Does mobility mean we shouldn’t worry about inequality?

Zachary Roth

Thanks in part to Occupy Wall Street, it's now common knowledge that the richest 1 percent of Americans have vastly increased its share of national income over the last three decades, while those in the middle and at the bottom have seen their shares shrink. A report released this week by the Congressional Budget Office provided the latest breakdown.

But some say that this way of looking at the issue is misleading. That 1 percent, they contend, doesn't represent the same people over time, because the deck is constantly being reshuffled as Americans move into and out of the top tier.

As Thomas Garrett, an economist with the St. Louis Fed, put it in a report last year: "[C]omparing different income quintiles over time is like comparing apples to oranges, because it means comparing incomes of different people at different stages in their earnings profile." The economic historian Joseph Schumpeter used another metaphor: "The upper strata of society are like hotels which are indeed always full of people, but people who are forever changing," he once said.

If that's the case, it would have important implications for the fierce debate over inequality that's currently unfolding. But how well does the claim hold up?
Studies that look at economic mobility over time are complicated and take decades to complete, so there isn't a huge amount of reliable data. But perhaps the most authoritative recent analysis (pdf) was done by the Treasury Department in 2007. It found a picture that might best be described as mixed.

On the one hand, the study, which looked at the period between 1996 and 2005, found what it called "considerable income mobility." Less than half of those in the top 1 percent in 1996 were still there by 2005. Nor was the movement confined to the top. Around half of those in the bottom income quintile for 1996--that is, the poorest 20 percent of Americans, by income--had moved out of it by 2005, and more than half of all taxpayers moved from one income quintile to another during that time.

That sounds like a lot of flux. And yet, your chances of being in the top 1 percent in 2005 were enormously dependent on where you were nine years earlier. If you were in the top 1 percent in 1996, you had a better than 4 in 10 chance of still being there in 2005. But if you were anywhere in the bottom 80 percent in 1996, you had just a 1 in 400 chance of making it into the top 1 percent.

And although those in the very top tier may sometimes fall out of it, they usually don't fall all that far. More than 8 out of every 10 people who were in the top 1 percent in 1996 were still in at least the top 10 percent--whose share of total income has also increased markedly since 1980--by 2005. And 3 out of 4 of those in the top 1 percent in 1996 were still in the top 5 percent nine years later. In other words, the great majority remained extremely wealthy compared to their fellow Americans.

And consider this: If you were in the top 10 percent in 1996, you had a better than 6 in 10 chance of also being there in 2005. But if you were in the bottom 20 percent, your chances of cracking that top 10 percent were just 2.3 percent. Your chances of staying in the bottom 40 percent, meanwhile, were better than 7 in 10.

"Data shows that people who start in the top tend to remain in the top and those who start in the bottom, tend to be stuck there," Erin Currier of Pew's Economic Mobility Project, which has conducted broad-based studies of mobility over generations, told Yahoo News. "This makes the inequality we see today all the more troubling. Without economic mobility, Americans don't have equality of opportunity."

What's the takeaway from all this?  One conclusion is that the focus on a specific group described as the 1 percent-- though perhaps politically effective for the Occupy Wall Street protestors--isn't the most accurate way to describe what's happened in America over the last 30 years, because the makeup of that 1 percent is by no means constant.

At the same time, though, the great majority of those going into and out of that 1 percent are already, by and large, much wealthier than most Americans. So the gains made by that top 1 percent may be benefiting more than 1 percent of taxpayers, but they're still mostly going to a small minority, while a majority sees its share decline.

The 1 percent may not be as distinct a group as Occupy Wall Street would have it. But the larger point--that the rich are getting richer, and only a rarefied minority of Americans are getting their turn in the sun--seems hard to dispute.

Want more of our best national affairs stories? Visit The Lookout or connect with us on Facebook and follow us on Twitter.

Other popular Yahoo! News stories:

New numbers: Income for top 1 percent skyrocketed over last 30 years

Jon Huntsman's daughters spoof Cain's smoking ad

Jack Hanna: Killing of exotic animals in Ohio 'is the September 11th of the animal world'