Evidence shows that affluence in the US is much more fluid and widespread than the rigid class structure narrative suggests

From Mark Perry.

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Most of the discussions on income inequality, the reviled “top 1%,” and the hand-wringing about the share of income or wealth going to the “top 1%” typically assume that the top 1/5/10% and bottom 99/95/90% percentile groups by income (pick your favorite percentage) operate like private clubs that are closed to new members. That is, many people assume that various income groups are static and fixed, with very little movement or fluidity among those income groups over one’s career or lifetime. Start out life in the bottom 20% or bottom 50%? Too bad, you’re stuck there forever no matter how hard you try or work, and you can forget about ever being part of the top 1/5/10%. Born into the top 1/5/20%? Great, you’ve got a lifetime membership in that static, closed group.

That rather simplistic interpretation of a static economy is really nothing like the very fluid and dynamic world we actually live in, with significant degrees of income and wealth mobility/fluidity over one’s lifetime. That’s the main conclusion of a new study titled “The Life Course Dynamics of Affluence” by Thomas Hirschl and Mark Rank, based on an empirical investigation of individual lifetime income data in the Panel Study of Income Dynamics over a 44-year period.

For example, one of the authors’ key findings is that by age 60, nearly 70% of the US population experienced at least one year in the top 20% by income, more than half (53.1%) were in the top 10% for at least one year, more than one-third (36.4%) spent at least one year in the top 5%, and 11.1% (one of out nine) spent at least one year with income in the top 1% (see top chart above). Those findings of significant income fluidity for one year periods are further supported when the authors look at longer time periods. For example, although 11.1% of  Americans made it into the top 1% for at least one year, only 1.1% (1 in 91) of Americans stayed in the top 1% for ten years or more during their lifetimes, and only about half that amount (0.60%, or 1 in 167) were able to stay in the top 1% for ten consecutive years (see bottom chart above). That should shatter the myth that the top 1% is a fixed club closed to new members! Likewise, more than 1 out of 3 Americans (36.4%) spent at least a year in the top 5%, but only about 1 in 15 (6.6%) remained there for ten years or more, and only about 1 in 27 (3.7%) spent 10 consecutive years in the top 5%. Lots of movement and fluidity.

Here is a summary of the main findings of the study (emphasis added):

1. There is substantial fluidity in top-level income over ages 25 to 60. Thus a static image of top-level income tenure is at odds with the empirics of how people live out their life course.

2. The study findings indicate that top-level income categories are heterogeneous with respect to time, comprised of a relatively small set of persistent members, and a larger set of short-term members. For example, although over half of the U.S. population experienced one or more years of top 10th percentile income, only about half of this set attained top 10th percentile income for three consecutive years, and fewer than 7 percent persisted at this level for 10 consecutive years. Thus the lifetime top 10th percentile is mostly transitory, moving in and out of this percentile over the life course.

3. There are two contentious social implications related to the finding that top-level income is fluid across time. One is that there is widespread opportunity for top-level income. The opportunity to attain top-level income is widely accessed, and many reap the benefits of opportunity. It is also the case that attaining top-level income in one year does not necessarily predict it for the following year. Indeed, most who attain top-level income do so for a limited number of years, and to the extent that they have expectations of persistence, have some probability of experiencing insecurity relative to their expectations. Income fluidity is a double-edged sword, creating opportunity for many, along with insecurity that this opportunity may end sooner than hoped for.

4. We interpret the widespread attainment of top-level income as materially consistent with the way the majority of Americans tend to characterize their society. In a recently published study, we report evidence that most Americans hold fast to the belief that hard work will be rewarded economically, and the present study finds evidence that many Americans do, in fact, attain top-level income. This evidence is counter-intuitive vis-à-vis popular interpretations regarding the 1 percent versus the 99 percent, and we believe that our findings serve to qualify these interpretations. When interpreting social and economic relationships and trends, it is important to consider not simply one, or even many, cross-sections in time, but also the extent of social and economic mobility across the life course. Individuals experience their lives not as a disconnected set of years, but rather as a continuous lifetime of experience.

MP: Thanks to Thomas Hirschl and Mark Rank More for bringing some much-needed attention to the significant income mobility and fluidity in the American economy, which directly contradicts the narrative we hear all the time of a rigid class structure based on static income groups like the top 1/5/10%, a static bottom 20/50/99%, etc.

As one of the authors (Mark Rank) pointed out last year in the New York Times:

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 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).

Ultimately, this information casts serious doubt on the notion of a rigid class structure in the United States based upon income. It 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."