Income Mobility in the U.S.: Evidence from Income Tax Returns for 1987 and 1996

There is considerable income mobility in the U.S. economy as households move up and down in the income distribution over time. Previous studies have typically found that roughly half of the families in the bottom 20 percent of the income distribution have moved up out of the bottom 20 percent within 10 years and that some of them have moved all the way to the top 20 percent. This paper examines income mobility in the United States during the period 1987 through 1996 using individual income tax data. The analysis uses three alternative measures of relative and absolute income mobility that provide different perspectives on changes in household income over time. Consistent with prior studies, this study finds significant household income mobility over this period. More than half (56 percent by one measure and 57 percent by another measure) of households moved to a higher or lower income quintile between 1987 and 1996. Approximately half (61 percent by one measure and 45 percent by another measure) of the households initially in the bottom 20 percent of the population moved to a higher quintile within ten years. In addition, this study finds that the largest percentage increases in real incomes were for those initially in the lowest income groups. The results illustrate how one-time snapshots of the income distribution provide only a partial picture of the economic situation of households by ignoring the effects of income mobility on the well-being of households over time.