Great Gatsby Curve
[5][6] Krueger, based on Miles Corak's work, dubbed the positive relationship between inequality and persistence, the "Great Gatsby curve", and he introduced it into popular and political discussion.
The horizontal axis shows the inequality, measured by a country’s Gini coefficient (a higher value means a more unequal distribution of income in society).
On the contrary, in the right top, countries with the greater level of inequality have less upward mobility, for example, the United Kingdom.
The main character of this story, Jay Gatsby, was born in an impoverished family, but he earned lots of money and dramatically improved their social level during the years.
Judd Cramer, former staff economist at the Council of Economic Advisers, related the story of the birth of the Great Gatsby Curve to Miles Corak in responding to an email he sent him in September 2016:[8] The short version of the story is: Reid Stevens and I were working with Alan for his speech at the Center for American Progress about the middle class.
None of the others were too great in my opinion; I remember a lot of the other names playing on white picket fences/silver spoons in their names.We then walked the list back over to Alan and his chief of staff, David Vandivier.
During that time in DC, Alan was in the business of promoting New Jersey wines and he gave Reid and me a bottle for our help with the speech that went well a few days later.
"[9] The Great Gatsby Curve was used to advocate policies that aimed to reduce income and educational inequality by raising the minimum wage, providing subsidies for health insurance through the Affordable Care Act, etc.
The Great Gatsby Curve describes a relationship between the wealth of prior generations and the level of income of their children.
Individual´s level of income highly depends on their human capital, which is collected and improved throughout the years starting from early age.
[10] Journalist Timothy Noah argued: you can't really experience ever-growing income inequality without experiencing a decline in Horatio Alger-style upward mobility because (to use a frequently-employed metaphor) it's harder to climb a ladder when the rungs are farther apart.
[11] However, some argue that the apparent connection may arise as an artifact of heterogeneous variance in ability across nations, questioning the need for intervention.
With his Germany/Greece and Mississippi/Connecticut analogy, Mr Mankiw has stumbled on a very convincing point: whether you are rich or poor in Europe or America depends to a great extent not on your own qualities or efforts, but on where you happen to be born.
[16] Source:[16] As Durlauf et al. [1] says, it is important to bear in mind that these theories typically consider inequality in different meaning than the Gini index.
The main idea is that segregation of the wealthy and poor into specific communities will have an impact on producing disparate social interactions between their children and so pass on the socioeconomic status across generations.
The Great Gatsby Curve can develop when changes in the cross-section distribution of income modify the nature of the equilibrium segregation of families.
Another theory of the cause of the Great Gatsby Curve puts stress on consequences of redistributive policies emerging from the choices of voters.
These models put a strong emphasis the role of the political process in determining public educational investments.
The redistribution preferences of voters are potentially formed by their beliefs, and when these beliefs are influenced by inequality, another channel for generating a Great Gatsby Curve is being formed (higher inequality generates demand for higher redistribution - because the median voter becomes relatively poorer).
On the other hand, in a “Euro-pessimism” equilibrium, the society believes that luck, birth, connections, and corruption are the major determinants of income.
A study showed that the more meritocratic societies, the greater inequality and lower mobility due to the incentives to invest in descendants are enhanced among the wealthy.
Aspirations are affected by family and social influences in such ways that generate significant dispersion in ambitions with the increase in inequality.
These countries, such as Switzerland, Italy, France, and United Kingdom, are situated in the middle of the Great Gatsby Curve.
[18] Surprisingly, the United States of America, which is perceived as the country of equal opportunities, is located in the middle of the curve.
The levels of economic inequality in Latin American are enduring and abnormally high in comparison with other parts of the world (Lopez-Calva and Lustig, 2010).
[16] Another research considered inequality and intergenerational mobility in educational attainment (instead of income and earnings) using data for 18 Latin American Countries throughout the last 50 years.
[25] We can see the Great Gatsby curve from another perspective, such as how many generations it takes for a low-income family to reach the average income.
[26] The relationship between inequality and mobility can also be seen using the number of generations, as the time, which is necessary to the improvement of low-income family to the social leader.
[28] As in the classical interpretation of the Great Gatsby Curve, the lowest inequality can be seen in Nordic countries, and it only takes about two to three generations.
Due to the higher inequality and high elasticity, it takes seven generations for a low-income family to reach the average income.
