NCPA - National Center for Policy Analysis

Climbing The Economic Ladder

July 23, 2003

Throughout their working lives, most workers will move up and down the wage distribution ladder. These movements occur relative to workers of other ages and even among workers of similar ages. This income churn continues from generation to generation, says Andrew J. Rettenmaier (Private Enterprise Research Center).

One way of looking at this economic mobility is to divide workers into five equal groups (quintiles) by income, from highest to lowest, and identify movement between the groups over time. Tracking changes in workers' income from year to year using data from the Current Population Survey, one finds:

  • After one year, about one-third of the workers in the bottom income group have moved to a higher group, and about one-quarter in the top group moved to a lower one.
  • Of those who were in one of the intermediate three groups at the beginning of one year, about half moved to another group by the end of the next year.
  • After 10 years, 60 percent of workers who began in the bottom group have moved to a higher-earning quintile, and more than half (54 percent) of the workers in the top group move to a lower group

Climbing the economic ladder is more the norm than the exception, says Rettenmaier. Knowledge and skill, as measured by education and experience, facilitates economic mobility. Individuals who have responded to the incentives implicit in the increased earnings inequality have experienced the greatest mobility.

The implication is that public policies providing individuals and their families greater freedom and opportunity to invest in themselves and their children will have the greatest positive impact on economic success, says Rettenmaier.

Source: Andrew J. Rettenmaier (NCPA senior fellow), "Economic Mobility," Brief Analysis No. 449, July 23, 2003, National Center for Policy Analysis.

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