How is income mobility in America? Not so good, according to a Brookings study of IRS income tax data for 34,000 households from 1987 through 2009. In “Rising Inequality: Transitory or Permanent? New Evidence from a Panel of U.S. Tax Returns,” researchers found the increase in US income inequality to be almost entirely permanent in nature and not due to yearly fluctuations (one year you get a bonus, another year you don’t). You sort of stay stuck where you are. So the rich get richer and stay that way, while the poor get relatively poorer and stay that way. In fact, had the transitory inequality component been the dominant factor, it would have reflected increasing income mobility. A summary:
Using a large panel of income data … the authors show that for men’s labor earnings, the increase in inequality was entirely permanent (100 percent), while for total household income, roughly three-quarters of the increase in inequality was permanent. They estimate that the permanent variance for men’s earnings roughly doubled in the 20 years between 1987 and 2009, while the permanent variance of total household income increased by about 50 percent over the same period.
1. Don’t blame supply-side economics. The study shows that the progressive tax system “partially mitigated” the increase in income inequality.
2. Maybe blame information technology. Since rising inequality mostly reflects an increase in permanent inequality, “then consistent explanations would include skill-biased technical change and long-lasting changes in firms’ compensation policies.”
3. It’s too bad that in the paper’s literature review, there was nothing about the inequality research from Cornell’s Richard Burkhauser. Hopefully he will comment.