The Not-So-Great Gatsby Curve

As the issue of inequality has become more politically and socially salient, researchers are increasingly “connecting the dots”–finding and measuring relationships between social phenomena that may not appear on the surface to be related.

It’s one thing to measure economic distances; to draw conclusions about the ability of low-income workers to afford to rent a two-bedroom apartment, for example. Such statistics represent only a fraction of the social damage done by rising levels of poverty and inequality, but they do offer a window into individual struggles that lead to other, less tangible and/or immediately obvious harms.

The United Ways of Indiana recently issued a comprehensive analysis of the financial distress experienced by “Alice”– Alice being an acronym for Asset Limited, Income Constrained, Employed. These were households with income above the federal poverty level, but below the actual, basic cost of living.  The research concluded that more than one in three Hoosier households cannot afford the basics of housing, food, health care and transportation, that 37% of Indiana households live below the Alice threshold, that these families and individuals have jobs, and many do not qualify for social services or support, and that despite the importance of their jobs to their communities,  they are unsure if they’ll be able to put dinner on the table each night.

Other researchers are beginning to investigate the ancillary effects of living like Alice–including the consequences for physical and mental health of individuals, the diminished prospects of their children, and the effects of inequality on America’s social fabric.

The Brookings Institution, for example, recently issued a disheartening study about inequality and stress.

Income and opportunity are increasingly unequally shared in the United States. It turns out that there are also significant inequalities in happiness, stress, and optimism about the future… The poor have lower levels of life satisfaction than the rich, they are far more likely to experience high levels of stress and worry, and they are far less optimistic about the future. They are also less likely than the rich to believe in the American Dream: that hard work can get them ahead.

An important question is how far these inequalities relate to each other. One of most well-known connections is the one between income inequality and intergenerational mobility, labeled the “Great Gatsby Curve” by Alan Kreuger. The idea behind the curve is that inequality in parental incomes (and other means) will result in even greater inequality for their children, as children’s opportunities are increasingly linked to their parents’ means.

The report makes the case that stress related to issues of survival–can I pay my rent this month? Will I lose my job if I stay home with my sick child?–is significantly different in kind and impact from the sorts of stress experienced by middle and upper income individuals. Those issues–Will I get that promotion? Will I get into my first choice law school? Will Heather go with me to the prom?– just aren’t in the same league, stress-wise.

The whole study is worth a read, but I was especially struck by the finding that there was “a higher concentration of both stress and worry among the poor in more unequal MSAs. Stress levels among the rich, by contrast, were essentially the same across cities.”

It has long been known that societies with stronger social safety nets have lower incidents of social dysfunction: everything from out-of-wedlock births, to divorce, to crime and violence. A recent study highlighted by Vox connected inequality to death rates.

Eventually, perhaps we’ll recognize that remedying the costs of social dysfunction is more expensive than a social safety net, and far more expensive than paying people a living wage.


  1. Sheila; this is one of the most important blogs you have posted, for many reasons. The difference in living conditions between 1% and the remaining 99% in this country is obvious but this blog takes us down to the nitty-gritty of the reality of life in this country. When you factor in those on Social Security, Social Security Disability, VA Disability and others who are not employed but have some source of income; the percentage will be much higher than the Alice 37% referred to.

    We pay the same taxes, except income tax, as the rest of the country and pay the same prices for everything we purchase plus sales tax; I am referring to only purchasing basic, needed items and regular payments such as utilities and “extras” including medical needs, gas for vehicles, school materials from parent’s limited budgets, the list is endless. Look at your monthly utility statement and your cable bill for the list of taxes and “applicable fees”. Now, we are receiving notices that utility access lines and wires are our property making it our maintenance financial responsibility and they kindly add an “insurance policy” application for our convenience and benefit. Is this legal?

    The United Ways of Indiana study provides valuable statistics but there are more statistics to be found buried under those uncovered by this study and Mr. Kreuger’s “Great Gatsby Curve”. We are victims of the system, the bureaucratic rulers of our lives; not even voting will relieve us of these unavoidable debts to maintain basic survival.

