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Great Gatsby Curve

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Summary

The Great Gatsby Curve illustrates a strong positive relationship between a country’s income inequality and its intergenerational income persistence, showing that higher inequality tends to coincide with lower mobility (Business Insider, Brookings).

It was popularized in January 2012 by Alan Krueger, based on earlier work by Miles Corak linking Gini coefficients to intergenerational elasticity (Brookings, Miles Corak).

Definition

The Great Gatsby Curve plots:

  • Horizontal axis: a country’s Gini coefficient (0 = perfect equality to 1 = perfect inequality) (Wikipedia).
  • Vertical axis: intergenerational income elasticity, which measures how strongly children’s incomes reflect their parents’—higher elasticity means less mobility (Chicago Fed).

Origins

  • Miles Corak first documented that cross-country data showed higher inequality associated with greater income persistence across generations (Miles Corak).
  • Alan Krueger coined the term “Great Gatsby Curve” in a speech at the Center for American Progress in January 2012, drawing on Corak’s findings (Brookings).

Mechanisms

  1. Returns to Education: When education generates higher earnings, wealthier parents invest more in their children’s schooling, amplifying inequality’s impact on mobility (Brookings).
  2. Social Networks: In highly unequal societies, children from low-income families face greater barriers to job networks and internships, reinforcing persistence (Brookings).

Empirical Evidence

  • Country-level analyses confirm the Curve’s pattern across OECD and non-OECD nations (Business Insider).
  • A Becker Friedman Institute working paper extended the analysis in multiple dimensions, including measures of inequality of opportunity (BFI PDF).
  • Even in academic publishing, an “academic Great Gatsby Curve” shows that citation inequality correlates with persistence of scholarly impact (PMC).

Uses and Policy Implications

  • Advocates use the Curve to argue for progressive taxation, universal education, and social safety nets to boost mobility (Sustainability Math).
  • International bodies like the OECD and World Bank reference the Curve when designing policies to reduce inequality and improve equality of opportunity (OECD, World Bank).