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The government must do more to realise the American Dream

Updated: Sep 4, 2021


As mentioned in my last essay, my research will explore the relationship between income inequality and intergenerational social mobility. Then I will move on to elaborate how education shapes the relationship between income inequality and social mobility. On the practical side, I will analyse the effect of government policies in addressing this issue.

‘The Great Gatsby Curve’

The ‘Great Gatsby Curve’, a model of the general relationship between income inequality and social mobility, was first introduced by Princeton professor Alan Krueger. His research suggests an inverse relationship between income inequality and social mobility in a range of countries, as it is shown in Figure 1.

On the X-axis, the disparities of income between households are measured by the Gini Coefficient. Absolute upward mobility, rather than relative mobility, is recorded on the Y-axis so that worsening conditions of rich families cannot offset a lower level of absolute mobility. This means that, in places where parent income disparities are high, the possibility of climbing up the social ladder is lower than in places where parent income distributions are more homogenous.


Many argue that one of the most important factors that shape the inverse relationship between income inequality and social mobility is education. According to Gary Solon, Professor of Economics at the University of Arizona, income inequality leads to unequal household spending on education, which results in unequal pay for the second generation. However, this argument is based on the assumption that better education and a higher education level may allow one to have a better-paid job. Work from Ziyou (2014), a data analyst at Lazada Group, found no significant difference between the high school and junior college education levels. On the other hand, while, on average, the income of people with a graduate degree is only slightly above those with a bachelor’s degree, in the top 25% of the income distribution, this gap is a lot wider. This finding suggests that returns to education can differ widely. However, due to the rarity of data for spending on secondary education for every household in the US, I decided to raise the scope from household to state level.

The average household income varies dramatically from state to state, ranging from $78,945 in Maryland to $41,754 in Mississippi in 2016, a fairly noticeable gap between the richest and the poorest state. This not only means that the average household spending on secondary education is very likely to be unequal between states but also suggests that government spending on public education may be different, as tax revenue is generally proportional to household income. Therefore, it is not surprising to see that annual public spending on secondary education per pupil in Maryland ($3,754) in 2015 was nearly twice as much as it was in Mississippi ($1,706). Generally, high average income states spend more on secondary education. There are, however, some exceptions. In Alaska, a poorer state, the state government spent $7,765 per student on secondary education. This is in part a result of the redistribution policy the federal government imposed to balance out education inequality across states, specifically the ‘Elementary and Secondary Education Act’ (ESEA) initiated in 1965 by President Lyndon B. Johnson. Overall, the above statistics support the first part of Solon’s argument, that higher average income generally may lead to higher public spending on secondary education.

Nonetheless, this does not mean higher spending on education leads to higher education quality and better results. Statistics collected by the US Department of Education illustrate an ever-increasing nation-wide public spending on education from $4,060 per pupil in 1970 to $9,266 in 2005, accompanied by flat reading score curves measured by long-term ‘National Assessment of Education Progress’ programme in different year groups throughout the whole period. Reducing the scale down to the city level, it is also not clear that secondary school students from cities with high spending on education outperform their counterparts. For instance, Mesa, a city in Arizona spending $6,558 per pupil on public education in 2005, achieved 77.1% of high school graduation rate; while the graduation rate in Indianapolis was meagre 30.5% despite spending twice as much per student. The inconsistencies in the link between education spending and educational quality weaken Solon’s argument.

‘Elementary and Secondary Education Act’

This policy originated in 1965, aiming to reduce educational inequality. It was part of President Johnson’s cornerstone project, ‘War on Poverty’, which brought inequality to the forefront of national agenda. It has gone through several amendments, which has shifted its focus from solely providing funds for places where education is less accessible for children, to a more nuanced and comprehensive policy. Before the reauthorisation of ESEA under President George W. Bush in 2001, minute changes ranging from improving its dedication to disabled students under President Richard Nixon to President Ronald Reagan’s the ‘Bilingual Programme’, providing funds to assist general English education and bilingual services, were made to shape the policy to be more effective. As discussed before, simply investing funds on education is not enough to improve education quality. Significant changes were introduced in the late 20th and early 21st century. These included yearly standardised tests carried out nation-wide to assess the quality of teaching in schools. Furthermore, stricter rules were put in place so that teachers needed to be highly-qualified in order to be employed using government funding. However, it is still alarming to see that the education quality in the US still remains stagnant. ‘The Programme for International Student Assessment’ coordinated by the OECD, collected data from countries around the world to assess the academic results of secondary school students. From 2000 to 2015, the mean performance of 15-year-old students in the US on reading, mathematics, and science stagnated around 500 points, approximately thirty points less than Canadian students and about fifty points less than Chinese students. The US's education framework is not only failing to improve but demonstrates a lack of competitiveness internationally. Then again, improvement in the education system hardly happens overnight. It might take decades to transform and it is certainly not going to happen if the government does not have the right plan.

Concluding Remark

It has been identified that in the US, places where income inequality is high, intergenerational social mobility is generally low. States where tax revenue is high, indicating higher average income, do spend more on education. However, higher expenditure on education does not necessarily lead to better education quality. The government needs to find a more comprehensive way to improve education quality, making funds worth paying, instead of solely relying on funding public schools.

Junzhao Shi


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