Sunday, May 4, 2014

Who stays in the top 1 percent?

The share of the economic pie that accrues to the top one percent of households in the earnings distribution has been increasing over the last 40 years in the US.  On the surface this implies that a small circle of people keeps getting richer and richer every year.  

However, the composition of the top one percent changes every year.  Recently two sociologists did a study to examine how much turnover takes place in the upper income brackets.  One would expect some turnover for a number of reasons.  First, most people start their careers in low to middle income categories.  Second, some income is transitory; for instance Thomas Piketty is a wonky French academic economist who has become a best selling author (but probably for only one year).  

The results of the sociologists' study, reported two weeks ago in NYT, will surprise many.  
It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution. 
Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.
One must be careful to distinguish between inequality in income, which clearly varies from year to year, and inequality in wealth, which is more likely to be stable over time.  It would be interesting to see how much change there is in the composition of the top one percent of the wealth distribution.

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