Economic Mobility – Trends in U.S. Family Income Mobility, 1969–2006

Trends in U.S. Family Income Mobility, 1969–2006
Katharine Bradbury
Abstract:
Much of America’s promise is predicated on economic mobility—the idea that people are not
limited or defined by where they start, but can move up the economic ladder based on their
efforts and accomplishments. Family income mobility—changes in individual families’ income
positions over time—is one indicator of the degree to which the eventual economic well being
of any family is tethered to its starting point. In the United States, family income inequality has
risen from year to year since the mid-1970s; given this rising cross-sectional inequality, changes
over time in mobility determine the degree to which long-term income is also increasingly
unequally distributed.


Using data from the Panel Study of Income Dynamics and a number of mobility concepts and
measures drawn from the literature, this paper examines family income mobility levels and
trends for U.S. working-age family heads and spouses during the time span 1969–2006, based
on a post-tax, post-transfer concept of income adjusted for family size. By most measures,
mobility is lower in more recent periods (1995–2005) than in the late seventies and the eighties
(the 1977–1987 or 1981–1991 periods). Comparing results based on pre-government income
suggests that an increasingly redistributive tax and transfer system contributed to rising
mobility into the 1980s, but that its impact has since waned. Overall, the evidence indicates that over the 1969-to-2006 time span, family income mobility across the distribution decreased, families’ later-year incomes increasingly depended on their starting place, and the distribution of families’ lifetime incomes became less equal.

Katharine Bradbury is a senior economist and policy advisor at the Federal Reserve Bank of Boston.

 

This paper presents preliminary analysis and results intended to stimulate discussion and critical comment. The views expressed herein are those of the author and do not indicate concurrence by other members of the research staff or principals of the Federal Reserve Bank of Boston or the Federal Reserve System.
This paper, which may be revised, is available on the web site of the Federal Reserve Bank of Boston at http://www.bos.frb.org/economic/wp/index.htm.


This paper builds heavily on earlier joint work with Jane Katz, Officer and Director of Education Programs at the Federal Reserve Bank of New York; while she is not co-author, her insights added immeasurably to the research.
Peter Gottschalk generously provided edited data files from the Panel Study of Income Dynamics, without which this analysis would have been much more difficult to complete; Dean Lillard helped me understand the CNEF files at
Cornell University. I am also grateful to Mary Burke, Jane Little, Bob Triest, Dan Aaronson, two anonymous referees, participants at the May 2009 conference of the System Committee on Applied Microeconomics and at the November 2009 APPAM meetings for helpful comments on earlier drafts, to participants in a Boston Fed departmental seminar for comments on a very early presentation of this work, and to Jessamyn Fleming, Charu Gupta, and Ryan Kessler for outstanding research assistance and comments. I am responsible for any remaining errors.

This version: October 20, 2011

Much of America’s promise is predicated on the existence of economic mobility—the
idea that people are not limited or defined by their current circumstances, but can move up the
income ladder based on their effort and accomplishments. Can a poor individual or family rise
into the middle class, or is longer-term economic status limited by one’s economic situation at a
given point in time?
Changes in economic mobility are of particular consequence when economic disparities
among families are increasing over time, as has been the case in the United States in recent
decades. If family income inequality is increasing, changes in the degree to which families move
up and down can either offset or amplify longer-term inequality—and loosen or tighten the link
between a family’s circumstances in any given year and its later outcomes. Other things being
equal, an economy with rising mobility—one in which families move increasingly frequently or
traverse increasingly greater distances up and down the income ladder—will result in a more
equal distribution of lifetime incomes than an economy with declining mobility.

read full article

Twitter Facebook Digg Reddit Delicious