How UK businesses can benefit from social mobility

(11 pages)

Social mobility is a concept that considers people’s socioeconomic circumstances and the degree to which they change over a lifetime and across generations. This includes a consideration of whether a person’s social and economic future is shaped by where they start in life. In a society with high social mobility, someone could, for example, be born to economically disadvantaged parents but still have the same likelihood of opportunities as someone born into a more prosperous home.¹

Businesses with strong environmental, social, and governance (ESG) motivations are increasingly looking at how they can promote diversity, equity, and inclusion as part of their “S,” or social, agenda. However, socioeconomic diversity, which is directly linked to social mobility, is a diversity category that many businesses struggle to define and ultimately engage in. It is complex, dynamic, multidimensional, and contextual to a given country. It is also intersectional: socioeconomic factors can combine with gender, race, ethnicity, and other factors in a way that exacerbates the disadvantages experienced by people in those groups.²

This article will examine some of the economic and business benefits that companies can expect from helping to broaden the socioeconomic diversity of the talent pool in their organizations. Some of these benefits are macro at the economy level and can be measured: better social mobility can support economic growth through more effective deployment of talent. Others are micro at the company level and, given that socioeconomic data is currently hard to collect, can be inferred from broader data on diversity: research shows that organizations with higher rates of diversity in their workforce perform better for reasons that include being better able to attract top talent and improved customer orientation, employee satisfaction, and decision making.

Corporations now have a critical window of opportunity to reflect on socioeconomic diversity. Our research indicates that the current economic and societal shocks, such as the COVID-19 pandemic and the rapidly increasing cost of living, have affected socioeconomic disadvantages and social mobility, with knock-on effects for employees, candidates, suppliers, customers, and communities in real time. At the same time, many people management processes will need to be reconsidered in response to the COVID-19 pandemic and the economic headwinds, making this an opportune time for corporations to consider which actions they can take next.³ The future of work after COVID-19,” McKinsey Global Institute, February 18, 2021.

While social mobility is first and foremost influenced by public policy, corporations can also take action—and benefit from it. There are many interventions, but this article presents those in one area where companies could start: recruitment.

Low social mobility comes at a cost to the economy—and to individual companies

The long-term impacts of socioeconomic disadvantage on individuals in the United Kingdom

The United Kingdom’s social-mobility context has considerable complexity beyond what is explored in this article. What follows is a summary of existing data and research that may be useful context for businesses.

Evidence suggests that being born into a low-income family can affect many aspects of a person’s later life—their health, their education, their earnings, and their children’s prospects across these same dimensions.

By the time individuals enter the workforce, they have already been significantly shaped by their socioeconomic backgrounds. Children born to parents with low incomes are more likely to experience poor nutrition, chronic disease, and mental-health problems throughout their lives as a consequence of their families being less able to provide them with healthy food, good-quality housing, adequate heating, or social and cultural opportunities.¹ Children in lower-income neighborhoods are less likely to have access to highly rated schools, and the economically disadvantaged tend to do less well at school.² Students from socioeconomically disadvantaged backgrounds are also more likely to drop out of university and less likely to achieve a first- or upper-second-class degree than those from more advantaged backgrounds.³

As reported by the UK government’s Social Mobility Commission, people of low-income upbringing are more likely to experience unemployment and more likely to remain in low-paid employment.⁴ A study by Sam Friedman and Daniel Laurison, sociology professors at the London School of Economics, found that those in high-status occupations whose parents were employed in semiroutine and routine jobs earned, on average, £6,200 a year less than colleagues in the same occupations, but whose parents had higher professional and managerial backgrounds. This remained the case even after controlling for a host of factors such as educational qualification, ethnicity, and different wage levels in different regions.⁵

