Miles Corak is a Canadian economist most famous for producing a chart showing that income inequality and upward mobility are correlated across nations. When Alan Krueger, then President of the CEA dubbed it, “The Great Gatsby Curve,” the press took notice.
By showing that high levels of inequality hamper opportunity, Corak showed the old dichotomy, “Conservatives want to start everyone off at the same place, Liberals want everyone to finish in the same place,” to be absurd. Where one generation finishes, the next starts. Generational opportunity isn’t a sprint, it’s a relay. Since then, economists Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez have found that the observation holds true within America: commuting zones with levels of inequality have lower levels of opportunity. On Thursday, I grabbed an Irish lunch with Miles to talk about his findings and their implications. With Obama pivoting toward inequality and mobility, it couldn’t be a better time. Below is a partial transcript.
SM: Let’s start with the “Great Gatsby Curve.” What does it mean?
MC: The “Great Gatsby Curve,” points to a relationship between inequality of outcomes in one generation and the possibilities for the next generation. But what is underlying the curve and what draws those two themes together is the structure of opportunity. The tendency in countries with higher inequality to have more structured opportunity.
SM: What affects mobility?
MC: There are to me, three broad influences on the adult outcomes of children. I don’t think we can deny that the family is central to giving children a good start in life and helping them through all the transitions they go through. But families interact with the labor market, the structure of the labor market, the structure of wages and access to jobs shadows itself in the family and the resources available to the family. The third factor is public policy. The state also plays a role in buffering families, in giving the least advantaged a level playing field, or it could tilt the playing field. To understand differences between countries, we have to look at all three factors and how they come together.
SM: A lot of people have said, “If you want to see the American Dream, go to Denmark,” how would you respond
MC: The U.S. is a different society than Denmark, and in some fundamental ways we can’t change the U.S. to become a Denmark. A comparison of the U.S. to other countries, like Canada, might be even more appropriate.
SM: Your paper in the Journal of Economic Perspectives had two charts that really lit up the economics blogosphere. Let’s start with the chart that shows the growing divergence of educational investment between the wealthiest and the poorest. What are the implications you draw from it?
MC: These two charts refer to the influence of the family in two different points in a child’s life-cycle. The first chart shows how the family is essential to giving children a good start in life. What you see in the U.S. is as the labor market has changed and as incomes become more polarized, some families have a lot more resources and there is a bigger incentive to worry about the education of their children. Labor market inequalities shadow themselves in the investment kids get. That’s important in the early years, and that has an influence on longer term outcomes.
SM: How does the public school system affect inequality?
MC: If you have an education system that relies very heavily on local property taxes, and that characterizes the U.S. more than other countries, the quality of schooling is going to vary tremendously across neighborhoods and this is in part why there are regional differences. In Canada, the funding of education is more broadly based, and there is more of a tendency to divert resources to poorer neighborhoods. In the United States, it’s actually the opposite, the most underprivileged children get lower quality resources. So the United States spends more money on education than other countries, but it spends it more unequally.
SM: And the second chart, which shows how many children of the one percent ended up working for the same employer as their parent compared with the population at large.
MC: In adulthood, you have to get connected to the labor market. So another type of investment that parent’s make is giving their kids support when they find their first job and when they move to their career job. Part of that is something as subtle as information, but at the other extreme it could be raw nepotism, where some parents have control over the hiring process and hire their own children [Both Miles and myself have cited Jann Wenner’s son as an example of this]. There are a whole range of things driving that spike.
SM: Is there still mobility in the U.S.?
MC: In the U.S. there is a great deal of mobility in the broad income distribution. The real problem is really the stickiness at the extremes. The rich set a glass floor for their kids, below which they tend not to fall regardless of merit. And the poor face a glass ceiling through which it is difficult to break to a middle class life.
SM: So Obama made a big speech yesterday. What do you think he left out?
MC: I thought it was a very powerful speech that appropriately cited statistics, but also pulled at heartstrings and called for a more constructive role for public policy. The important message that should be stressed is that public policy can be shaped to strengthen families, and to buffer and support them in a more turbulent labor market.