Inequality and Mobility: Gatsby in the Americas

Abstract

We present evidence that the recent fall Latin America inequality has been associated with higher social mobility across countries and over time. This correlation refers to what Alan Krueger and his CEA staff labeled the Great Gatsby Curve, but this is one of the first papers to test the Gatsby correlation over time. Our search for Gatsby curve correlates starts with classic mobility models where high Mincer coefficients and skilled wage-premia enhance wealthier parents’ ability to impart advantage to their children. We also refer to Gary Solon and others’ updates of their model to emphasize the potential of social policy to assist low-income children. Using Andersen’s education mobility measure for teens over a panel of sixteen Latin American economies we test the robustness and correlates of mobility and inequality. We find higher social expenditure, access to credit and particularly conditional cash transfers increase mobility as do falling skill-premia and lower returns to female education. More important, Latin American social policy designed to reduce poverty and inequality in the short run also increased education enrollments and therefore social mobility over the longer term. Hence we find falling inequality is associated with rising social mobility over twenty plus years and across sixteen Latin American countries, as the Great Gatsby curve suggests.