The top 1% versus the 99% is again emerging as a popular topic. I wonder how many people genuinely reflect on who makes up the 1%. I believe many people see the 1% as a highly cohesive static population segment. It isn't.
Social scientists use two different types of analysis when analyzing data about populations. There is a cross-sectional analysis. These studies are a snapshot-in-time look at a given population. There is also longitudinal analysis. These studies measure the characteristics of a population over time. Cross-sectional studies are like looking at a photograph, and longitudinal studies are like looking at a series of photographs compiled together to give a motion picture.
Let's say we had unfettered access to I.R.S. data. We could analyze each person's income for each year over many years. A cross-sectional analysis would allow us to see who was in the top 1% in 2010. But how many of these people are genuinely wealthy in the sense of an ongoing lifestyle of riches and influence? There is no way to know from this analysis. Longitudinal analysis is needed.
So let's imagine two extremes over ten years. At one extreme is the idea that income is totally random. In that case, we would see no pattern in who makes up the top 1%. At the other extreme is the idea that the people in the top 1% are the same people in the top 1% ten years earlier, with a few adjustments for dropping people who died and adding people, mostly heirs, who took their place. The populist references to the 1% suggest something much like the latter is reality.
Mark Rank, professor of social welfare at Washington University, is one of the authors of a new book, Chasing the American Dream: Understanding What Shapes Our Fortunes. Last week, he wrote a piece in New York Times called From Rags to Riches to Rags. Based on the research in the book, here is some of what he wrote:
... Thomas A. Hirschl of Cornell and I looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking.
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.
It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60). ...
... Likewise, data analyzed by the I.R.S. showed similar findings with respect to the top 400 taxpayers between 1992 and 2009. While 73 percent of people who made the list did so once during this period, only 2 percent of them were on the list for 10 or more years. These analyses further demonstrate the sizable amount of turnover and movement within the top levels of the income distribution. ...
... Ultimately, this information casts serious doubt on the notion of a rigid class structure in the United States based upon income. ...
Other studies I've read show that even among those who make a high income for a string of years, it is difficult to stay at the top for more than a generation or so. Children rarely repeat the type of income production their high-achieving parents did. Studies show it is exceedingly difficult for a corporation to dominate top spots on the corporate hill for over a decade or two. Once decline sets in, only a small minority can recover past glory. We can probably count on one hand the number of corporations that have recovered three times in the past century or so. The point is that top spots in income for individuals and corporations are more precarious than is often appreciated. And it is also true that there is considerable variation in income over the lifetime of individuals found in the bottom 99% in any given year.
Raging against a monolithic unchanging 1%, sucking up all the wealth, and condemning the masses to a perpetual Dickensian dystopia, is way over the top, but it makes for pithy bumper stickers and effective sloganeering for certain ideological camps. Genuine interest in understanding and addressing economic challenges ... unemployment, stagnating wages, automation ... requires a significantly more nuanced approach.
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