  2. Thanks Prof. In my opinion, the best thing we can do is connect people with jobs. Bring as many jobs home as possible. LOOK at the labels, When one is China, the other is USA, always get the USA product. If you want your children and their children to have good lives, then you must try to support the US Economy. some of this stuff is complicated, some is simple. Look at INDY 50 Years ago. MANY huge plants that provided a living wage to Indy folks: RCA, Chrysler, Ford, GM, Bell Telephone(AT&T) and on and on. They did NOT require advanced degrees but provided a good life for middle class families. Now we get our goods a little cheaper at WalMart but so many good paying jobs are gone to Asia. We can have SOME input on these. Using our $$ We can make a difference. It will not solve everything, but no one thing will. PLEASE buy USA Products whenever you can. Simple Example: There are about listings of ALL the tire manufacturing plants. The plant # is on your tire sidewalls. Learn how to read the Tire Labels. You can insist that the tire store ONLY use USA Built tires on your car/truck or SUV. Even though many manufacturers are owned by foreign concerns, many of our tires are still built in the USA–by hard working American workers. TRY to buy those and skip over the foreign choices. IT all is part of the puzzle.
    Your family and community need your help. Please do what you can. Thanks !!

  3. Excellent comments this morning on an important message. Bringing about some level of income equality will be a daunting task for sure. There are many complicated facets to unravel, but starting with a living wage and bringing back regulations for Wall Street would take us way down that road. Lord knows we have enough “programs” to sooth over the crimes of the rich. What we need are “laws” with teeth to reign in the greed that is destroying the country. And there is only one presidential candidate proposing to do that … Bernie Sanders.

  4. There are those who say an increase in the minimum wage hurts the “job creators”. Let’s be clear about what actually creates jobs. Demand for goods and services creates jobs. How do we increase demand? We increase the expendable income of those most likely to spend it. Let’s not only increase the minimum wage, but tie it to inflation, so that we never see this type of disparity again.
    As to Social Security, we can fix that system by requiring that fica taxes be paid on all earned income, not just on the first $118,000. Then go back to the pre Reagan days when we didn’t use the SS trust fund to cover other government spending.

  5. This is a big part of the insanity – “These were households with income above the federal poverty level, but below the actual, basic cost of living.”

    When was the last time that the Federal Poverty Level was updated? In a sane world how can it possibly make sense that earning less money than it takes to afford the actual basic cost of living be considered earning above the Federal Poverty Level?

    The low wage employers continue to receive taxpayer assistance to their bottom line while they rake in their profits and smile all the way to the banks. Why do we allow these large employers to bilk the system for their personal gain while they enslave their low-wage employees?

    I would rather see a $15 minimum wage and watch our economy grow. If some people lose their jobs, then we can continue to support them with taxpayer assistance. However, I imagine that what few jobs are lost will be replaced by much better jobs that enable a much better standard of living.

    Enforcing a realistic minimum wage will help our country and our economy overall. The only people that ‘may’ suffer are the employers that have been allowed to get away with slavery. Once they no longer rake in profits at the expense of taxpayers, their bank accounts will stop growing. They might sadly suffer a loss of a few billion dollars.

  6. Anyone else notice that so far it is only we “girls” responding this morning? Are the guys thinking up excuses; they are paid higher wages in the vast majority of jobs. In most families I know, we do the bill paying and budgeting, maybe we are more aware of where the money goes. Just sayin’

  7. I have written just over 1,000 blogs and many of them have to do with wage and wealth inequality. We are a very wealthy country but that is not the problem; the problem is how to fairly and equitably distribute the income and wealth from our economy to all of those of us who are involved in it, either as producers, investors, consumers or whatever. The one percent started to hog both the income and wealth created by our economy (including the marginal productivity of corporate workers) in the middle 1970s and as a result we have suffered (inflation-adjusted) wage stagnation ever since – now in its fourth decade. In my view, this and its effect on aggregate demand constitutes our main economic problem in our country today (unlike in some social democratic states in Europe where their economy’s income, wealth and marginal productivity of their workers are broadly shared and demand for goods and services in their markets is anything but tepid – as it is here).

