The Great Gatsby Curve illustrates the connection between concentration of wealth in one generation and the ability of those in the next generation to move up the economic ladder compared to their parents.
The curve was introduced in a 2012 speech by chairman of the Council of Economic Advisers Alan Krueger, an economist and a former chairman of the Obama administration’s Council of Economic Advisers, and the President’s Economic Report to Congress.
As Chairman Krueger explained in his speech, The Great Gatsby Curve illustrates the connection between concentration of wealth in one generation and the ability of those in the next generation to move up the economic ladder compared to their parents.
The curve shows that children from poor families are less likely to improve their economic status as adults in countries where income inequality was higher – meaning wealth was concentrated in fewer hands – around the time those children were growing up.
So why does this matter for the United States? The U.S. has had a sharp rise in inequality since the 1980s. In fact, on the eve of the Great Recession, income inequality in the U.S. was as sharp as it had been at any period since the time of “The Great Gatsby.”
“While we will not know for sure whether, and how much, income mobility across generations has been exacerbated by the rise in inequality in the U.S. until today’s children have grown up and completed their careers,” he said, “we can use the Great Gatsby Curve to make a rough forecast.”
According to projections, “the advantages and disadvantages of income passed from parents to the children is predicted to rise by about a quarter for the next generation as a result of the rise in inequality that the U.S. has seen in the last 25 years,” he said.
It is hard to look at these figures and not be concerned that rising inequality is jeopardizing our tradition of equality of opportunity. The fortunes of one’s parents seem to matter increasingly in American society.
Children of wealthy parents already have much more access to opportunities to succeed than children of poor families, and this is likely to be increasingly the case in the future unless we take steps to ensure that all children have access to quality education, health care, a safe environment and other opportunities that are necessary to have a fair shot at economic success.