Income mobility vs

"Time-Lapse Analysis" Instead of Snapshot Shows That 57% of Top 1% in 1996 Weren't There in 2005

By Mark Perry

From the 2007 study "Income Mobility in the U.S. from 1996 to 2005" from the Department of the Treasury (emphasis mine):

"The mobility of the top 1 percent of the income distribution is also important. More than half (57.4 percent) of the top 1 percent of households in 1996 had dropped to a lower income group by 2005 [MP: dropped into the bottom 99%]. 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."

MP: The chart above also shows that almost half (45.6%) of the top 5% in 1996 had moved to a lower income group nine years later in 2005, and roughly 39% of the top 10% in 1996 dropped into a lower income group by 2005.  Whether it's the top 1%, top 5% or top 10%, those income groups are not static, closed groups, but snapshots in just one year of the national income distribution, which is constantly changing over time.  A large majority of today's 1% won't be there in the future, and weren't there in the past, they are just making a temporary stop in that group. 

As mentioned before, income mobility is far more important than income inequality.  Empirical evidence provided in this Treasury Department report and supported by other studies shows that there is significant income mobility in the U.S. for all income groups.  And yet all we hear about are the snapshot comparisons of income differentials for income groups in different years, which contain completely different people and households from snapshot to snapshot.  When you do a "time-lapse" analysis of the same people or households over time, what you find is significant income mobility and that finding deserves more attention.