All ethnicities and genders can experience socioeconomic disadvantage, but socioeconomic disadvantages can also be compounded by one’s gender and ethnicity.⁶Social mobility is a highly intersectional topic. Other aspects of experience including sexual orientation and disability are also likely to affect a person’s opportunities to be socially mobile. See Kerith Conron, Shoshana Goldberg, and Carolyn Halpern, “Sexual orientation and sex differences in socioeconomic status: A population-based investigation in the National Longitudinal Study of Adolescent to Adult Health,” Journal of Epidemiology and Community Health, November 2018, Volume 72; Jouja Maamri and Daniel Dipper, “No two journeys: Disability,” Sutton Trust, January 19, 2021. For example, the Social Mobility Commission’s 2016 report Ethnicity, gender and social mobility found that socioeconomically disadvantaged “White British” and “White Other” pupils were the lowest-performing groups at primary and secondary school and that Black children were the group most likely to grow up in poverty and one of the least likely groups to achieve a first- or upper-second-class degree at university.⁷ When analyzed alongside dimensions such as gender and ethnicity, socioeconomic background can provide a deeper understanding of where disadvantage arises: for example, female students outnumber male students in higher education in the United Kingdom,⁸ yet government analysis shows that disadvantaged young women are the most likely group to choose post-16 technical courses which lead to lower paid jobs.⁹

Data suggests that perceptions of the United Kindom’s level of social mobility are also shifting. According to a 2019 survey conducted by the Sutton Trust, a UK charity that works to promote social mobility,¹⁰ 35 percent of respondents agreed that people have equal opportunities to get ahead, a drop from 53 percent in 2008.¹¹

There are ethical arguments for social mobility, but in this article we focus on the economic arguments. Social mobility affects both national economic performance and the financial performance of individual companies. Understanding the context and effects of social mobility is important for business leaders who wish to understand and maximize socioeconomic diversity in their own organizations (see sidebar “The long-term impacts of socioeconomic disadvantage on individuals in the United Kingdom”).

The loss to the economy

As an economic principle, the more efficient an economy is at matching job positions to those with the greatest potential to perform them well, the higher the economic output per person.⁴ Low social mobility is therefore likely to affect both employment and productivity: those from a disadvantaged background may not have access to the opportunities to use their capabilities and skills to the fullest. This hampers value creation or, as the World Economic Forum noted in its 2020 report on global social mobility, “Anything that undermines the best allocation of talent and impedes the accumulation of human capital may significantly hamper growth.”⁵

Social mobility in the United Kingdom since 2020

Economic and societal shocks such as COVID-19 and the rapidly increasing cost of living can aggravate existing socioeconomic disadvantages and restrict social mobility.¹ These conditions have knock-on effects for employees, candidates, suppliers, customers, and communities.

Two observations indicate that social mobility in the United Kingdom is likely to have worsened since the pandemic. First, data shows that those in lower socioeconomic groups were affected harder in areas such as health,² employment,³ and financial security⁴ during the height of the pandemic and lockdowns. Education, a key enabler of social mobility, was interrupted at all levels, from nursery school through to university. On average, students globally are eight months behind where they would have been absent the pandemic.⁵ How COVID-19 caused a global learning crisis,” McKinsey, April 4, 2022. A Department for Education review in 2021 found that pupils in the United Kingdom from lower-income backgrounds suffered greater learning losses than those from higher-income families.⁶

Second, data shows that these same groups are likely to struggle in the economic environment that has existed since the pandemic. Current inflationary conditions are disproportionately affecting low-income households,⁷ and gas and electricity costs make up a much higher proportion of these households’ total expenditures.⁸ The Resolution Foundation, a think tank focused on improving the living standards of those with low to middle incomes in the United Kingdom, estimates that prior to the pandemic 1.3 million families had no savings to cope with unexpected expenses or rising costs. Since then, lower-income households were less likely to increase savings during the pandemic than higher-income ones and have fewer resources from which to rebuild in the current climate.⁹

The Sutton Trust, a UK charity that works to promote social mobility,⁶ has put a figure on the economic impact of the United Kingdom having social-mobility levels that are lower than the regional average (exhibit). A 2017 study found that a modest increase in the United Kingdom’s social mobility (to the average level across Western Europe) could be associated with about a 9 percent increase in GDP, equivalent to £2,620 per person, or £170 billion, to the UK economy annually (in 2016 prices).⁷ The opportunity for the UK economy may have increased following the economic and societal shocks of COVID-19 and the rapidly increasing cost of living (see sidebar “Social mobility in the United Kingdom since 2020”).

