• Countries with high income inequality tend to have low upward economic mobility, which can affect the opportunity for future generations to move up the social ladder.
  • The “Great Gatsby Curve” was made famous by Alan Krueger, late economist and former chairman of the Council of Economic Advisers.
  • Krueger expanded upon research about the association between a country’s income inequality and the relationship between children’s and their parents’ income.
  • Nordic countries that have low inequality and low elasticity fall at the bottom of the curve, while the US falls in the middle.

Countries with high income inequality experience low upward mobility — the opportunity for a child born into a low-income family to climb the economic ladder — meaning social stratification could persist if nothing is done to improve mobility.

According to The Organisation for Economic Co-operation and Development’s Society at a Glance 2019 report, income inequality within countries has continued to increase over the past three decades. The income distribution gap is particularly bad in developing countries.

The “Great Gatsby Curve” highlights differences in mobility across countries. The scatter plot shows the relationship between income inequality and intergenerational income mobility. It became a popular concept in 2012 after late professor and Chairman of the Council Economic Advisers Alan Krueger explained the curve and its implications during a speech at the Center for American Progress.

The following chart shows the Great Gatsby Curve. The vertical axis shows the intergenerational elasticities compiled by Corak using previous research papers that focus on intergenerational mobility in different countries. A lower intergenerational elasticity means that there is higher income mobility in that country because there is a weaker relationship children and their parents’ incomes. The details are explained below the chart:

great gatsby curve

Business Insider/Madison Hoff, data from Miles Corak (2012), OECD, and World Bank

The horizontal axis shows the Gini coefficient using values from World Bank data from 2013-2017 (except for Japan, with a coefficient from 2008 and New Zealand, from the OECD 2014 Gini coefficients.) A higher value on the horizontal axis means a country has a more unequal distribution of income.

Read the rest of Madison Hoff ‘s article here at Business Insider