he ascent to dazzling affluence achieved by fictional farm boy Jay Gatsby is becoming increasingly less plausible, posing risks for U.S. economic prospects, studies show.
The widening gap between rich and poor – exacerbated by wage stagnation, rising tuition costs and $6 trillion in wealth wiped out by the housing collapse – is making it more difficult for today's young people to have success climbing the income ladder than previous generations. Former White House economist Alan Krueger dubbed the income inequality-immobility link “The Great Gatsby Curve,” named after novelist F. Scott Fitzgerald's protagonist.
The mobility of workers versus their peers has also declined, threatening productivity, business profitability and economic growth, according to Wells Fargo Securities LLC's chief economist John Silvia. While the ability to ascend income brackets still exists, the likelihood of a household jumping from poverty into wealth declined in the decade ended 2009.
“It really flies in the face of what we believe to be true as a nation, that we have equality of opportunity,” said Diana Elliott, research officer for economic mobility at nonprofit Pew Charitable Trusts in Washington. “For this current generation of adults, if you're raised in the bottom it's much harder to climb up the economic ladder.”
Children from humble beginnings are less likely to make great gains in wealth and social status and 70 percent won't ever reach the middle class, according to a Pew study.
The reverse also is true. Those at the top of the income scale are less likely to slip down, a phenomenon economists call “stickiness at the ends.”
The highest earnings have gone to the same households every year for the past decade, while globalization has made it harder for Americans to compete with laborers abroad, according the study co-authored by Silvia and economists Tim Quinlan and Joseph Seydl.
The ensuing wealth gap makes workers less optimistic about their prospects, fueling declines in labor force participation, productivity and the pace of economic recovery, said Silvia, a former chief economist for the Senate Banking Committee. Labor participation fell to a 35-year low of 63.2 percent in August.
“It's very discouraging if people perceive that there isn't a lot of opportunity to move forward,” Silvia said. He prescribes improved access to education, better childhood nutrition and financial literacy, as well as “individual initiative.”
“You have to get yourself ready for a new career, new opportunities, which means you either move or you get some education or some training,” Silvia said. “It's not easy, but if you really want to succeed and participate in the economic recovery, that's what you need to do.”
Krueger, former chairman of the White House Council of Economic Advisors, plotted economic inequality in 10 developed nations against the ability of the children in each country to climb the income ladder. Where wealth was concentrated in the hands of a few, daughters and sons of the less fortunate were less likely to advance, the Gatsby Curve showed.
In a June speech, Krueger projected the U.S. will have the highest levels of inequality and immobility of those developed nations.
Income inequality in the U.S. has been rising since the 1980s, suggesting that the fortunes of today's youth may be more heavily dependent on their parents. Between 1979 and 2007, $1.1 trillion in annual income shifted to the top 1 percent of households, said Krueger. Not since Gatsby's Roaring Twenties has so much income been collected by so few, the Princeton University economics professor said.
“The rise in inequality has gotten to the point where we have to worry about it being unhealthy,” Krueger said in an interview. “It's bad for growth.”
Economists say one great aid to mobility – college and jobs training – is becoming out of reach for more Americans as costs skyrocket. Seventy-four percent of students at the most selective U.S. institutions were from high-status families as measured by income and education, according to a 2004 report from Anthony Carnevale and Stephen Rose of the Georgetown University Center on Education and the Workforce.
About 10 percent came from the bottom half of the status scale. The lack of socioeconomic diversity trumped even the lack of racial and ethnic diversity, the study found.