    The overall result in such European states (with occasional ups and downs due in part in one instance in which our failure to regulate our big banks in 2008 led to international chaos in financial markets) is that those who populate such economies have fashioned a solid middle class, enjoy good wages, excellent medical care etc., and have disposable income with which to travel abroad, while the companies they work for are buying U.S. companies one by one (Smithfield Ham is now owned by Chinese interests; the first ten biggest breweries in America are owned by overseas interests etc.). All are prospering because all are sharing in the fruits of their respective economies, unlike here, where the one per cent is booming and the rest of us live on a different plane in this two-tiered economy.

    More enlightened societies such as these (though excluding China) are proving to the world that managed capitalism can work for everyone. They invest in their people, and their people respond as efficient producers. Here we invest in Wall Street and the people are sullen producers since they are left to their own devices with a political class determined to keep it that way, and the difference in the result is glaring in terms of the relative efficiency of their economies and ours. In plain words, “Why should we work hard for starvation wages?” Good point.

    As to the Gatsby effect, it is no surprise that children from gated communities go to Ivy League schools and children from slums go to jail. What other result could we imagine given the present political configuration? I encourage all readers of this to read Piketty’s extensive treatment of inherited wealth in its Gatsby connection and its effect upon the future of capitalism in his book, Capital in the Twenty-First Century. I think his conclusions on the topic backed by three centuries of research strongly support a wealth tax on capital that is inherited rather than earned and which plods on out of reach from one generation to the next in Swiss banks or other such havens.
    It seems to me that any reform of our latter-day feudal mindsets in our current noble-serf economy will have to be political, and it’s possible. FDR proved that, and so can we, so let’s do it!

  8. Here’s what history predicts will happen when Hillary or Bernie take over from Obama.

    The economy will continue to grow as it did under Bill Clinton and Obama. There will be a more robust middle class, and a shrinking underclass both with more education, healthcare, nutrician, more public help in recovering from man made climate disasters and public safety.

    The wealthy class will still have their airplanes, ships, lavish cars and mansions and in all of the best places and generations worth of resources in the bank.

    How’s that possible? They will adapt. They will take their wealth out of grandpa’s favorite investment fossil fuels and instead own windmills and solar plants and electric car companies and recharging, not refueling networks.

    If there is any lasting impact on the wealthy it will not be felt until generations out when great great great grandchildren may have to go to work for a living.

    The faked economic panic that they flood the airways with is meant only to keep their minions, read voters, in line and scared to death.

  9. Studies have shown that people living under economic stress – which causes stress across the board – have impaired cognitive abilities. Poverty affects the entire family, including children’s performance in school and the family’s overall health. I suppose that is an easy way to control the masses, but it’s at the expense of the entire society. The 1% can only do so much to wall themselves in from the crime and social ills that they cause in order to enrich themselves.

  10. We must also stop allowing taxable income to be hidden in foreign bank accounts.
    We must make Companies that have plants overseas restore production that once supported workers/families in the US economy… No longer robbing this economy of jobs… The minimum wage should actually be closer to $20 per hour when adjust for the inflation of the last 30 years.
    And I like what the previous writer said about tying the minimum wage to inflation so that no one ever falls behind again in this country…
    We must make Congress repay the the billions they usurped from Sicial Security!…
    We must give our veterans the kind of care that covers ANY after effects of war PERIOD!
    We must start the tedious task of putting this country back at the pre 1980’s level and lock it in!

  11. One factual correction. Congress didn’t borrow from the SS Trust Fund. It is required by law to be invested in Treasuries which are the safest investment in the world because they are backed by the full faith and credit of the people of America. While Republicans have tried their best to impune that it still stands as the world’s gold standard for safe investment.

  12. Pete; you do not risk my disapproval over serving yourself but you do wear out my patience at your lack of knowledge. If your reading comprehension level were up to par, you would have understood that my E-mail to you (YES, I sent Pete an E-mail) made no referral to space on the Internet but referred to the amount of limited space you use up on Sheila’s list of recently received comments from all readers. Your ego transcends your awareness of facts.

