Tuesday, November 13, 2007

Upward Mobility

The Wall Street Journal talks about a Treasury Department study showing that upward mobility in terms of economics is much more common than the doom and gloom naysayers who insist that a growing economic divide exists in our country. The Journal calls the income inequality "hokum" and it looks like the data supports that notion.
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.

Also encouraging is the fact that the after-inflation median income of all tax filers increased by an impressive 24% over the same period. Two of every three workers had a real income gain--which contradicts the Huckabee-Edwards-Lou Dobbs spin about stagnant incomes. This is even more impressive when you consider that "median" income and wage numbers are often skewed downward because the U.S. has had a huge influx of young workers and immigrants in the last 20 years. They start their work years with low wages, dragging down the averages.
Oh some people's real income declined in the 10 year period--those dastargly to 1% of income earners:
Only one income group experienced an absolute decline in real income--the richest 1% in 1996. Those households lost 25.8% of their income. Moreover, more than half (57.4%) of the richest 1% in 1996 had dropped to a lower income group by 2005. Some of these people might have been "rich" merely for one year, or perhaps for several, as they hit their peak earning years or had some capital gains windfall. Others may simply have not been able to keep up with new entrepreneurs and wealth creators.
So for at least this study, the rich did not get richer--they got poorer and the poor didn't get poorer--they got richer.

I would like to take a deeper look at the methodology, but the sample size is more than sufficient and the movements are dramatic. This time frame includes the boom years of the 1990's and the market skids of the past couple of years as they related to 9/11 and other international events. I wonder if 9/11 had not happened what the results would be. Surely the top 1% might not have taken the beating they did, but would the poor have gotten much richer?

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