Income Mobility

1. Income Mobility February 14, 2008

2. What is income mobility and why is it important? • Income mobility refers to the amount of movement across income ranks experienced by persons or families • the simplest measure of economic mobility is the percentage of individuals who move into a new income quintile. • Easiest to use Social Security earnings records to follow persons • Income mobility is important because it offsets inequality. Increasing inequality might be accepted if it were accompanied by increasing mobility.

3. How much income mobility is there in the U.S.? • Method: • In a base year, rank all incomes in the sample from highest to lowest, and then break them into five equal-sized income quintiles, with the top twenty percent in the highest quintile, etc. Then do the same to the incomes of the same individuals in a later year, breaking them into equal quintiles, and then examining the relative movement of individuals within the distribution • Estimates vary. • See Daniel P. McMurrer and Isabel V. Sawhill, Economic Mobility in the United States, at http://www.urban.org/publications/406722.html

4. How much income mobility is there in the U.S.? • Gottschalk (1996) finds that between 1974 and 1991, 62 percent of individuals age 16 or over in 1975 moved to a different quintile • 58 percent for those originally in the lowest quintile • 56 percent for those in the highest • In the one year between 1974 and 1975, 39 percent moved to a different quintile (33 percent of the lowest quintile, 21 percent of the highest).

5. Table 2. Income Mobility Transition Matrix, 1968-91

6. Intra-generational Income Mobility in the U.S.:How often do the children of the poor become rich? Source: The Century Fund, Rags to Riches: The American Dream is Less Common in the United States than Elsewhere http://www.inequality.org/teach.cfm

7. Income Mobility in the U.S.: Similarities in Fathers and Sons Incomes Source: The Century Fund, Rags to Riches: The American Dream is Less Common in the United States than Elsewhere, http://www.inequality.org/teach.cfm

8. Income Mobility in the U.S.: What explains the relationship of Fathers and Sons Incomes?

9. How does income mobility in the U.S. compare to other developed nations?

10. Conclusions about U.S. Income Mobility • There is broad agreement that income mobility in the U.S. is substantial and that life-time earnings are more evenly distributed than annual earnings. • About 25 to 40 percent of the American population moves into a new income quintile each year. • The rate increases with time approaching 60 percent over a ten years • Most people do not move very far. • Individuals with at least a college education are more likely to move up than any other group.

11. Conclusions about U.S. Income Mobility • The mobility of those with little education has declined. • Mobility has not changed significantly over the past 25 years. • Mobility is no higher in the U.S. than in other developed countries • Source: Daniel McMurrer and Isabel Sawhill, Economic Mobility in the United States, Urban Institute,http://www.urban.org/publications/406722.html

12. For Information about Income Inequality in the US See slide show at http://www.demos.org/inequality/ByNumbersMay31.pdf