Carpe Diem

Evidence shows significant income mobility in the US – 73% of Americans were in the ‘top 20%’ for at least a year

incomemobilityIn a Sunday’s NY Times article “From Rags to Riches to Rags,” Professor Mark Rank of Washington University highlights a number of studies finding a significant amount of income mobility in the US. The empirical evidence showing that Americans move up and down the income distribution during their lifetimes “casts serious doubt on the notion of a rigid class structure in the United States based upon income.”

For example, Rank and his co-author Thomas Hirschl of Cornell followed a cohort of American adults ages 25 to 60 over a 44-year period to see what percentage of them reached various levels of the income distribution during their lives. Their “striking” results are summarized in the chart above. According to Rank:

It turns out that 12% of the population will find themselves in the top 1% of the income distribution for at least one year. What’s more, 39% of Americans will spend a year in the top 5% of the income distribution, 56% will find themselves in the top 10%, and a whopping 73% will spend a year in the top 20% of the income distribution.

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% of the population will experience a year in which they find themselves in the top 1% of the income distribution, a mere 0.6% will do so in 10 consecutive years.

One of the reasons for such fluidity at the top is that, over sufficiently long periods of time, most American households go through a wide range of economic experiences, both positive and negative. Individuals we interviewed spoke about hitting a particularly prosperous period where they received a bonus, or a spouse entered the labor market, or there was a change of jobs. These are the types of events that can throw households above particular income thresholds.

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54% of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).

Ultimately, this information suggests that the United States is indeed a land of opportunity, that the American dream is still possible — but that it is also a land of widespread poverty. And rather than being a place of static, income-based social tiers, America is a place where a large majority of people will experience either wealth or poverty — or both — during their lifetimes.

Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.

Thanks to Mark Rank for bringing some much-needed attention to the fact that there is dynamic movement up and down the income quintiles throughout most Americans’ lifetimes, and contrary to public opinion, the top 1/5/10 percent income categories are not fixed, static closed groups, but fluid, abstract categories with ever-changing composition of different Americans. It’s an important point that Thomas Sowell has been making for years, here’s an example of his from back in 2000, a column of his titled “Perennial Economic Fallacies“:

Alarmists are not talking about real flesh and blood people. They are talking about abstract categories like the top or bottom 10 percent or 20 percent of families or households. So long as all incomes are not identical, there will always be top and bottom 10 percents or 20 percents or any other percents. But these abstract categories do not contain the same people over time. Behind both the statistics on inequality that are spotlighted and the statistics on ever-changing personal incomes that are ignored is the simple fact that people just starting out in their careers usually do not make as much money as they will later, after they have had years of experience.

Who should be surprised that 60-year-olds have higher incomes and more wealth than 30-year-olds? Moreover, that was also true 30 years ago, when today’s 60-year-olds were just 30. But these are not different classes of people. They are the same people at different stages of their lives. At some times and places, there have been whole classes of people who lived permanently in poverty or in luxury. But, in the United States today, the percentage of Americans who fit either description does not reach beyond single digits.

It is one thing to be concerned about the fate of flesh and blood human beings. It is something very different to create alarms about statistical relationships between abstract categories.

13 thoughts on “Evidence shows significant income mobility in the US – 73% of Americans were in the ‘top 20%’ for at least a year

  1. Thanks for pointing this often-ignored fact, Prof. Perry.

    I can admit that I once made $1.8M in a single year. I don’t nearly make quite make that much every year, but this is an example of how income can vary.

    This is also why many tax-avoidance structures are geared towards people with big one-time pops (as they should be).

    The biggest propagators of the ‘inequality’ hate-cult are those for whom income hardly varies :

    i) low-and-mid-level government employees,
    ii) professors in fields where outside consulting is not possible
    iii) non-profit paper-pushing types.

    In other words, people who no exposure to the business cycle.

      • Can’t disclose too much, except to say that it was purely in the private sector, in a fully meritocratic environment; the type of environment which is now being attacked by ‘feminist’ parasites seeking money without commensurate output.

        But the point is, ‘pops’ like that can and do happen to people, even if my expected salary in the typical year is well below that.

        If you look at the compensation of any senior executive, investment banker, etc., the variability is huge. 50% swings are quite common, and the highest year and lowest year of a 10-year series can be 10x apart easily. The chart in the main article illustrates that very well.

  2. To look at static groups and claim no mobility is kind of a “no shit” sort of thing. It’s like saying artists tend to be creative. You need to look at the people.

    Another thing worth noting is that much of the wealthiest people in the US are “new rich” (self-made millionaires) as opposed to the “old rich” (inherited wealth) which tend to dominate Europe.

    • Ummm, a great many of the richest Americans inherited their wealth. We’re on the second generation of Waltons. Even the Koch Brothers had a substantial inheritance.

      The high-tech multi-millionaires are first generation, but, interestingly, seem politically far more liberal than the rentier class.

  3. But, but, but, but, it still isn’t FAIR. That means 26% of the population will never make it into the top quintile. We turned our whole healthcare system upside down because even less than that percentage didn’t have health insurance.

    • “We turned our whole healthcare system upside down because even less than that percentage didn’t have health insurance.”

      And more than half of the uninsured qualified for some existing healthcare assistance extant pre-dating Obamacare and chose not to take advantage of such benefits. So, the upending was largely to force those who already qualified to sign up. But income mobility tells us that the uninsured group changes every year so it isn’t as if the group that is being coerced is some static group of the disadvantaged. The upending was based largely on a mistaken assumption of the composition of the uninsured year after year. Besides a recent Rand analysis says that utilization will rise only about 1% whereas the covered population will increase by 5% because those uninsured already received healthcare. The moral argument for upending gets weaker and weaker.

      • There are two possibilities here:

        1. Those who wrote and passed the ACA were such idiots that they never bothered to research the composition of the uninsured over time.
        2. Those who wrote and passed the ACA were very smart. Smart enough to realize that the truth did not support their proposals and, therefore, should be suppressed.

  4. I just looked at MLB batting stats for 2013 and I am shocked. Only 1.5% of hitters batted above .325. That means the vast majority of players have no chance of having some multi-hit days at the plate. Doesn’t it? Miguel Cabrera and Michael Cuddyer kept all those other players from having good days. They should be punished. Or at least booed.

  5. “miguel cabrera didn’t build that ball park”

    Maybe not, but he sure is fun to watch. I’ve seen the Tigers at Comerica Park twice already this year. This year’s team is much more fun to watch than last year’s team.

  6. When talking about income mobility, no one is talking about comparing a premed student’s income with his income as an established doctor.

    A twenty-five year old with minimal income, but their alumnus family supporting them through a top-notch college does not have the same prospects as a twenty-five year old Latina kid who graduated from a poorly funded public school who has to work instead of going to college.

  7. Z: “A twenty-five year old with minimal income, but their alumnus family supporting them through a top-notch college does not have the same prospects as a twenty-five year old Latina kid who graduated from a poorly funded public school who has to work instead of going to college.

    Damn! Life just isn’t fair, is it? We should probably condemn that Latina kid’s parents and grandparents for thoughtlessly failing to provide more resources for her education.

    On the bright side, Alumnus Kid will almost certainly produce enough to provide well paying jobs for Latina Kid, since she has chosen a career over education.

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