Aw aren’t babies so adorable? Don’t you just want to give them the world? Perhaps, even the entire economy!“Nepo Babies” became two little popular phrases on the internet, referring to the offspring of a famous person who follows their parents career, who has likely benefited from their parents’ fame or connections and gains success despite a competition (Vulture, 2022)
Corruption and nepotism are two sides of the same coin. While many see corruption as the bigger issue, the truth is nepotism can be just as damaging to the economy alone. A scientist at Harvard’s economic mobility research, Matthew Staiger found that nepotism and social connections have an astonishing impact on economic mobility. These Nepo Babies earn almost 20 percent more than other regular babies (Harvard Magazine, 2023). Talented or not, the undeniable head start Nepo Babies receive – access to connections, training, and opportunities is trickery and unfair. Approximately, at 30 years old, 28% of American sons and 17% of daughters work for their fathers' company full-time, resulted a huge miss for the remaining of labor market to make their shot—some lucky girl, huh?
According to Staiger's latest research, nepotism perpetuates economic inequality by maintaining the wealthy at the top of the social ladder while making it difficult for the poor to earn a living. Staiger explores how nepotistic hiring might shift the landscape of the entire labor market. Will the poor sustain work ethic and high productivity, even if it means losing to a Nepo baby? Frankly, it’s not that difficult to spot and analyze these babies glaring in their most favored industries such as: Entertainment, Politics, and Business.
That Baby Stole my Audition!
Hollywood loves puting Nepo Babies on the pedestal. Hollywood is rife with nepotism, making it incredibly difficult to become a star based solely on talent, training, and perseverance. While luck might play a role, a 2019 Guardian article revealed a shocking truth: only 2% make it on their own– and the term "self-made" barely applies. (The Guardian, 2019). Look around! Kendall Jenner and Bella Hadid, two Nepo Babies, make up half of the highest-paid models. Unlike most workplaces, where you might be "someone's kid," here, everyone here seemed to have daddy’s last names.
Turns out journalist loves bashing these Hollywood's "Nepo Babies", presented through a Vulture article, "She Has Her Mother's Eyes, and Agent". Noticed by the faces of these Nepo babies, actresses Maude Apatow and Zoe Kravitz expressed insecurity, and sympathized with Hailey Bieber, highlighting the constant criticism of labelling as "Nepo Babies”.
Lily-Rose Depp, a teenage actress and model, landed a coveted Chanel ambassadorship at just 16, following in her mother's footsteps. This sparked criticism, “She could not have walked in Chanel at 5 '3 if her dad wasn’t Johnny Depp”, and there were millions of 6' 2 models out there who were more deserving (Backstage, 2024). Lily-Rose, however, defended herself in Elle magazine, dismissing the criticism as nonsense. She compared her achievement to a doctor who earned their position through hard work, suggesting her own path was equally valid (Yikes!)
This baby behavior can be explained through Behavioral Economics as known as the biases in decision making, the Anchoring Effect (FED of St.Louis, 2021). The anchoring effect is a cognitive bias in which people depend strongly on the first piece of information they encounter while making decisions. This initial knowledge, known as the "anchor," serves as a reference point for their later judgment and decision. Even if the anchor is arbitrary or unrelated to the decision at hand, it might distort people's views and lead to poor choices— Just like Hollywood praising the “Depp” in Lily Rose’s.
Could the effect of daddy’s last name resort to selection of elites in the Labor Force? Worse, the prevalence of nepotism within specific industries is proven to exacerbate structural unemployment (Peoplespheres, 2023). When positions are filled based on familial connections rather than skills alignment, qualified individuals are left unemployed. This creates a skills mismatch within the labor market, hindering the efficient allocation of resources and contributing to a situation where there are unfilled vacancies alongside a pool of qualified but jobless individuals. In result, these Nepo Babies are taking up the quotas of demand for labor.
