Inequality and Economic Mobility

April 21, 2014

In a recent column in the New York Times, Mark R. Rank added an important point to the income inequality debate: that people are economically mobile.

From the New York Times:

“It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.”

So often the discussion around income inequality presents a static look at the country, presenting high-income earners as a special class – the 1 percent, the top 20 percent, etc. – but in reality, individuals move in and out of the these income groups:

Rank’s research with Thomas Hirschl finds:

“The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).”

If we are willing to accept that Americans are mobile, we have an opportunity for progress. Instead of debating the changes or growth in inequality, we can focus our attention on moving forward with policies that foster mobility and remove barriers to innovation and entrepreneurship.

One good place to start would be tax reform.

(h/t Greg Mankiw)

For more on inequality, see here.

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