Catching up with Western Europe’s average social-mobility levels could mean a GDP increase of more than £2,600 per person for the UK economy.

The opportunity for companies

Just as low social mobility can constrain economic growth as a result of inefficient talent allocation, so too could it constrain corporate performance. Like gender and ethnicity, it is a diversity issue, with significant intersectionality.⁸ Why diversity matters,” McKinsey, January 1, 2015.

McKinsey’s Diversity wins report showed a correlation between performance and diversity in companies around the world.⁹ Diversity wins: How inclusion matters,” McKinsey, May 19, 2020. Those in the top quartile in terms of gender diversity on executive teams were 25 percent more likely to earn above-average profits than those in the bottom quartile. In the case of ethnic and cultural diversity, this gap increased to 36 percent.

Our research suggests that diverse companies may be able to outperform because they recruit from the widest pool of talent and, in doing so, improve customer orientation, employee satisfaction, and decision making, all of which lead to a virtuous cycle of better performance. Although there is still significant work to be done, data on gender and ethnicity has often been collected and monitored by many larger organizations for years, making it somewhat easier for companies to see where to take action on diversity on these dimensions. With socioeconomic diversity, however, the picture is more complex for three reasons.

First, there is no single indicator of an individual’s socioeconomic background. Analysis may use one or multiple indicators, including the postcode where someone grew up, if they received free school meals, if they were the first generation in their family to go to university, or what the occupation of their parents or caregivers were when they were 14 years old. Each of these indicators has its advantages and limitations. Second, socioeconomic status is not binary. Everyone grows up somewhere on a scale from the most deprived through to the wealthiest. Finally, this information is private, and each individual would need to consent to sharing it. Not everyone wants to self-identify as coming from a certain socioeconomic background. Therefore, most organizations, no matter how much they desire to support social mobility, do not always have the base information to be able to understand or make decisions to broaden the socioeconomic level of their talent pool. These complexities notwithstanding, there is substantive evidence that a number of UK professions are far from being socioeconomically diverse based on a number of common socioeconomic diversity metrics.¹⁰

This is where understanding the context of social mobility can help to identify opportunity areas. For example, socioeconomic background is one factor in educational achievement: children from economically disadvantaged families tend to do less well at school and have less access to highly rated institutions than children from more prosperous households.¹¹ Positions and sectors that recruit primarily based on academic attainment are therefore less likely to be attuned to the nuances of socioeconomically diverse backgrounds, and in the search for talent, may be missing out on candidates who have high potential across other metrics.¹²

With many corporations reconsidering their people management processes in response to the COVID-19 pandemic and the economic headwinds, this an opportune time for companies to take action.¹³ ‘Great Attrition’ or ‘Great Attraction’? The choice is yours,” McKinsey Quarterly, September 8, 2021.

Companies can take advantage of postlockdown working trends to increase socioeconomic diversity in the workforce

There are various means of increasing socioeconomic diversity in a company’s workforce, including initiatives targeted at new or long-standing employees. Recruitment, the example explored here, is one place where most businesses could start their efforts.

Many companies have recruitment initiatives in place that aim to broaden racial and gender diversity within their workforces or industries. JPMorgan Chase’s Advancing Black Pathways initiative seeks to support and empower members of the Black community, including through summer fellowship programs at select offices.¹⁴ Google’s Generation Google scholarship program helps women studying computer science to excel in technology.¹⁵ Similar approaches could be used to broaden socioeconomic diversity in the workplace, particularly ensuring that recruiting processes are meritocratic in that positions are filled by those most suited to perform them. There are seven potential actions to advance socioeconomic diversity that employers can explore.

Consider a hybrid working model. Many more people are working remotely since the pandemic, though there is ongoing debate regarding the extent to which this will endure. Only around a third of the workforce can reasonably perform their tasks remotely; for others, being physically near customers, colleagues, equipment, or specific premises is a necessary part of the job.¹⁶ What’s next for remote work: An analysis of 2,000 tasks, 800 jobs, and nine countries,” McKinsey Global Institute, November 23, 2020.