    Congress DID IN FACT in the latest budget “deal” again rob Social Security by diverting $150 BILLION from Social Security Retirement Fund to cover the shortfall in the Disability Fund. This “deal” is to be spread out over the next 3 years. Their version of balancing the budget is to rob Peter to pay Paul; this didn’t work in the past and will not work now. Congress has never repaid the millions (or is it Billions?) they “borrowed” years ago from Social Security. This is MY money and YOURS, Pete, and you should be as concerned about it as the rest of us are. Please read Ernest B. Greene, Jr.’s comments again; he knows whereof he speaks.

  13. Sheila – you are such a public service. Thanks for educating us. I’m sharing your blog again today with friends far and wide.

  14. How about income the massive income inequality between public-sector workers and the 150% income gap they enjoy over private-sector workers?

    Imposing excess-income taxes on public-sector workers, as well as employee benefits taxes on public-sector workers, and transferring the excess to private-sector workers who struggle to get by and have no benefits would do much to bring up the lower class and stabilize the middle class.

    If you’re in the public sector and making a penny over $60,000, the public needs to know why.

  15. Classic, Gopper, try to create class envy against anyone other than who created the problem. Because firemen are to blame, not hedge fund managers. More and more I am convinced you are not a real person but a character, either an agent of the GOP or maybe an invention of Sheila to offer the ridiculous talking points of the GOP as a contrast for this forum.

  16. Regarding Sheila’s blog, we talk and talk about minumum wages, bringing jobs back, etc., but we usually ignore the reality that we will need a redistribution scheme moving forward because of the increasing automation of our society, or we will need to kill off about half the population (don’t laugh, this has been done before elsewhere). We are going to have to change our entire culture as it has to do with personal value coming from work, or we can alternatively watch the unnecessary people starve. Right now about a third of the population is unnecessary. Think about that for a moment.

    The only way to stave this reality off, even partially, is education, education, education, and not with fees attached that create lifelong indentured servants to the lenders. So the GOP fights like hell to prevent redistribution and education. It is clear that they do not want a better future in general, but a horrific future of masters and slaves.

  17. Gopper; most public sector employees are different levels of support staff, known in Indianapolis for low salary levels. In 1991 my take home pay was $11,357. It was near $12,000 when I became disabled in 1994; PART of my job was records secretary for the Metropolitan Development Commission – the most powerful board in the state of Indiana. I had three other jobs; received one paycheck for all four. That was an increase from my beginning clerk-typist annual salary of $3,072 in 1972 at Indianapolis Police Department. Elected officials got the big bucks.

  18. Gopper, you’re falling for the 1%’s divide and conquer tactics. Yes, federal employees (state and local, not so much) earn more, on average, than do those in the private sector. But they don’t get rich; what they are is solidly middle-class. What they are paid is appropriate, for the most part, for their skills and experience.

    It’s the salaried “manager” of a retail establishment who works 55-60 hours a week for a salary of $35,000/year who is being treated unfairly, along with the $8/hour part-timers that s/he supervises. Their pay should be raised.

    Scott Walker and Mike Pence have both successfully exploited the rank and file’s envy of better paid union workers. We need to pay attention to the “man behind the curtain” who is the 1%.

  19. As usual liberals talk about the economy and conservatives about their economy. The economy does better during liberal government. To me that’s enough said. What happens within the economy to various individuals is not the government’s concern unless they are government employees.

  20. Peggy,
    I’m not on Mr. Bush’s fan list, but the business about him being the only one who “borrowed” from the SS Fund is incorrect. Like a lot of other things, it gets complicated really fast, where talking about government “deficits” and the government “borrowing” from itself is like talking quantum physics: a little different reality. Apparently, presidents have been doing this since 1935, but Mr. Bush “took” around $708 billion. Politifact explains the mess:

  21. “Yes, federal employees (state and local, not so much) earn more, on average, than do those in the private sector.”

