Ongoing Escalation of Income
By Arnold Kling
A Wall Street Journal editorial reports,
The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.
Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.
My metaphor for income distribution is an escalator, with new families and immigrants starting at the bottom and most people moving up. This new study appears to be consistent with the metaphor.
A commenter found the actual study. I did not read it carefully, but I don’t see how looking at tax returns can be complete, because some people don’t file (of course, many who file pay no taxes, but that is ok as long as their returns are included).
Meanwhile, another study was conducted by Julia Isaacs of the Brookings Institution, using the Panel Study for Income Dynamics, following families from the late 1960’s through today.Isaacs’ study is called the Economic Mobility Project. It is covered in The Wall Street Journal. The Executive Summary says,
Median family income for adults who were children in the late 1960s and are now in their 30s or 40s increased 29 percent, from $55,600 for parents to $71,900 for their children, adjusting for inflation. Moreover, family sizes have shrunk over this same period (from 3.1 to 2.3 individuals between 1969 and 1998), so higher incomes are spread over fewer people.
…four out of five children whose parents were in the bottom fifth of the income distribution end up with higher incomes than their parents.
…Forty-two percent of children born to parents in the bottom fifth of the income distribution remain in the bottom, while 39 percent born to parents in the top fifth remain at the top.
An executive summary of Differences by Race says,
Between 1974 and 2004, white and black men in their 30s experienced a decline in income, with the largest decline among black men. However, median family incomes for both racial groups increased, because of large increases in women’s incomes. Income growth was particularly high for white women.
The lack of income growth for black men combined with low marriage rates in the black population has had a negative impact on trends in family income for black families.
…Overall, approximately two out of three blacks (63 percent) exceed their parents’ income after the data are adjusted for inflation, similar to the percentage for whites.
However, a majority of blacks born to middle-income parents grow up to have less income than their parents. Only 31 percent of black children born to parents in the middle of the income distribution have family income greater than their parents, compared to 68 percent of white children from the same income bracket.