5 Takeaways From a Report on Income Mobility

New data reveals long-term trends about the under-reported topic.
by | July 13, 2016

It’s difficult to read the news on any given day without seeing something about income inequality. But just as important and less discussed is the issue of income mobility.

Mobility happens when a person’s income raises (or drops) enough to move them into a higher (or lower) economic class. According to a new report, Americans’ income mobility has declined after reaching an all-time high just before the Great Recession in 2007. Historically, mobility was at its highest from 1968 to 1978 and its lowest from 1983 to 1993.

The report by the Federal Reserve Bank of Cleveland noted that, “The distribution of income could be very unequal, but if people move throughout that distribution over their lifetime, perhaps because they start out relatively poor and then become richer as they age, then income inequality may be more tolerable."

But nationally, not many people are living that rags-to-riches story.

The report tracks people’s mobility over 10- and 20-year periods from 1968 to 2013.

Here are the biggest takeaways from it:

Stagnation is more likely than mobility for every level of income.

In 2013, the report found that 64 percent of the poorest households had stayed in the same income group for 10 years -- so had 72 percent of the richest households. The people that did improve their economic status over that decade, however, were more likely to come from lower-income households.

The younger people are, the more likely their situation will change.

Mobility tends to decline the older we get. From 1968 to 2013, the income mobility of 18- to 30-year-olds was consistently higher than people ages 31 and up.

If change doesn’t happen in a decade, it’s unlikely to happen at all.

This is also true for 20-year periods. If a person's income hasn't changed enough to change their economic status in the first 10 years, it is unlikely to happen in the next 10 years.

One of the biggest factors in mobility is the mobility of your parents.

Only 25 percent of all children born in households with the lowest economic status manage to improve their economic status, whereas 60 percent of all children born in the richest families manage to do so.

While the mobility trend had its ups and downs, inequality has clearly been getting worse.

Income mobility started relatively high in the late 1970s, decreased throughout the 1980s and went back up until peaking in 2007. Inequality shot up in the same period with minor fluctuations. The Gini Coefficient -- one measure the Census Bureau uses to compute the level of income inequality among households -- rose from 0.33 in 1968 to 0.42 in 2005.

Amber Tong | Intern