However, remote working may be a model for supporting a more socioeconomically diverse workforce. Fewer days in the workplace may lead to a greater willingness to travel longer distances, which would in turn lead to lower commuting costs. This could also expand the effective labor market catchment area, putting the better-paid jobs in economic hubs within reach of those living in areas with historically lower economic activity, which suggests a 1.2 to 2.7 times increase in the labor catchment area (see sidebar “How hybrid working could help promote socioeconomic diversity”). However, as a general consideration for remote-working employees of any socioeconomic background, employers also need to watch out for potential biases (for example, in performance reviews) that may be exacerbated if face-to-face interactions become less frequent.
Widen the recruitment net and consider ways to recruit from a wider array of educational or vocational institutions. Proximity is the single biggest factor for disadvantaged students in determining their choice of university, so those from lower socioeconomic backgrounds may be limited to the institutions they can access.¹⁷ Another action companies could consider is where vocational hires and non-university candidates could deliver new roles and skills.
Contextualize. Socioeconomic background can affect the type of education available to a student as well as their likelihood of high achievement.¹⁸See, for example, State of the nation 2018-19: Social mobility in Great Britain, Social Mobility Commission April 2019; Paul Bolton, Susan Hubble, and Joe Lewis, Equality of access and outcomes in higher education in England, UK Parliament, House of Commons Library, June 2, 2021; Christine Farquharson, Sandra McNally, and Imran Tahir, “Education inequalities,” IFS Deaton Review, August 16, 2022; Education in England: Annual report 2020. A-level contextualization platforms such as the REALrating or the Rare Contextual Recruitment System help recruiters to contextualize this information by taking applicants’ backgrounds into accounts when assessing applications. This can be recruiters’ starting point for understanding the diversity of the group of applicants and helping them to be more objective in evaluating candidate profiles.
Monitor your recruitment funnel to identify areas where you may be at risk of unintentionally excluding certain candidates based on their socioeconomic backgrounds. This may include reviewing screening criteria for interview biases or lack of accessibility to mock evaluation tests.
Recruit with a view to upskilling. The social restrictions during the COVID-19 pandemic led companies such as Cera and Amplify to address labor shortages by rapidly reskilling and redeploying individuals from sectors with sudden surplus labor.¹⁹ The economic case for reskilling in the UK: How employers can thrive by boosting workers’ skills,” McKinsey, November 16, 2020. A reskilling or upskilling model like this offers the opportunity for employees from lower socioeconomic backgrounds to build new skills and increase value creation by entering into growing jobs (for example, application software developers) and also exit declining jobs (for example, those at risk because of automation).²⁰ The McKinsey Global Institute’s analysis on career pathways showed that a cashier has the skill base that could enable them to transition with training into a sales management pathway and end up as a sales manager after three career moves, an occupation that is set to grow by 22 percent over the next decade and offers six times the median annual income of a cashier. The same report’s analysis on the future of work after COVID-19 shows that almost all growth in labor demand by 2030 will occur in high-wage occupations.²¹ The future of work after COVID-19,” McKinsey Global Institute, February 18, 2021.
Offer paid internships. Unpaid internships can exclude those who don’t have financial means, just as unadvertised or informally promoted internships can exclude those without professional connections. Remuneration and open advertisement can raise diversity in what is an important entry route into employment. Although this has a cost that not all businesses will be able to pay, for those that can, they may find that the larger talent pool attracted to the position supports the return on investment of other resources invested in the internship (for example, manager time).
Track and report on progress. Organizations may find it harder to change what they don’t measure. Companies, therefore, could consider introducing social-mobility metrics such as free school meals and parental income or occupation to track the progress on socioeconomic diversity in their recruitment processes to support accountability. This is extremely sensitive information that must be handled with full adherence to data privacy legislation. When used appropriately and safely, the data could help to mitigate any inadvertent discrimination against those from more disadvantaged backgrounds. To this effect, the United Kingdom’s Social Mobility Commission has published a recommended tool kit for employers, including a set of questions that applicants, and the workforce as a whole, could be asked.

Employers can monitor their recruitment funnel to identify areas where they may be at risk of unintentionally excluding certain candidates based on their socioeconomic backgrounds.