    The discussion ends there.

    Public-sector employees need to be paid less than the private sector. Much less. The public sector is a tax on the free market, a cost on the free market. The public sector is employment forced on the producers, not chosen at market rates by the producers.

    The public sector should never be allowed to tax itself into prosperity at the expense to the producers.

    The benefits gap between the public sector and private sector needs to be addressed. These royal benefits public-sector employees enjoy should be taxed to income-norm the public-sector pay.

    Then let’s address the Job Security Gap the public sector enjoys over the private sector. If you’re with the same employer for more than 2.5 years, you should pay a Job Security Tax. In the private sector, people are lucky to have the same job for 18 months.

    Public-sector employees cannot be allowed to make more money, have greater benefits and greater job security than the private sector. The business of America is not government.

  22. Sheila: Nice one, as usual!
    Pete: Your 11:47 nailed it down!
    Thanks to all the others, too, who know what’s really going on! Some few unnamed are lightly tethered to reality and will just never get it.

  23. “Public-sector employees need to be paid less than the private sector. Much less.”

    Gopper; if the above sentence is how you really feel about this issue, you will be glad to know that my first job – $3,072 annually, $64 weekly take-home – qualified me for food stamps to feed my five children when their father refused. If you support those low salaries you must also support public assistance.

  24. Ginny:

    State and local public-sector employees clobber the private sector in benefits and job security. State and local public-sector employees also enjoy an income gap over private-sector employees, tough a bit less than the federal nobility.

  25. The job market (labor market) runs on the same basis as any market. Supply and demand.

    Gropper like many conservatives really hates competitive markets because they don’t advantage him or his cronies.

    So capitalism is really the province of liberals who are the force that maintains completion in all markets.

  26. Private company labor needs the return of unions. That way their needs can be represented in compensation negotiations like CEOs are with their agents.

  27. The web site Gopper listed is the American Enterprises Institute, a think tank. The article was authored by James Pethokoukis.

    “Some AEI members are considered to be some of the leading architects of the second Bush administration’s public policy.” “More than 20 members served in either a Bush administrative policy post or on one of the governments many panels and commissions.”

    I put little stock in anything from the second Bush administration, especially regarding public policy. We are still trying to survive the legacy left by the second Bush administration and looking at another Bush in the bushes who wants to return the country to those same Bush policies from the White House. Gopper strikes out again.

  28. Here’s how free markets work Gopper. If workers in given fields or skill levels sense that public service is more rewarding than corporate service they will migrate to the most rewarding career. If businesses are competent at managing they will respond with better compensation to match.

    There’s a name for that. Competition.

  29. Pete, please, please try being smarter.

    When the government enters a field, e.g., police, code enforcement, it doesn’t allow competition, and it extinguishes the market.

    You’re too old to be making statements that sixth graders wouldn’t make.

  30. Gopper. The reason that the government is in a market is because competition isn’t practical. Giving a market without competition to a make more money regardless of the cost to others is as dumb as is imaginable. Blank check.

    I know how you favor dumb things but the rest of us are smarter than that.

  31. is a Hotmail discussion page where everybody has something to say about something. I found one site listed as “dominatrix”, one as “white stuff vouchers”; guess Gopper thinks this is a great source for information. It pops up with the message, “Howdy Stranger, looks like you’re new here…”

    This one has left me without words…making Gopper and a few others happy, I’m sure. Check it out if you have nothing to do and wish to continue having nothing to do.

  32. JoAnn:

    Do you have a pre-2000 college degree in a real major?

    If you spent less time watching “Dancing with the Stars,” you might know that griping about a forum is a cheap substitute for addressing the argument. It’s called “ad hominem,” if you’d care to learn a new word for the day.

    Quit taking the easy way out.

  33. Gopper; “ad hominem” translates to “cheap shots”. Please check your name calling of Pete and I on your recent comments and you will see that you have out ad hominemed both of us., per the sites listed on Google, didn’t show anything worth an intelligent response; Partner, no college degree of any era required to respond.

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