Abstract
Empirical findings suggest a positive correlation between inequality and social immobility, a phenomenon coined the Gatsby curve. However, complete explanations of the phenomenon have not yet been proposed. This paper answers two questions: What are Gatsby curves? When do they exist? We build a theoretical environment in which parental investment and education improve the economic prospects of children. Gatsbian economies and Gatsby curves are formally defined, and we characterize the conditions under which they will arise. We show that an economy may go from being Gatsbian to non-Gatsbian. Finally, we show that the better network of relations of those with high-paying jobs may also generate a Gatsbian economy.
Highlights
In this paper, we provide answers to two important questions: What are Gatsby curves? When do they exist?Recent empirical work suggests a positive correlation between income inequality and social immobility, a phenomenon coined the “Gatsby curve” by Krueger (2012)
The x-expansion path in the inequality-immobility space may have both positively and negatively-sloped portions. This last point is related to a key phenomenon that has been ignored in the applied theoretical literature on Gatsby curves, which is our fourth contribution: we show that inequality is a non-monotonic function of the proportion of low-income individuals in the economy
As is suggested by the empirical literature, we show that the better network of relations of those with a high-paying jobs can generate a Gatsbian economy
Summary
We provide answers to two important questions: What are Gatsby curves? When do they exist?. Our theory encompasses mobility as the probability that a child earns an income di↵erent from that of his parent It further defines inequality using the proportions of high- and lowincome individuals. An economy is said to be x-Gatsbian when a change in x leads to a simultaneous increase (or a simultaneous decrease) in inequality and immobility This is equivalent to moving along the positively-sloped portion of the x-expansion path in the inequality-immobility space. The x-expansion path in the inequality-immobility space may have both positively and negatively-sloped portions This last point is related to a key phenomenon that has been ignored in the applied theoretical literature on Gatsby curves, which is our fourth contribution: we show that inequality is a non-monotonic function of the proportion of low-income individuals in the economy.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
