Free market, social mobility and inequality (part 2)

Yesterday I talked about how a free market system may help to improve the social mobility and social equality, and today I would like to talk how a free market system can worsen the social inequality and reduce the social mobility.

Firstly, education makes a big impact on people's career and incomes; however, all studies have found that the background can have more influence on children's academic performance than other factors. In addition, children with wealthier background are more likely to receive a better education than the children with poorer background. A free market system may not help children with their education, as the system can improve the impact of their background on their academic achievements which significantly influence their employability and their future incomes. Secondly, sometimes workers who own significant amounts of resources are far more attractive to their employers than those who do not own much wealth. This nature of the labour market can widen the inequality. Thirdly, in some sectors, people who have greater amounts of resources naturally receive greater returns than those who own less and the wealthier people are more able to get better deals than the less wealthy people. This can widen the wealth gap.

As we can see the person's background and personal wealth are taken into account when involving in most of the economic activities, more wealth can make individuals stand at a more advantageous position. Just like larger firms are more likely to gain more resources, wealthier people are more likely to receive further more resources, as owning more resources is a signal that values something in the market. Under the free market system, the markets will recognise the values of these signals, which could lead to a further social inequality.

I believe a limited government intervention is definitely necessary to deal with the issues of social mobility and social equality. The intervention should encourage the markets recognise more about the values of individual efforts than the values of some factors that are not controlled by individuals.