Implications of the Great Gatsby Curve

Despite the notion that hard work pays off, we live in a world which more readily rewards wealth rather than hard work. The resulting lack of intergenerational social mobility is not good news for contending with the glaring disparities which now exist across and within most countries of the world.

In 2011, the economist, Miles Corak, coined a term, the “Great Gatsby Curve” to describe the inverse relationship between income inequality and intergenerational mobility. Many other economists are now also arguing that it is harder for the poor to climb the economic ladder today because the rungs in that ladder have grown farther apart.

Simply put, the idea of the Gatsby Curve argues that social connections are important for success in the economy. Wealthy parents have access to these social networks which enables their children to do well. On the other hand, children from less privileged families are in a disadvantaged position in terms of gaining access to the networks which will ultimately lead to a higher income. This situation holds true not only in patronage-based poorer countries like ours, but also in market-driven rich countries like the US. Inequality is now a global phenomenon, and in most unequal societies, children from low-income families find it very difficult to achieve social mobility.

The UN’s Human Development Report (HDR) for 2019 has also endorsed the idea of the Gatsby Curve, and linked it to the notion of human development. Originally, this notion had highlighted the correlation between higher income inequality and lower intergenerational mobility with regard to income. The HDR has shown how income inequality also impacts human development indicators across generations. HDR data demonstrates how inequality in human development indicators results in lower intergenerational mobility in terms of income, and vice versa.

The findings of the HDR make intrinsic sense considering that intergenerational lack of social mobility can cause lifelong disadvantages. Inequalities often start before birth, and inequality gaps are then compounded over a person’s life. This is because inequalities manifest themselves in varied ways, where health, education and socioeconomic status all impact each other. Consider, for instance, how children born to low-income families are more likely to have poorer health and lower education. In turn, those with lower education are less likely to earn as much as children who were raised in households with higher incomes. And when children grow up, if they partner with someone who has a similar socioeconomic status, as is often the case (according to the phenomenon known as “assortative mating”), inequalities tend to persist across generations.

The above cycle is often difficult to break because of the ways in which inequality in income is also associated with a lack of political power. Those in positions of power generally tend to advocate elite-led growth rather than opting for redistributive policies which would take wealth away from them and channel it towards the have-nots. Yet, some societies do have more mobility than others. In Scandinavian countries and others, which have more progressive taxation policies and where state institutions provide effective education and employment opportunities, social mobility is more likely. In many other countries, however, it is the wealthy that shape policies that favour themselves and their children to help sustain the accumulation of income and opportunity at the top. It is not surprising, then, that both social mobility and human development achievements tend to be lower in countries where income gaps are higher.

While there are always exceptions to the rule, those who do well themselves are able to pass on their success to their next generations, whether they work hard or not. The lack of social mobility leads to stagnation, stifles innovation, and breeds frustration. Despite all the rhetoric encouraging young people to strive in order to overcome deprivation, we still live in a world where the adage of “nothing succeeds like success” continues to persist.

Published in The Express Tribune, January 10^th, 2020.

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