Alan Krueger kicks off a debate on the relationship between inequality and mobility:
The great utility of the Great Gatsby Curve: Every so often an academic finding gets into the political bloodstream. A leading example is "The Great Gatsby Curve," describing an inverse relationship between income inequality and intergenerational mobility. Born in 2011, the Curve has attracted plaudits and opprobrium in almost equal measure. Over the next couple of weeks, Social Mobility Memos is airing opinions from both sides of the argument, starting today with Prof Alan Krueger, the man who made the Curve famous.
Building on the work of Miles Corak, Anders Björklund, Markus Jantti, and others, I proposed the “Great Gatsby Curve” in a speech in January 2012. The idea is straightforward: greater income inequality in one generation amplifies the consequences of having rich or poor parents for the economic status of the next generation.
The curve is predicted by economic theory…
There are strong theoretical underpinnings for the Great Gatsby Curve. Gary Solon has shown, for example, that the relationship is predicted by a standard intergenerational model if the payoff to education increases over time. This causes inequality to rise in one generation, but also increases the significance of this inequality for children’s economic success, since well-off parents have more resources and more incentive to invest in their children’s education.
Other mechanisms could also underlie the Great Gatsby Curve. For example, if social connections are important for success in the economy (e.g., getting the right summer internship), and wealthy parents have access to job networks, then a spreading out of the income distribution would leave children from the bottom of the distribution in a more disadvantaged position in terms of gaining access to networks that will ultimately lead to a higher paid job.
…and supported by evidence
Most of the available empirical evidence supports the Great Gatsby Curve. ...
Consistent with the Great Gatsby Curve, several studies also point to a growing gap in the resources devoted to education between high- and low-income American families. As predicted by the Great Gatsby Curve, it appears that the dramatic rise in income inequality has created a more tilted playing field for the next generation. ...
The two key remaining questions now are:
- What are the main mechanisms underlying the Great Gatsby Curve?
- What policy actions can be taken to improve economic opportunities for children born in disadvantaged circumstances?
Learning more about the former can help us to achieve the latter — which is, in the end, the most important goal of all.