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Hirschl and Rank: The Life Course Dynamics of Affluence (2015)

May 12, 2016

The  Point: The "99%" and the "1%" - we often talk about these groups as if they are static, frozen in time, but are they?

 

Hirschl and Rank draw light into the dynamic nature of inequality in this paper by attempting to calculate the likelihood that an American, at some point between the ages of 25 and 60, will earn an income that is in the top 20th, 10th, 5th, and 1st percentile of incomes in the country.

 

They find that the number of individuals that earn an income in the top 1% is roughly 11 times greater than the number of people who occupy the 1% in any given year. There is similar turnover in the top 5, 10, and 20 percent. By age 60, they find that close to 70% of the population will have experienced a year in the top percent, 53% will have spent at least one year in the top 10 percent, 36.5% in the top 5 percent, and 11.1% in the top 1 percent (5).

 

The authors highlight the fact that far fewer individuals will consistently maintain their status in high income categories over consecutive numbers of years.

 

The Quote(s): "[T]he picture drawn of the 1 percent has often been that of a static population, just as the 99 percent is frequently portrayed as unchanging. However, is it the case that the top 1 percent of the income distribution are the same people year in and year out? Or for that matter, what about the top 5, 10, and 20 percent? To what extent do Americans experience such levels of affluence at least some of the time?" (1)

 

"With respect to income dynamics, the life course approach has been applied primarily to understanding the extent of poverty within the lifetimes of Americans... [T]he life course risk of poverty and economic insecurity is quite high when compared to the cross-sectional risk. For example, between the ages of 25 and 60, 54 percent of the population will experience at least one year in poverty or near poverty (150 percent below the federal poverty line). In addition, 79 percent of Americans will experience a year of economic insecurity, which includes either using a social welfare program, encountering poverty or near poverty, or the head of household experiencing unemployment." (3)

 

"[T]hose most likely to hit a year of affluence are in the prime earning years of 45 to 54. Consequently, 55.8 percent of those 45 to 54 will experience at least one year of household income in the top 20th percentile, 37.9 percent will be in the top 10th percentile, 23.5 percent in the top 5th percentile, and 6.3 percent in the top 1st percentile." (6)

 

"We can see that with the exception of gender, all independent variables are significantly associated with attaining various levels of affluence. Those who are older, white, married, with greater than 12 years of education, and who do not have a work disability, are significantly more likely to encounter a year of affluence." (7)

 

Method: The paper provides a nice overview of some of the various methods used to study inequality and mobility dynamics: the intergenerational elasticity statistic, mobility tables, studies that look at absolute, rather than, relative mobility, etc.  

 

In the paper, Rank and Hirschl use a 'life course approach' with data on total family income obtained from the Panel Study of Income Dynamics (PSID). Their methodology consists of looking at income levels for individuals aged 25 to 60 during the period 1968 to 2011. For each age group, an age-specific probability is calculated to estimate the likelihood that an individual in said age group will enter into the top 20th, 10th, 5th and 1st percentiles of income. The age-specific probabilities are then combined to calculate a cumulative probability that an individual between the ages of 25 and 60 will enter each of the high income categories in one or more years.

 

Other Works Referenced:

Corak - Analysis using the intergenerational elasticity statistic - Corak M (2011) Inequality from generation to generation: the United States in comparison. 

Jantti et al. - Analysis using mobility tables - Jantti M, Bratsberg B, Roed K, Raaum O, Naylor R, et al. (2006) American exceptionalism in a new light: a comparison of intergenerational earnings mobility in the Nordic countries, the United Kingdom and the United States. Institute for the Study of Labor, Bonn, Germany. 

Issacs - PSID to study absolute mobility - Issacs JB (2008) Economic mobility of families across generations. The Brookings Institution. 

Auten et al. - mobility with the top 1% - Auten G, Gee G, Turner N (2014) Income inequality, mobility, and turnover at the top in the US, 1987– 2010. American Economic Review 103:168–172.

Carroll - mobility with the top 1% - Carroll R (2010) Income mobility and the persistence of millionaires, 1999 to 2007. Tax Foundation. 

 

 

Citation: Hirschl TA, Rank MR (2015) The Life Course Dynamics of Affluence. PLoS ONE 10(1): e0116370.  You can find a copy of the paper here

DOI:10.1371/journal.pone.0116370

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