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Middle Class Series: 5 Charts that Show How Increasing Income Inequality Leads to Less Opportunity

Nongyu Li, at left, holds his yet to be named newborn daughter alongside his wife Jennifer Gu

SOURCE: AP/ Marcio Jose Sanchez

If there is high income inequality, children will likely experience low economic mobility and opportunity as adults.

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High levels of income inequality are associated with low levels of economic mobility, argues University of Ottawa economist Miles Corak in a new report from the Center for American Progress. Here are some key charts from the report, “How to Slide Down the Great Gatsby Curve,” that explain this phenomenon.

Note: The “intergenerational earnings elasticity” measure used in the charts below describes the percentage of a parent’s relative income position that his child inherits. A higher elasticity means lower economic mobility, as this means a child’s relative income position as an adult is more determined by his father’s position than by other factors. (All of the academic research in this area looks at father-son pairs because of data availability.)

The Great Gatsby Curve shows that children born in countries with high levels of income inequality will experience less economic mobility on average than children born in more equal countries. (see Figure 1)

Economic mobility is determined by three major institutions that all interact with income inequality: the family, the market, and the state. Changes in any of these three areas affect the rate of mobility in a country. (see Figure 2)

Countries with high levels of income inequality also have higher levels of teenage parenthood. Teenage parents cannot invest in their children as much as other parents can due to their lower average incomes and lower levels of human capital, which harms the chances for opportunities for their children. (see Figure 3)

Countries also have lower levels of intergenerational economic mobility when the difference between the pay of college graduates and noncollege graduates is larger. (see Figure 4)

Access to high-quality education is also important, as countries have lower levels of economic mobility when a child’s educator is more determined by who educated her parent. (see Figure 5)

As these charts show, economic mobility is largely associated with the level of income inequality in a country. If there is high income inequality, children will likely experience low economic mobility and opportunity as adults. Families, the market, and the state largely determine life chances for the future generation of citizens, and several factors can improve these outcomes for children. For a more detailed description, please see our report.

Nick Bunker is a Research Assistant with the Economic Policy team at the Center for American Progress.

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This is part of a special series: Middle Class Series

For more from this series, click here