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September 1995, Vol. 118, No. 9
Maury Gittleman and Mary Joyce
I n recent years, the gap between high earners and low earners in the United States has widened. Information about this phenomenon is generally reported in relation to a particular point in time. The Census Bureau, for example, reports on the percentage of families whose income is below the poverty line during a particular year and releases annual data on the share of household income by quintile. While such statistics reveal important insights into how individuals are faring economically, they paint an incomplete picture.
To gain a fuller appreciation of the impact of poverty, one must understand not only trends in poverty rates, but also the extent to which a family that is in poverty in a given year will remain there in a particular specified period that follows. In a similar way, those concerned about equity will want to know not only whether the share of income going to the top fifth of the income distribution is growing or declining, but also whether there are patterns in the degree to which households move in and out of a given portion of the income distribution.
To move from the static view of the economy inherent in most economic data on the income distribution to a more dynamic perspective, it is necessary to have information on the mobility of individuals, families, and households over time-that is, the extent to which these economic units change positions in the income distribution over a given period. What proportion of families in poverty this year will escape poverty next year? Are those in the middle class now likely to be there 5 years from now? Do the rich in one year tend to be the rich in the next, or do individuals from other income classes move into the top tiers? A study of mobility can provide insights relevant to answering important questions such as these. In addition, the degree of earnings mobility is important not only for developing a more comprehensive view of the workings of the economy, but also in such areas as designing pension schemes or income-contingent student loan programs, where benefits or repayment responsibilities depend on a person's earnings over his or her working life and not during a particular year. Further, mobility patterns contribute to an understanding of labor markets, as certain patterns will be consistent with some labor market theories but not with others.1
This excerpt is from an article published in the September 1995 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 For a survey of this literature, see Frank Levy and Richard J. Murnane, "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations,"Journal of Economic Literature, September 1992, pp. 1333-81.
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