What Is the Great Gatsby Curve?
The Great Gatsby Curve illustrates the relationship between income inequality in a country and the potential for its citizens to achieve upward mobility. Graphs that depict these two variables suggest a strong positive correlation between inequality and a lack of upward advancement from one generation to the next.
The term “Great Gatsby Curve” was first coined by Alan Krueger, then chair of the Council of Economic Advisers under President Barack Obama, during a 2012 speech to the left-leaning Center for American Progress. The name alludes to the classic novel by F. Scott Fitzgerald, which dramatizes the chasm between intergenerational wealth and the newly rich during the Jazz Age.
- The term “Great Gatsby Curve” was created by Alan Krueger, chair of the Council of Economic Advisers under President Barack Obama.
- The Great Gatsby Curve shows the relationship between income inequality and the potential for its citizens to achieve upward mobility across multiple countries.
- The concept has gained favor with progressive economists, who tend to believe that the relationship between inequality and lack of advancement into higher income tiers is causal.
- Critics of Krueger, including pundits and economists on the right, suggest that factors beyond inequality could explain the lack of upward mobility.
Understanding the Great Gatsby Curve
The Great Gatsby Curve depicts the relationship between income inequality—that is, the gap between the richest and the poorest in a particular country—and the ability of individuals from lower-income backgrounds to move up the economic ladder.
In Krueger’s original depiction of the curve, the horizontal (X) axis represented income inequality. Countries on the left side of the graph exhibit a more even distribution of wealth among citizens. But nations appearing on the right are those in which wealth is concentrated among a relatively small percentage of the population.
Meanwhile, the vertical (Y) axis illustrates intergenerational earning—also called “elasticity” or “stickiness.” The higher up on the Y-axis that a country sits, the greater the relationship between the parents’ income and that of their children. Therefore, countries with a greater degree of income elasticity have lower levels of upward mobility.
To demonstrate inequality by country, Krueger used after-tax income data from the mid-1980s. It was calculated using a statistical tool known as the Gini coefficient, which shows the relationship between different economic tranches in a given population and their income level.
As the above graph suggests, countries with relatively low inequality, such as Finland and Norway, tend to have a lesser degree of generational earnings elasticity. In other words, those born into lower-income households have a greater ability to advance as they become adults. Conversely, countries with a greater level of inequality, such as the United States and the United Kingdom, have less upward mobility.
The term “curve” to describe this relationship between these two inputs can be misleading, as the trend line across different developed countries reflects a fairly straight line.
Implications of the Great Gatsby Curve
In statistical analysis, correlation does not necessarily prove causation. Therefore, the fact that societal income inequality tends to coincide with less upward mobility does not mean that inequality, in and of itself, is the cause of that income stickiness.
Yet Krueger and other progressive economists have implied, if not directly asserted, a level of causation. In the same speech in which he introduced the Great Gatsby Curve, for example, Krueger voiced support for initiatives that aimed to mitigate income inequality in the United States, including the Affordable Care Act and extended unemployment benefits.
David Vandivier, chief of staff of the Council of Economic Advisers during the Obama administration, picked up on Krueger’s concept. Writing on the official White House blog, he used the relationship between inequality and lack of mobility to push for programs such as universal preschool and a higher minimum wage.
Progressive economists frequently point to the growing gap between lower- and upper-income earners as evidence that such policies are necessary. A Pew Research Center report found that from 1970 to 2018, the median income of members of the middle class increased by 49%. For those in the lower-income tier, the income gain was 43%. However, those in the upper-income bracket saw their income increase by 64% during that same period.
Criticism of the Great Gatsby Curve
Several right-of-center economists and pundits have attempted to poke holes in Krueger’s conclusion, arguing that inequality does not inherently inhibit upward mobility.
Writing for the conservative National Review in 2013, Hillbilly Elegy author J.D. Vance suggested that the different demographics and cultures in each country could be a larger influence on mobility than income parity. “The Gatsby chart, with one fell swoop, reduces those differences to a single liberal talking point,” he wrote. “That’s a reasonable tactic if you want to score political points; it’s virtually useless if you want to understand what drives economic immobility (which, again, is too high).”
This point seems to be supported, at least partially, by a 2019 meta-analysis conducted by sociologists at Texas A&M University and Delaware State University.
They found that inequality was highly correlated to intergenerational wealth when looking across different countries; however, when looking at changes to a given country’s inequality over time, the relationship to upward mobility was not always statistically significant.
What is the Great Gatsby Curve?
The Great Gatsby Curve is a graphic representation of the relationship between income inequality in a given country and the potential for its citizens to achieve upward mobility. When looking at developed countries around the world, there appears to be a strong positive correlation between inequality and wealth “stickiness”—that is, a lack of movement up the economic ladder.
What are the implications of the Great Gatsby Curve?
Progressive economists—including Alan Krueger, who coined the term in 2012—suggest a causal relationship between inequality and upward mobility. This contention has been used to advocate any number of policies that aim to reduce income and educational inequality. That list includes everything from raising the minimum wage to providing subsidies for health insurance through the Affordable Care Act.
How does the Great Gatsby Curve represent inequality?
The Great Gatsby Curve represents inequality by showing that citizens in countries on the far right of the horizontal axis and high up on the vertical axis will have a more difficult time moving from a low economic class to a higher, wealthier economic class. Conversely, citizens in countries on the left of the horizontal axis and the bottom of the vertical axis will have a better chance of upward mobility.