Tuesday, March 29, 2011

New Mpls. Federal Reserve Bank Study Shows Significant Earnings Mobility Between 2001-2007

The chart above (click to enlarge) is based on data from the Panel Study of Income Dynamics that follows the same households over time, and was reported in a recent study by economists at the Minneapolis Federal Reserve Bank titled "Facts on the Distributions of Earnings, Income, and Wealth in the United States: 2007 Update."

The results in the chart above on earnings mobility are from Tables 28 and 29 in the Minneapolis Fed study and answer the question: For U.S. households that were in a given earnings quintile (20 percent group) in 2001, what percentage of those households moved to a different quintile by 2007?  Here are some conclusions about the earnings mobility for those U.S. households that had positive earnings in both years:

1. For American households that were in the lowest earnings quintile (bottom 20 percent) in 2001, only 56% of those households remained in that quintile in 2007, and 44 percent had moved to a higher quintile by 2007. Five percent of low-income households in 2001 had moved to one of the top two quintiles in just six years.

2. For those households that were in the highest earnings quintile (top 20 percent) in 2001, 34 percent had moved to a lower quintile by 2007, and 5 percent of those households had moved all the way to the bottom quintile.

3. For those households in the middle earnings quintile (middle 20 percent) in 2001, about one-third moved to a higher quintile by 2007, more than one-fourth moved to a lower quintile, and only 42 percent remained in the same quintile.

4. More than half of the households in the second, third, and fourth quintiles in 2001 moved to a different earnings quintiles by 2007 (see bottom row in chart).

For the full post and conclusions, see my post today at the Enterprise Blog.  

15 Comments:

At 3/29/2011 3:56 PM, Blogger Benjamin said...

Sure, but...
A family could move from one quintile to another, even through there had been litle change in their annual income--what if the line between quintiles was at $58,000? A family going from $57k to $59k or vice versa would be counted as crossing into a new quintile. If you decide to measure deciles, you get even greater "movement."

And earnings are not the same as wealth. A large land developer might have several lean years, before hitting it big. Many businesspeople have varying annual incomes, even all the while they are wealthy.

Actually, what I am impressed by is how tenacious poor people are at staying poor. And even those who bumped up might have just crossed into the next quintile.
Probably this suggests poor people are poor due to personality defects, mild retardation, etc. I assume many elderly simply cannot change their income, as well.

 
At 3/29/2011 5:25 PM, Blogger Ironman said...

Closely related - the U.S. Census reports that only 3% of people counted as being in poverty for at least two months in the years from 2004 to 2006, stayed there....

 
At 3/29/2011 6:07 PM, Blogger Benjamin said...

Ironman-

That is an amazing link--and does not jibe with Perry's post, which shows much more "stickiness" in poverty.

I wonder about the CB stats. Most people I know who are poor are poor because of their personalities. They refuse to show up for work regularly, are mentally disabled, heavy into drinking-drugs, etc. They cannot even work as security guards. I have a cousin like this.

How would such a person ever become non-poor?

 
At 3/29/2011 7:33 PM, Blogger Richard said...

Mark,

There is another interesting thing in the table:

If you were in the highest quintile in 2001 there is a 4% you will be in the 2nd quintile in 2007, but a 5% you be in the lowest.

Going broke if you are rich is more common than stepping down and cleaning up?

 
At 3/29/2011 7:48 PM, Blogger Ron H. said...

"Sure, but...
A family could move from one quintile to another, even through there had been litle change in their annual income
"

You make up problems where non exist.

"But..But, what if...?"

 
At 3/29/2011 8:55 PM, Blogger Hydra said...

For American households that were in the lowest earnings quintile (bottom 20 percent) in 2001, only 56% of those households remained in that quintile in 2007, and 44 percent had moved to a higher quintile by 2007.

==================================

Kind of shoots a hole in the idea that welfare is addictive, or that money helping the poor is wasted.

 
At 3/29/2011 9:15 PM, Blogger Benjamin said...

Ron H-

As usual, you miss the big and obvious point. If many families are moving across deciles without any meaningful change in their incomes, you get a false picture of mobility.

Additionally, if a snazzy real estate developer has to wait a year or two for his real payday, he might show losses for a couple of years, and the a huge surge in income. He would technically (and inaccurately) be categorized as "poor" in some years and "rich" in others, but everyone would think of him as permanently rich.

Only Dr. Perry and you seem tone-deaf to these realities.

And, Hydra, and Ironman's Census data do make a point: If you are to believe these stats, we are not creating a welfare underclass. People move out of poverty.

That's what the data says. Myself, i believe people are poor in America as they have mental problems, and do not show up for work, take drugs, get drunk on the job etc. They will always be poor because of the way they act. They cannot steadily hold down a job, and do not place paramount importance on working.

 
At 3/29/2011 10:45 PM, Blogger Ron H. said...

"As usual, you miss the big and obvious point. If many families are moving across deciles without any meaningful change in their incomes, you get a false picture of mobility."

And, is that in fact what is happening?

As I said...

 
At 3/29/2011 10:46 PM, Blogger Ron H. said...

"Kind of shoots a hole in the idea that welfare is addictive, or that money helping the poor is wasted."

No, it doesn't.

Think before you type.

 
At 3/29/2011 10:50 PM, Blogger Ron H. said...

"How would such a person ever become non-poor?"

They won't. If they're lucky, they have a rich relative like you, who is caring and compassionate, and will help them get by.

 
At 3/30/2011 1:11 AM, Blogger Methinks said...

"If many families are moving across deciles without any meaningful change in their incomes, you get a false picture of mobility."

Depends on the size of the quintiles, eh, Benji? They're tiny in European countries compared to America (less income disparity), so you're right to worry about Europe and wrong to worry about America. That's what makes the GINI coefficient so idiotic a measure for comparison.

Additionally, if a snazzy real estate developer has to wait a year or two for his real payday, he might show losses for a couple of years, and the a huge surge in income. He would technically (and inaccurately) be categorized as "poor" in some years and "rich" in others, but everyone would think of him as permanently rich.

What now? Why would anyone consider him permanently rich?

 
At 3/30/2011 1:18 AM, Blogger Methinks said...

Kind of shoots a hole in the idea that welfare is addictive

Kind of doesn't. How many of those in the bottom quintile who moved up were on welfare?

or that money helping the poor is wasted.

The way government "helps" the poor is a study is waste. You and me privately helping the poor? Not wasteful.

 
At 3/30/2011 3:27 AM, Blogger PeakTrader said...

Hydra says: "Kind of shoots a hole in the idea that welfare is addictive, or that money helping the poor is wasted."

(Based on the 44% who moved out of the lowest quintile and the 56% who stayed).

Except for the highest quintile, the lowest quintile has the least income mobility.

Are you implying people who receive $2,000 a month (or more) worth of welfare benefits prefer to work for $2,000 a month (after taxes)?

 
At 3/30/2011 9:12 AM, Blogger bix1951 said...

well duh!
I swear that in my lifetime I have been in every one of those quintiles at one time or another.
And it's better to be in the top one rather than the bottom one, except you pay a lot more taxes.

 
At 3/30/2011 11:29 AM, Blogger VangelV said...

And earnings are not the same as wealth. A large land developer might have several lean years, before hitting it big. Many businesspeople have varying annual incomes, even all the while they are wealthy.

When it comes to social mobility you are always a' glass is half empty' kind of guy. I wonder why that is.

Actually, what I am impressed by is how tenacious poor people are at staying poor. And even those who bumped up might have just crossed into the next quintile.

There is no evidence of that. After all 5% managed to go to the top quintile.

 

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