Income Inequality Matters, but Mobility Is Just as Important

Abstract

Concerns about rising income inequality are based on comparing income distributions over time. It is important to remember that such distributions are snapshots of a single year, and that the same households do not necessarily appear year after year in the same quintile of the distribution. Paying attention to mobility, as well as inequality, gives us a richer picture of the income possibilities for households over time. We document changes in a measure of income mobility over the past 40 years, a period in which income inequality has increased. We find a modest level of movement through the distribution, particularly across generations. Nevertheless, the income quintile of one’s parents still has a sizeable effect on how just how high one is likely to rise or how low one may fall.