Fixing the ladder: How UK businesses benefit from better social mobility

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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.3The 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

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

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.8Why diversity matters,” McKinsey, January 1, 2015.

McKinsey’s Diversity wins report showed a correlation between performance and diversity in companies around the world.9Diversity 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.

  1. 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.16What’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.

  2. 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.
  3. Contextualize. Socioeconomic background can affect the type of education available to a student as well as their likelihood of high achievement.18 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.
  4. 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.
  5. 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.19The 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.21The future of work after COVID-19,” McKinsey Global Institute, February 18, 2021.
  6. 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).
  7. 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.

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.

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