Structural unemployment arises from a fundamental imbalance within a particular labor market. This imbalance is characterized by a demand shortage, where the number of available jobs is insufficient to employ all willing workers. This deficiency can be attributed to wage rigidities, where wages remain above the equilibrium level for that specific market. In simpler terms, wages may be artificially high in a certain industry, leading to a surplus of labor relative to available positions. This may lead to discouraging skill development and discouraged workers – where they believe that they are unable to compete with the Labor market, as these Nepo Babies will keep on cheating their way for an employment status. (Mankiw, 2015)
Nepotism? No, Family Business.
Today's economy prioritizes skills, but a true "meritocracy" (valuing purely based on qualifications) is now a myth. A closely comparable analysis by Perez-Gonzalez (2006) demonstrates that new CEOs are frequently the offspring of former CEOs. Other studies, conducted by Hellerstein and Morrill (2008), demonstrated that in order to prosper the businesses, trust is required, explaining why father lends to the son. The question is, can a company thrive in the long run if talent is second to nepotism?
Nepotism fosters a breeding ground, an economic theory, as known as adverse selection. By prioritizing family connections over merit, companies attract less qualified individuals, pushing out talented babies out there. This creates a talent pool that may not be the best fit, leading to a domino effect: lower productivity, demotivation among deserving employees who see advancement based on connections, and ultimately, stagnation due to a lack of fresh perspectives and innovation (Investopedia, 2024).
The Labor Market Signaling theory by Micheal Spence (1973) suggests that a worker's potential and skill set are communicated to employers through their education. Formal education, degrees, and certifications can signify a person's skill level and reduce the information gap for employers. In the labor market, hiring companies often cannot assess a worker's ability level, leading to knowledge imbalance between the two sides. If employment is filled mostly on the basis of family ties rather than qualifications, nepotism can skew this signal (University of Katowice, 2021) This mirrors "adverse selection" in negotiations, which refers to a scenario where one party (Nepo Babies) has less information than the other (information asymmetry) and disrupts market operations by causing ineffective outcomes, or in other words, bringing down the prosperity of daddy’s company.
In a troubling first for the Forbes list, none of their young under-30 billionaires are self-made. This breaks a 15-year streak where at least one young entrepreneur built their own fortune. The reason? Past self-made stars are simply aging out, but no new young innovators are taking their place (Breaking Point, 2024). Forget "self-made success story," the youngest Irish billionaire, was positioned as a billionaire through a small stake in her family's company— worried that our economy is in the hands of actual babies.
A thought-provoking trend emerges, famously known as the "third-generation curse" suggests many young billionaires inherited wealth directly from grandparents is doomed to fail. This phenomenon highlights a magnified effect of nepotism, meaning Nepotism has run for third generations. This trend’s long-term effects of nepotism on corporate leadership has led to mismanagement and ultimately, business failure, impacting not only the company's financial health but also the livelihoods of its employees. This trend builds on a longstanding issue: companies clinging to family traditions can stagnate without fresh perspectives and talent. Instead, the market prioritizes financial maneuvers, cost-cutting, and even anti-worker tactics – behaving like a Wall Street stock trader instead of a real company (NSG Consulting Inc, 2016). This shift is a sign of a sluggish economy.
How Indonesia Elected a (Nepo) Baby
In January 2024, the former president of Indonesia, Jokowi was thrown into the State Administrative Court (PTUN) on charges of nepotism. His son, the new vice president of Indonesia, Gibran Rakabuming Raka answered briefly regarding the lawsuit filed against his family. "Sure, go ahead" (Kompas, 2024).
Despite Gibran's limited political experience, stemming from his two-year stint as Mayor of Solo, a position once held by his father, President Jokowi, Gibran boldly stepped forward as a vice-presidential candidate, facing off against the best seasoned politicians– somehow managed to win. Emphasizing that Gibran's candidacy was facilitated by a controversial Constitutional Court ruling in October, which relaxed the minimum age requirement for presidential and vice-presidential candidates. The judges created an exception allowing officials who are at least 35 years old to run for office if they have prior experience (What a Privilege!) As it turns out, Nepotism is the main lead to administrative corruption in Indonesia by developing a culture of favoritism and abuse of authority. These behaviors are not limited to particular countries or sectors of the economy. (European University of Tirana, 2017).
