Claims that increases in wealth benefit only those at the top and have a negligible impact on the lower rungs of the economic ladder are driving the discussion on inequality. However, a recent study by the Danish Center for Political Studies (CEPOS) shows that this position is partly the result of a faulty framework.
“This claim rests upon a tradition of analyzing income developments over time by looking at the development within a particular income bracket,” says CEPOS CEO Martin Ågerup. “If you do that, you get a result that is consistent with that litany. However, this approach says nothing about the income developments experienced by actual individuals, since few people remain in the same bracket over many years.”
By analyzing individuals rather than groups, the CEPOS study presents a new way of thinking about inequality. This focus on individual socioeconomic mobility — the ability to move up and down the rungs of the economic ladder — challenges the view that those with lower incomes receive no benefits from increases in total wealth.
Figure showing the proportion of the lowest income group that remained in the lowest income group through the following years.
“Our results show that persons with low incomes in 1987 saw the largest rise in income out of all income groups through 2015,” continues Ågerup. “The income mobility of low income people has remained high over time. … Three out of ten people who are in the bottom 20 percent of earners in any given year are already out of that income bracket a year later. The proportion of those who can expect to be among the top 20 percent of earners for at least one year of their lives is likely over 80 percent.”
Figure showing the percentage of the population in 1987 that spent at least one year of their life in the top 20 percent income group.
The study uses disposable income data from 1987 to 2015, drawing on Denmark’s civil registry. After five years, less than thirty percent of those originally in the lowest percent of earners remain there for all five years, and less than fifty percent remain in this income bracket at all.
“What should interest us, if we are concerned about income mobility, is whether or not individuals with low incomes increase their earnings over time,” says Ågerup. “This is largely the case for Denmark, and I suspect it would be the case for other countries as well.”