In 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.