Commentary

Debunking income mobility myths

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It is tempting to think of America’s economic classes as stable and sedentary. Talk of widening income inequality has cemented in the minds of many the notion that the rich keep getting richer and the poor keep getting poorer. An immutable line seems to be drawn between the top 1 percent (or the top 10 percent) and the rest of us, alienating both groups and preventing any cross-over.

The data tells a different story. In reality, Americans are constantly moving up and down the economic ladder.

“Nearly 60 percent of households in the bottom income quintile in 1999 were in a higher quintile in 2007, and roughly 40 percent of tax returns in the top quintile in 1999 were in a lower quintile in 2007,” reports an analysis by the Tax Foundation, which also found, “Roughly half of millionaires during the 1999 through 2007 period attained this status just once during those nine years. Only 6 percent of this group were millionaires in all nine years.” The study attributes the transiency of millionaires to the volatile nature of capital gains.

Another study conducted in 2014 came to similar conclusions: “It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.”

It continues: “Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.”

In other words, only a little more than half of the top 1 percent are what we might term the “encrusted elite” who retain their position over an extended period; the rest spend a few years (or less) at the tippy-top of the income distribution, only to slip back.

The other end of the income distribution exhibits even more intense dynamism. Few people living in poverty will toil through life moving from one dead-end, minimum wage job to the next. Such people exist, of course, but they account for a vanishingly tiny minority of the poor.

Rather, poverty is generally a transient state suffered during periods of unemployment, injury, or other setbacks. While the poverty rate in any given year hovers in the low- to mid-teens, more than half of Americans will experience poverty or near poverty at least once between the ages of 25 and 60.

If we expand our perspective to include intergenerational income mobility, the results are similar. Great fortunes tend to dissipate, and children born to low-income families consistently climb higher in the income distribution than their parents. 

Consider this: Of those listed in the first edition of the Forbes 400 ranking of the richest Americans in 1982, only 34 remained on the 2014 list, and only 24 have appeared on every intervening list. Research by economist Raj Chetty has found that only a little more than a third of children born to parents in the top 20 percent of income will stay in that quintile, while 66 percent of children born into the lowest quintile will leave it. 

One reason you rarely hear talk about income mobility is that it’s hard to quantify. The cross-sectional surveys that are the bread-and-butter of federal statistical agencies like the Census Bureau reflect a snapshot in time about a random sample of Americans. As informative as they are, cross-sectional surveys can’t detect changes in specific individuals over time.

Longitudinal surveys, in which the same people are tracked year after year, are necessary to measure income mobility. Longitudinal research is expensive, tedious, and riddled with methodological pitfalls. As a result, the literature on income mobility is small and often dated, depriving us of real-time information about a key aspect of our society’s performance.

While it’s easy to view each person as statically occupying a particular position in the national income rankings, the fluidity of the income distribution is striking. At different points in our lives, most of us will earn significantly more and significantly less than the national average. In these divisive times, it’s worth remembering how much we have in common.

About Liam Sigaud

Liam Sigaud is a former policy analyst at The Maine Heritage Policy Center. A native of Rockland, Maine, he holds a B.A. in Biology from the University of Maine at Augusta and has studied policy analysis and economics at the Muskie School of Public Service at the University of Southern Maine. He can be reached by email at liam.sigaud@maine.edu.

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