How hybrid working could help promote socioeconomic diversity

The proportion of the workforce who worked from home at some point in the United Kingdom rose from 27 percent in 2019 to 37 percent in 2020.¹ Some were working remotely all the time, but the majority divided their time between the home and the workplace.

As much of the UK economy is services oriented, data suggests it could support particularly high levels of remote working. According to the McKinsey Global Institute, an estimated 26 percent of UK employees could work from home effectively between three and five days a week, and a farther 22 percent between one and two days a week. This work-from-home potential is higher than it is in Germany, France, Japan, or the United States.² Working from home? You’re still in the minority,” McKinsey, December 2, 2020. Moreover, enthusiasm for working at home appears to be high among employees. According to a Global Workplace Analytics survey of 3,000 office workers, those stating a preference to work 100 percent of the time from an office fell from 29 to 7 percent postpandemic.³

It is possible that employees would be prepared to travel farther to work under a hybrid model. The financial-services group HSBC, for example, estimates that an accountant who travels 20 miles every day to get to work would consider traveling 50 to 100 miles if going into the office was required only one or two days a week.⁴ Such changes in commuting patterns could extend the catchment area of economic hubs.

New McKinsey research offers a high-level estimate of the impact of this trend, based on the UK government’s travel-to-work areas (TTWAs). Designed to help understand commuting patterns, a TTWA is defined as one in which at least 75 percent of the people who work in the area also live in the area. Analytically, an average TTWA can be defined based on the behaviors of all workers, but it is also possible to outline TTWAs for subgroups of workers (for example, split by skill level of occupation or how people commute to work). Here, different groups have been used as a proxy for how much the average labor market might expand in a hybrid working world.⁵There is an average TTWA based on the activity of all workers, and TTWAs for subgroups of workers, for example, different occupational skill levels or mode of commute. In this research, different groups are used as proxies for how much the average TTWA might expand in a hybrid working world. The lower figure in our range is the increase in the number of people between an average-skill TTWA and a high-skill TTWA, on the basis that remote working was higher among high-skill groups than the average pre-COVID-19. This is likely to be a conservative figure, however, as remote working was still relatively limited among the high skilled pre-COVID-19. The higher estimate is the difference between the standard TTWA and a TTWA encompassing those who travel by train to work. This figure is likely to be an overestimate; while many more will use more expensive, longer-range modes in a hybrid model (either train or longer car journeys), not everyone will be able or willing to do so.

The research estimates that between 1.2 and 2.7 times more people would fall within the catchment area of four prosperous cities under a hybrid working model in which people would be prepared or could afford to take jobs farther away from home (exhibit). The map of Wales shown below illustrates that the TTWA could extend from Cardiff into areas of significantly lower GDP. Secondary factors could also make this a particularly powerful enabler—for example, carers (31 percent of whom reported struggling financially in a 2021 survey)⁶ may be unable to relocate to more prosperous economic hubs for 100 percent in-person jobs but may consider such positions with hybrid working arrangements without needing to relocate.

Through hybrid working, companies could help connect 1.2 to 2.5 times more people to prosperous economic hubs.

The circumstances into which individuals are born have a strong influence on their life opportunities—an influence that may have been accentuated during the COVID-19 pandemic. At the same time, the reconsideration of working norms coming out of the lockdown may create tailwinds for businesses that adapt their recruitment models.

The business case for diversity, equity, and inclusion is stronger than ever. A strong proposition in all of the ESG factors can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall. Widening access to a more diverse socioeconomic workforce can also more broadly influence economic growth and productivity of a nation.

Employee satisfaction is positively correlated with shareholder returns. The London Business School’s Alex Edmans found that the companies that made Fortune’s “100 Best Companies to Work For” list generated 2.3 to 3.8 percent higher stock returns per year than their peers over a more than 25-year horizon. Moreover, it has long been observed that employees with a sense not just of satisfaction but also of connection perform better. Widening socioeconomic diversity, just like diversity in gender and ethnicity, can help organizations perform better by sourcing from all available talent and matching them to high-value jobs. Their businesses, the economy, and wider society all stand to benefit from a more socially mobile world.