Income Mobility in the United States
Defying every rule in the bloggers’ code, commenter Hal has taken it upon himself to conduct some actual research into the various assertions about income mobility bandied about here and elsewhere in response to a recent Thomas Sowell column. In so doing, he unearthed an interesting Treasury Department report from November 13, entitled “INCOME MOBILITY IN THE U.S. FROM 1996 TO 2005,” whcih largely mirrors — indeed, was likely the basis for — Sowell’s column. It’s available here in PDF format.
The key findings highlighted in the executive summary:
- There was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period with roughly half of taxpayers who began in the bottom quintile moving up to a higher income group within 10 years.
- About 55 percent of taxpayers moved to a different income quintile within 10 years.
- Among those with the very highest incomes in 1996 — the top 1/100 of 1 percent — only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period.
- The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996).
- Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to
2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.
While the larger trends cited by Sowell would seem to have an empirical basis, what about the discussion about the infamous “top one percent”? That remains somewhat elusive. These exerpts are somewhat helpful, though:
Nearly 58 percent of households (i.e., 57.6 = 100 — 42.4) in the lowest income quintile in 1996 had moved to a higher quintile by 2005. While 29 percent moved up to the second quintile, the same percentage moved up at least two quintiles, and about 5 percent moved all the way to the top quintile.
The mobility of the top 1 percent of the income distribution is also important. More than half (57.4 percent = 100 — 42.6) of the top 1 percent of households in 1996 had dropped to a lower income group by 2005. This statistic illustrates that the top income groups as measured by a single year of income (i.e., cross-sectional analysis) often include a large share of individuals or households whose income is only temporarily high. Put differently, more than half of the households in the top 1 percent in 2005 were not there nine years earlier. Thus, while the share of income of the top 1 percent is higher than in prior years, it is not a fixed group of households receiving this larger share of income.
Now, of course, many of those people could have moved out of the top 1 percent to merely the top 2 percent or top 5 percent. As best I can tell, the report doesn’t answer that question. It does, however, say this:
[R]eal incomes increased for about 35 percent (35.2 = 8.6 + 6.0 +7.6 + 13.0) of taxpayers in the top .01 percent in 1996. On the other hand, about 59 percent of taxpayers in the top 0.01 percent experienced declines in real income of at least 50 percent. Similarly, 52 percent of those in the top 0.1 percent, but below the top 0.01 percent, experienced income declines of at least 50 percent. These results illustrate that the incomes of a significant portion of those in the very highest income classes in a given year are highly transitory and not maintained over time.
The pattern was similar, if less dramatic, for the other subgroups of the top 1 percent in 1996. The basic result is that the income of many of the highest-income taxpayers is transitory. Thus, for the majority of this group at least, the rich do not get richer. Instead, their income drops to a lower level, albeit generally to a level well above average.
The report has a bevy of charts and tables that may be more useful to some than the text.
Image source: Brian Dennert