How Income Mobility Affects Income Inequality: US Evidence in the 1980s and the 1990s

Abstract

This study examines income mobility and income inequality in the 1980s and 1990s. The results show that income mobility in the 1980s differed from mobility in the 1990s. Positional mobility was lower in the 1990s than in the 1980s, but income changes were more extensive in the 1990s than in the 1980s. Changing income had an equalizing effect on incomes, which was outweighed by the unequalizing effect of reranking. Hence, income inequality increased in the 1980s and the 1990s. Reranking had a small role in equalizing longer term incomes; income changes appear to be the primary effect in equalizing longer term incomes.