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 distance, or 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 are a start; they 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 economics of inequality; the study described 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 research is beginning to investigate the non-economic effects of living as Alice—including the consequences for physical and mental health of individuals, the diminished prospects of their children, and the effects of Alice and inequality on America’s social fabric.

The Brookings Institution, for example, recently issued an interesting, albeit 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 survival—can I pay my rent this month? If I can’t get my car fixed, will I lose my job?—is significantly different in kind and impact from the sorts of stress experienced by middle and upper income individuals. (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 intrigued 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.”

We know that societies with stronger social safety nets have lower incidents of social dysfunction: indicators from out-of-wedlock births, to divorce, to crime and violence are all markedly better in such societies.

This Brookings research confirms, once again, that healthy societies require social supports.

Sheila Suess Kennedy teaches law and public policy in the School of Public and Environmental Affairs at Indiana University Purdue University at Indianapolis. Her scholarly publications include eight books and numerous law review and journal articles. Kennedy, a frequent lecturer, public speaker, and contributor to popular periodicals, also writes a column for the Indianapolis Business Journal. She blogs at www.sheilakennedy.net.