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Here is the source for the “Great Gatsby Curve” in the Alan Krueger speech at the Center for American Progress on January 12

January 12, 2012

In the speech he gave at the Center for American Progress on January 12th, Alan Krueger, the Chairman of the Council of Economic Advisors, presented the “Great Gatsby” curve: the relationship between inequality and generational earnings mobility, citing in part a 2011 paper of mine.

Here is the draft of the paper from which some of the data he used were drawn, in particular see Figures 1 and 2:

Inequality from generation to generation the United States in comparison

Here is Figure 2, my version of the Great Gatsby Curve for a wider set of countries:

The discussion I offered in an earlier post also uses this information and relates to this theme: Inequality and Occupy Wall Street 5: decline of the American Dream

Here is the text of Krueger’s speech Alan Krueger, The Rise and Consequences of Inequality, Text, and here are the associated slides Alan Krueger, The Rise and Consequences of Inequality, Slides .

[Update: this post was updated on January 27, 2012 with a new version of the text "Inequality from Generation to Generation..." and the associated figure. This text can be cited as:

Miles Corak (2013), "Inequality from Generation to Generation:  The United States in Comparison," in Robert Rycroft (editor), The Economics of Inequality, Poverty, and Discrimination in the 21st Century, ABC-CLIO.

A complete list of references used to develop the estimates of the Intergenerational Earnings Elasticity is available here: References for intergenerational earnings elasticities. The following is a graph showing the exact values of the estimates.]

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29 Comments
  1. CMH permalink

    You mentioned in a separate post that this paper is forthcoming. Could you provide information on where is will be published so it can be properly cited? Thanks!

    • The paper will be published under the same title in Robert Rycroft (editor), The Economics of Inequality, Poverty, and Discrimination in the 21st Century. ABC-CLIO.

      My understanding is that the publication date will be 2012, but I am not certain about that.

      The version of the paper I have posted is a draft version, and I will be re-posting the final version shortly.

  2. Robert Synnestvedt permalink

    Fascinating. What of intergenerational elasticity per income percentile? Is it higher at the top and bottom than in the broader middle class?

    • This is an important question, and thanks for raising it. Much of the literature assumes that the elasticity is the same regardless of the father’s place in the income distribution, and as such the resulting calculations should be considered as an overall average indicator of the degree of relative mobility.

      It is a challenge to get estimates of the elasticity for each percentile of the father’s distribution because of the need to have a very large number of observations on father-son earnings. In some countries this is possible because researchers use administrative data associated with government programs.

      Using Canadian data a co-author and I have found that the elasticity does change according to the father’s ranking: being lowest at the bottom, rising over the lower half of the earnings distribution, and falling over the upper half, before rising sharply for very high earnings — the top 5% and higher. See the paper we published in the Journal of Human Resources.

      Nathan Grawe also discusses this issue, and the proper interpretation in a series of papers, one of which is also published in the Journal of Human Resources.

      The evidence for the United States is a bit ambiguous, in part because of data limitations associated with sample sizes, but there is a good comparative study suggesting that in the US and UK the pattern is linear, which differs from the findings for the Nordic countries they study. The abstract of the paper — which was published in the Economic Journal — reads:

      We show that the patterns of intergenerational earnings mobility in Denmark, Finland and Norway, unlike those for the US and the UK, are highly nonlinear. The Nordic relationship between log earnings of sons and fathers is flat in the lower segments of the fathers’ earnings distribution – sons growing up in the poorest households have the same adult earnings prospects as sons in moderately poor households – and is increasingly positive in middle and upper segments. This convex pattern contrasts sharply with our findings for the US and the UK, where the relationship is much closer to being linear. As a result, cross-country comparisons of intergenerational earnings elasticities may be misleading with respect to transmission mechanisms in the central parts of the earnings distribution and uninformative in the tails of the distribution.

  3. Geoff permalink

    Ok so I’ve just scratched the surface of the Gatsby Curve and its implications but was wondering if “father-son” income really means exactly that of father to son rather than household income to children. I know I live in a two income home as do many if not the majority of my neighbors. Many are also having fewer children. Granted this is one very unscientific observation but if these factors were even marginally wide spread would that not have a dramatic change in the curve? Would really appreciate some more education on these thoughts and rantings.
    Cheers,

    • Thanks Geoff. Yes, strictly speaking this is exactly what it is: the percentage point difference in a son’s adult earnings associated with a 1 percentage point difference in the father’s earnings. This is the most common way of measuring relative generational mobility, and therefore offers the most scope for comparing as many countries as possible. By focusing on father’s and son’s this puts aside issues associated with changing labour force participation of women, and with the dynamics of the marriage market.

      But this is not to say these other dimensions, including the use of family income, have not been done in the research literature. In particular, some of the recent findings from the PEW Charitable Trusts Economic Mobility project tend to focus on family income, and a whole host of academic studies do as well. There is not much difference between these estimates and the father-son estimates for countries, like the US, where both sets of estimates are available. But even so, to answer your question — the Great Gatsby Curve depicts father and son earnings, and it does so to get as many countries as possible into the analysis.

      I hope this helps, but let me know if you want more detail.

      best, m.

  4. Oliver permalink

    Does Figure 1 present a picture of the world in 2012, or does it refer to a different year?
    Thanks

    • It refers to the adult outcomes of a group of children who were, roughly speaking born in the mid 1960s, and whose adult earnings were measured, again roughly, around the year 2000.

  5. David Frick permalink

    What does “income” entail in this study? Does it incorporate social transfer payments and after-tax income?

  6. Renzo Onton permalink

    Hi Miles, I´m working in my university thesis, and I´m doing it about the great gatsby curve. I want to focus on my country, Perú. I need your help because is difficult to find data here about fathers and sons incomes. So please if you can help me by telling me what sources did you use, it would be really helpfull.

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