Growing Out of Poverty

I've devoted billions of bytes and plenty of posts to showing that we enjoy substantial "income mobility." In other words, because America still is the land of opportunity, the population defined as "low income" changes dramatically and rapidly.

Gerald Auten and Geoffrey Gee confirm these conclusions in the June 2009 National Tax Journal, which concludes:

[T]here was considerable income mobility in the U.S. economy over the 1987-1996 and 1996-2005 periods. Consistent with prior mobility studies, the data show that over half of taxpayers moved to a different income quintile and that roughly half of taxpayers who began in the bottom income quintile moved up to a higher income group by the end of each period. By contrast, those with the very highest incomes in the base year were more likely to drop to a lower income group and the median real income of these taxpayers declined in each period.

An earlier version of their paper amplifies (at 4):

• There was considerable income mobility of individuals in the U.S. economy over the 1996-2005 period. More than half of taxpayers (57.5% by one measure and 55% by another measure) moved to a different income quintile over this period. About half (56% by one measure and 42% by another) of those in the bottom income quintile in 1996 moved to a higher income group by 2005.



• Median incomes of taxpayers in the sample increased by 24% after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. Furthermore, the median incomes of those initially in the lowest income groups increased more in percentage terms than the median incomes of those in the higher income groups. In contrast, the real median incomes of taxpayers who were in the highest income groups in 1996 declined by 2005.



• The composition of the very top income groups changed dramatically over time. Less than half (39% or 42% depending on the measure) of those in the top 1% in 1996 were still in the top 1% in 2005. Less than one-fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.



• The degree of relative income mobility among income groups over the 1996-2005 period was very similar to that over the prior decade (1987-1996). To the extent that increasing income inequality widened income gaps, this was offset by increased absolute income mobility so that relative income mobility neither increased nor decreased over the past 20 years.

Thus, as econ prof Mark Perry observes:

[A]lmost everything we hear in the media about increasing income inequality, the disappearing middle class, the rich getting richer and the poor getting poorer, and the lack of income mobility is either flawed, deficient, incorrect, incomplete or wrong.

The data show that there is significant income mobility up and down the income quintiles over longer periods of time, e.g. 1996-2005. Many of today's poor are tomorrow's rich, and many of today's rich are tomorrow's middle class or poor. The top income quintiles are not private clubs closed to new members, but are shifting, dynamic quintiles composed of an ever-changing group of different individuals from year to year.

Conclusion: The path from poverty to middle class prosperity isn't necessarily increased entitlements. Rather, as I've argued, "[e]ncouraging economic growth enriches all and is the most effective anti-poverty program." The market's out-performed the alternatives so far.