Below is a study from the US Treasury Department –Income Mobility in the U.S. from 1996 to 2005. It presents some very interesting data. We are used to hearing how income disparity in the US is increasing. This conclusion is reached by comparing the difference between the lowest and highest groups of earners. Unless you believe that everyone’s income remains unchanged this observation is meaningless. Almost everyone starts his earning life at the bottom, what matters is does he stay there or does he move up. The study’s conlusions are:

This study examined income mobility of individual taxpayers age 25 and over for the period from 1996 through 2005 using information reported on individual income tax returns. The key findings are that there was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period and that the degree of income mobility among income groups is unchanged from the prior comparable period (1987 through 1996).

The analysis found that more than half of taxpayers (56 percent by one measure and 55 percent by another measure) moved to a different income quintile between 1996 and 2005. About half (58 percent by one measure and 45 percent by another measure) of
those in the bottom income quintile in 1996 moved to a higher income group by 2005. 

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. In addition, the real incomes of two-thirds of all taxpayers increased over this period. Further, the median incomes of those initially in the lower income groups increased more than the median incomes of those in the higher income groups.

The analysis also found that the composition of the very top income groups changes dramatically over time. Less than half (40 percent or 43 percent by different measures) of those in the top 1 percent in 1996 were still in the top 1 percent in 2005. Only about 25 percent of individuals in the top 0.01 percent in 1996 remained in the top 0.01 percent in 2005.

The data in this study came from the analysis of more than 100 million tax returns and is adjusted for inflation. Basically, it points out the obvious. Nevertheless the obvious seems oblivious to many. People do not stay in the same income groups throughout their lives. They move up and down. The likelihood of moving up in the US seems to not have decreased as is commonly believed, but rather to have stayed the same or even increased a bit. You can read the entire study at your leisure and form you own conclusions about its findings.

Income Mobility in the US 2007