Is it easier to have a great career for children of rich parents than for their peers with poorer parents? How does the parents’ income affect their offspring’s income? Or more generally, does income inequality enhance or prevent intergenerational mobility? Without drawing any causal conclusion, Corak examined the so called Great Gatsby Curve – a relationship between income inequality, measured by the Gini coefficient, and intergenerational earnings elasticity used as a proxy for intergenerational mobility. In order to avoid problems associated with women’s positions on the labor market, the author considered only the father-son path.
While more egalitarian countries (Finland, Norway, and Denmark) exhibit more mobility, in countries with (relatively) higher Gini coefficient such the U.S., Italy, and the United Kingdom, people are less likely to move up or down in income distribution across generations. This, however, does not mean that other countries offer more of the “American dream” than the U.S. itself as the intergenerational earnings elasticity does not take into account the differences in opportunities.
The author also discussed the increasing chasm in enrichment expenditures between high income families and bottom income families, indicating that money indeed matters when it comes to career.
Reference: Corak, M. (2013). Income inequality, equality of opportunity, and intergenerational mobility. The Journal of Economic Perspectives, 27(3), 79-102. Available here.