Kathryn Shelton and Richard McKenzie explain why the “rich” can grow wealthier faster than the “poor.”

From Cafe Hayek.

"Much of the income inequality debate in the United States has focused on “fifths,” “tenths” or “the top 1 percent” of households. Such divisions give the appearance of inequality, but there are far more people and workers in the top income brackets than in the lower ones. Indeed, there are 82 percent more people in the top fifth of households than in the bottom fifth. In 2006, 81 percent of households in the top quintile had two or more workers; but only 13 percent of households in the bottom fifth had two or more workers. In nearly 40 percent of these households, no one was working.

Further, people in different income divisions do not remain at those income levels throughout their lives. The Federal Reserve Bank of San Francisco found that absolute mobility – that is, the extent to which children earn more than their parents – is high:

• Of all U.S. adults, 67 percent had higher incomes than their parents; and among those born into the lowest income bracket, 83 percent exceeded their parents’ income.
• About 40 percent of people in the lowest fifth of income earners in 1986 moved to a higher income bracket by 1996, and roughly half the people in the lowest income quintile in 1996 had moved to a higher income bracket by 2005.

Indeed, one study found that a majority of Americans reach the upper income brackets at some point during their lives. Over a 44-year period, 12 percent of 25- to 60-year-olds moved into the top 1 percent for at least one year; 39 percent reached the top 5 percent; over half reached the top 10 percent; and nearly three-fourths were in the top fifth of the income distribution."