, the supplement is reduced by 30%.

Partial early retirement pension: The maximum annual pension is 98,392 kroner if work is reduced to 12 hours a week. The minimum annual pension for a self-employed person is 27,555 kroner. The pension is paid monthly.

Benefit adjustment: Benefits are adjusted annually according to changes in wages.

ATP: Pension entitlement depends on the individual's contribution record. Lump-sum payments are awarded for pensioners with low account balances.

The maximum annual pension is 23,000 kroner.

The minimum annual pension is 1,240 kroner.

Deferred ATP pension: The pension is increased for each month the payment is deferred from age 65 to 70 (age 75 from 2009).

Benefit adjustment: Accrued pension rights and cash pensions under the ATP may be adjusted, depending on the financial resources of the system.

SP: The pension is based on contributions plus net returns. Benefits are paid in installments over a 10-year period. Lump-sum payments are awarded for pensioners with low account balances.

Supplementary pension benefit (income-tested): Paid to needy pensioners. (Old-age pensioners may also claim additional benefits to help meet daily living and housing costs.)"

https://www.ssa.gov/policy/docs/progdesc/ssptw/2008-2009/europe/denmark.html

It seems that if we really want to full Denmark we would need to reduce income transfers for sizeable segments of the population as well. I like the idea of moving to 40 years rather than 40 quarters for social security eligibility as well.

> I like the idea of moving to 40 years rather than 40 quarters for social security eligibility as well.

There are exceptions for many of our wonderful immigrants/"refugees".

--A Dane.

One more thing: 40 years doesn't mean you have to work for any of them. You get your pension anyway.

Thank you for those clarifications.

If you compress cognitive skills in children, I would think you *should* compress higher education to some degree.

Unless higher education (entry / completion) doesn't load much on the variation in cognitive skills.

Quite related, a contrast to the American Right:

The result is thus unique in the history of the United States and also not found anywhere else in the advanced world: a major conservative party that combines the ethno-nationalism of the European splinter parties plus a religiously grounded concern about changing gender roles, and a libertarian fealty to its plutocratic donor class — an elephant one part George Wallace, one part Jerry Falwell, and one part Ayn Rand. The donors favor a drive for the lowest possible tax rates on the wealthy, opposition to consumer, environmental, and labor regulation, and a wish to reduce the social insurance that, in a chronic tension, the party’s older white base relies upon (In this regard, Trump chose the side of GOP voters over its donors in his support for maintaining programs for the elderly.)

http://www.vox.com/2016/8/19/12547038/trump-european-right-immigration-american-politics-nationalism

No, universal day care isn't going to come out of that.

The last internationalist party was best known for starving Ukrainians. The children at Vox wouldn't know that.

Would that ethno-nationalism and communism were not our only two choices!

As an upper middle class father whose children are unlikely to do as well as I have, social mobility is a fear for my children not a hope. My grandfathers were both poor Danish rural laborers and I am a relatively affluent professional so the wheel of mobility worked out for my father and I but my children? maybe not so much.

"As an upper middle class father whose children are unlikely to do as well as I have, social mobility is a fear for my children not a hope"

The probably won't -- it's just reversion to the mean. My own kids probably won't do as well financially as my wife and I have either, but I'm not too worried about it, since it's entirely possible to lead a happy, fulfilling life without being in the top 5-10% of wealth and income. I have an aunt and uncle who spend their winters in one of the high-end retirement communities in Florida, and they've said that this is an common concern among their peers -- who all think the world is getting worse because their own adult children aren't doing as well as they did. But these are people who are 2-3 standard deviations above the mean in income. It's really unlikely that their kids are going to end up in the same place, and the fact that they aren't doesn't tell you much of anything about the state of the world.

"it’s just reversion to the mean."

The unavoidable flip side of upward mobility for some is downward mobility for others.

One of my sons is a plumbers helper and one an engineer. Neither have a life significantly better the other. I am in the top 5% income and wealth wise but in many ways both are better off than I am.

Greenland is part of Denmark and the Inuit seem to not do so great in Denmark. http://www.csmonitor.com/World/Europe/2013/0116/Inuit-Greenlanders-face-chilly-life-in-Denmark

High income equality in Denmark isnt just down to generous redistribution through taxes. It is also reflected in relatively well paid blue collar jobs and perhaps not quite as well paid white collar jobs, before taxes. In this context social mobility takes on a new meaning. Perhaps you actually aspire to become a carpenter because that's the job you like and are best at, rather than pursuing an academic career. This may only give you a marginally lower oncome in Denmark but much more life satisfaction. Hence the "happy Danes". Life satisfaction has to do with a sense of fulfilment, after all. Who necessarily needs high social mobility without high life satisfaction?

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