From Rags to Riches to Rags

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from The New York Times,

BY now most of us know the basic facts of America’s rising income inequality: Since the early 1970s, the gap between the top and bottom of the income distribution has expanded significantly; what’s more, the only group to have experienced real economic gains during this period has been those in the top 20 percent, with gains heavily concentrated in the top 10, 5 and — most famously — 1 percent.

The picture drawn of the 1 percent has been that of a static population, just as the 99 percent is often portrayed as unchanging. There is a line drawn between these two groups, and never the two shall cross.

But is it the case that the top 1 percent of the income distribution are the same people year in and year out? Or, for that matter, what about the top 5, 10 and 20 percent? To what extent do everyday Americans experience these levels of affluence, at least some of the time?

In order to answer such questions, 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.

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).

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