Tuesday, January 24, 2012


That math depart at LCC has a lot of "We are the 99%" signs on professor's doors.

I do understand why, but am tempted to post a slightly more accurate sign.  What percentile of American income earners am I, anyway?

(Tangentially, there are more important issues than percentile envy.  Here are two.  (1) What responsibilities do Americans acquire from being wealthier than most of the world?  Global wealth inequality is much more drastic and tragic that domestic.  (2) How can Americans reduce crony capitalism by promoting small government?  Wealth inequality matters much less when those very wealthy who can buy political influence have fewer opportunities to effect society because the government does not have its fingers everywhere.)

Economic mobility is hard to measure well.  Yet it is easy to measure sloppily, and even the sloppy measurements are revealing.

Age matters a whole lotThis chart has a blurb that sounds discouraging.  But let's do some math.  The Treasury Department report comparing earnings in 1996 to 2005 (pdf) whose data the above chart used also tells us that among the lowest fifth of U.S. earners, in ten years 58% moved upwards out of the lowest fifth of earners--and over half who moved up shot beyond the second quintile into the middle quintile or higher.  Similarly, among people in the second quintile nearly 50% moved up to the middle quintile or beyond in ten years.  (Tangentially, only 17% in this group moved down to the lowest quintile.)  Knowing that earners in the lowest quintile have a 42% chance of staying there after 10 years we can ask:  What is the chance that a person will stay in the lowest quintile for 30 years? (What is 42% of 42% of 42%?)  Only 7.2%.  That is astounding, considering that for most of history in most places nearly everyone in the lowest quintile stayed there all their lives.

(Of course, the answer is not really 7.2% for any individual.  People with a work ethic do better than average.  Those who less diligently pursue a career do worse than average.)

American mobility is slowly decreasing but is still remarkably high compared to most places and most of history.  Over forty working years most below-average earners advance their careers enough become above-average earners.  The average American household income in 2010 was $67,530.  How many places in the world offer a reasonable expectation to earn over $67,000 each year by the end of your career?

What factors besides age matter?

College matters, somewhat.  This chart mostly tells us two unsurprising things: families that stay in the top quintile normally send their kids to college, and having a college degree predicts very little about future income besides "not lowest quintile".

Parental income matters statistically, although not very much for the middle two quartiles of earners.  See the right side of this chart.

The broad and flat spread of American incomes also matters statistically (remember this chart).  Most other countries with more mobility have more income equality: where everyone is about the same a smaller change will cause a more dramatic shift up or down.

So, back to my question.  I expect my household percentile must be above 50%.  Age matters, and my wife and I are both almost forty.  College matters, and my wife has a doctorate and I have two master's degrees (and we are both employed in jobs that make use of those degrees).

(We're in the middle two quintiles, so parental income is not a significant factor.)

On the other hand, I work very part time and we live in a city with a comparatively low standard of living.  My wife could have a larger salary if we lived in a big city, but we prefer it here in Eugene.

It turns out my question is actually easy to answer.  I go to this website and type in my household's 2010 income.  The website's calculations then tell me that my household was about the 65th percentile.  Should I put a sign on my office bulletin board or door: I'm part of the 65%?

That might be our high point.  In 2011 our income was much smaller because my wife had three months of time off after Gallant was born and then went back to work part time.  She went back at half time and has been increasing her hours but is still not back to full time.  There is little incentive for her to work full time again when taxes are increasing and working means less time at home watching her little boys grow up.

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