The Problem and its Causes

Abstract

Many people today believe there is a serious problem of an underclass. Whatis this problem? It is partly that between ten and 20 per cent of society are in serious risk of poverty and ‘non-employment’. It is also the problem that another 20 or 30 per cent feel insecure, and that the whole income distribution seems to have moved from too much equality to excessive inequality. The problem is an aspect of the paradox of meritocracy–we create an equal-opportunity society and then find we have created a new elite of brains. But the extreme version is not inevitable. There are severe and moderate forms of meritocracy. In both, the distribution of personal ability is bell-shaped. In both, the resulting distribution of economic rewards is skewed. But in the one version the skewness is much less severe than in the other. The kind of meritocracy we get depends on the macroeconomic environment – most especially on the long run buoyancy of the general labour market. The meritocracy has become worse in the past quarter-century because long-run economic growth has been sluggish. During this same period, however, there have also been four additional forces – each inevitable and in itself desirable – with major adverse sideeffects reinforcing the effects of the growth slow-down.