The Short and Long Run Dynamics of the Great Gatsby Curve

The strong evidence in support of the Great Gatsby Curve (i.e. the negative crosssectional relationship between intergenerational mobility and inequality) seems to be at odds with the fact that large increases in inequality in the US have not resulted in decreases in mobility. We solve this puzzle by measuring, for the first time, a dynamic version of the “Great Gatsby Curve” that relates changes in inequality to changes in intergenerational income mobility. We find that across US counties and during the last century the relationship is weak and unstable over relatively short intervals of two decades, but negative and significant over a longer period of almost a century. The historical record suggests that if the large increase of inequality observed in the US does not reverse, this may result in substantially lower socioeconomic mobility in the long term, even if mobility has not decreased yet. We complement our analysis with a study of the relationship between income inequality and the intergenerational mobility of education finding a stable dynamic correlation over the short run, suggesting that the process of human capital accumulation is a significant driver of the empirical relationship between inequality and intergenerational income mobility