Want a good job? Get rich friends.

By Dr Abhijit Ramalingam

Why do the wealthy get all the best jobs? Are the children of the rich simply better at these jobs by virtue of attending better schools where they learn better skills? Very unlikely. Based on the Milburn Report, The Guardian[1] finds that children from richer backgrounds in the UK are 35% more likely to get the high-paying jobs despite possessing lower academic ability than their poorer counterparts; wealthier families create a ““glass floor” for their less academically inclined children” and “hoard the opportunities” for them. A 2014 study in the US[2] found that children with ‘inherited advantage’ achieve better outcomes even with lower effort.

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Mind the (pay) gap

But the “glass floor” story is just that – a nice story. Firms are in it for the money. Bosses are not (all) stupid – they are not usually known to put up with (in)competent workers. Why would they hire anyone who is less able or does not work very hard? What do they get out of it? Social networks and connections. The same Guardian article finds that children from wealthier families are more likely to know, and develop connections with, a greater number of university educated individuals who are already in high-paying jobs. And when hired by firms, employees bring their networks with them. We conducted an experiment that allows us to see if people value such networks and are willing to put up with less productive team members.

We do, and we are!

In our experiment[3], people work in teams to produce output. But there is one person in the team who is better connected than are the others. This person merely connects two (sub-)teams to one another. The crucial feature is that the two sub-teams cannot communicate, or work, with each other in the absence of the central person. In all other respects, namely ability and scope for productivity, all team members are equal. Importantly, this ‘central’ person has better connections purely by accident and entirely by virtue of their position in the social network, much like children being born in richer or poorer households.

The better connected teams are able to generate higher output than less well-connected teams. Moreover, all individuals earn higher amounts in the presence of the central individual. This is because teams can now exploit complementarities with teams in other organisations. This would not have been possible without the connections brought by the central individual.

However, we also find that the central individual is indeed less productive than the less well-connected members – the less well-connected team members work harder. The central members thus earn a ‘premium’ simply by being central and bringing their networks to the job. This only magnifies earnings differences between the advantaged member and the disadvantaged members over time. So, not only do they need to work less, they also make more money!

One would think that the others would simply kick them off their teams. But no! Despite this inequality in outcomes in favour of the central member (lower effort coupled with higher earnings), the central player’s presence is seen as (in)valuable by the team as a whole. Team members, even the disadvantaged ones, choose to retain the central members in their teams and allow them to take home greater earnings. Instead, they are more likely to penalise other disadvantaged people like themselves for lower effort! Such a response is entirely rational – people may be willing to tolerate even growing inequality if it means they can earn more money.

It thus appears that the less privileged backgrounds of children from poorer families, in themselves, could be responsible for the ‘opportunity gap’ prevalent in our society. It is not that they are worse workers that makes them less valuable to employers but that, unlike those from wealthier backgrounds, they simply know fewer ‘valuable’ people. As long as this is the case, ‘inequality of opportunity’ in the labour market is here to stay. What’s more, the resulting widening inequality in outcomes (and incomes) is likely to be tolerated. Even by the disadvantaged.

So…. hang out with the rich kids. It could pay off.

[1] http://www.theguardian.com/society/2015/jul/26/well-off-families-create-glass-floor-to-ensure-childrens-success-says-study

[2] Reeves, Richard V. and Isabel V. Sawhill (2014) “Equality of Opportunity: Definitions, Trends, and Interventions”, Federal Reserve Bank of Boston, Working Paper.

[3] van Leeuwen, Boris, Abhijit Ramalingam, David Rojo Arjona and Arthur Schram (2015) “Authority and Centrality: Power and Cooperation in Social Dilemma Networks”, CBESS Working Paper. The experiment was originally designed to investigate the effects of power in the workplace.

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