Crucially, nepotism makes nation forget the vital principle of professionalism within government. The practice of appointing relatives to manage a country, often without regard for merit or qualifications, will have detrimental consequences for both the institutions themselves and for the nation. This can lead to a decline in performance across various sectors, including economic development and growth. Paradoxically nepotism allows politicians to establish political dynasties— as who knows until how long.
Ironically, despite all the dirt, laws broken, rigged system, and political bribery, these politician Nepo Babies has a whole fandom of die-hard fans who worship them, as if his father is god (Familiar with that, Indonesia?)
What’s good, Baby?
Sure, some Nepo Babies are naturally gifted, but could hardly deny that their parents undoubtly smoothed the path. Now, what if these talented Nepo Babies are their parents carbon copy? Could it hurt how creative things get made?
Human Capital Theory emphasizes how investments in education, training, and experience boost a person’s productivity and earning potential. Nepotism acts like a shortcut or a form of daddy’s human capital investment. There is a possibility these children might even be "gifted by exposure," being raised in an environment that allows them to naturally absorb knowledge and experience relevant to their parents' field.
As nepotism was proven to raise corruption. It was explained that aside from Nepo babies, they may bring a light type of Efficient Grease Hypothesis. This theory proposes that a small amount of corruption, like nepotism, can actually grease the wheels of the economy by streamlining processes and reducing bureaucracy. In some cases, nepotism might lead to quicker decision-making within a company in practical (Franklin and Marshall College, 2013). Despite the theory, widespread nepotism is demonstrably more harmful, as it stifles innovation and economic growth (Econstor, 2016).
Baby Steps (One at a Time)
Questioning, why nations and industries keep hiring the wrong people? Is it wrong? Is it humane? Cognitive biases in decision making and acquiring new information are indebted to us since birth. While nepotism may seem birthed and ingrained in certain industries, it's crucial to remember that everyone was a baby before— and babies need to learn.
As babies soon will get introduced to the economy, this means allowing them the opportunity to learn from their mistakes, pick themselves up, and try again— seeing if these babies could make it alone (without parental guidance)
To foster a truly meritocratic environment, we must prioritize fair and unbiased hiring practices in job markets, coupled with training programs that equip all candidates fairly. Ultimately, success should be determined by qualifications and hard work, not by the prominence of one's last name. By dismantling the cycle of nepotism and promoting equal opportunity, we can ensure the economy is under control in the hands of these babies’ future.
Perhaps it’s time to realize how ridiculous it is to worship these Nepo Babies, just because they’re a little bit like her father (Weird and Kinky, right?)
Diulas oleh: Mahira Alula | Ilmu Ekonomi 2023 | Staf Divisi Kajian Kanopi FEB UI 2024/2025
References
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Five, Goal. "Discrimination Against Women In Sports." Goal Five, goalfive.com/blogs/news/discrimination-against-women-in-sports
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"Measuring Nepotism: is It More Prevalent in the US Than in Other Countries?" The Guardian, 24 Mar. 2017, www.theguardian.com/us-news/2017/mar/24/nepotism-data-ivanka-trump
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"Measuring Nepotism: is It More Prevalent in the US Than in Other Countries?" The Guardian, 24 Mar. 2017, www.theguardian.com/us-news/2017/mar/24/nepotism-data-ivanka-trump
"Johnny Depp’s Daughter, Lily-Rose, Admits Being ‘privileged’ After Divisive ‘Nepo Baby’ Comments." Boston Herald, 21 Feb. 2023, www.bostonherald.com/2023/02/21/lily-rose-depp-admits-being-privileged-after-divisive-nepo-baby-comments/
