Economics Stack Exchange is a question and answer site for professional and academic economists and analysts. Join them; it only takes a minute:

Sign up
Here's how it works:
  1. Anybody can ask a question
  2. Anybody can answer
  3. The best answers are voted up and rise to the top

Occupy Wall Street has a famous slogan "we are the 99%", refering to the "fact" that 1% of the people in the US take nearly the quarter of the national income. However, this does not seem to consider that many people with extreme incomes have very variables revenues and have to borrow a lot from the private sector to finance their source of revenue, and that this revenue is unstable. Are there any studies/data confirming that the 1% that has nearly 25% of the national income is in fact nearly composed of the same people year after year? Any data that considers "permanent income" instead of "annual income"?

share|improve this question

migrated from skeptics.stackexchange.com Feb 8 at 16:23

This question came from our site for scientific skepticism.

1  
What is permanent income? i.e. when you retire what happens to your income – Mark Feb 8 at 16:07
2  
I'd say the average life income. People smooth their consumption through time, anticipating their future income, according to some theories (permanent income theory). Actually, what I want to know is if there has been studies about larger time horizons than annual income. Does the richer 1% of a decade still have 25% of the national income? – Cass Feb 8 at 16:10
2  
However stable the top 1% in income is or isn't, I think income is often a red herring in these arguments. Whenever you're thinking meaningfully about inequality, I would challenge you to ask yourself whether income is a better measure than wealth. I personally think the latter is far more relevant for most considerations concerning inequality. I would also suppose that the top one percent by wealth is far more stable than the top one percent by income. It's actually a little unclear to me which the OWS folk were appealing to specifically -- they appear together on their Wikipedia page. – Shane Feb 8 at 21:56
    
Fortune just published an article on this topic: fortune.com/2015/03/02/… – aepryus Feb 9 at 4:44
    
Anecdotically, apparently, owning an average house in London puts one in the 1% on wealth. – gerrit Feb 9 at 18:50
up vote 17 down vote accepted

I've not see a strict analysis of the top one percent but I have seen an analysis of the top 400 tax payers, the very highest income taxpayers:

Who are the rich? It depends who you ask and when. Since 1992, the IRS has tracked the top 400 earners in terms of adjusted gross income—the so called fortunate 400. ... Most importantly, this IRS report demonstrates there is a lot of income mobility at the top. Of all the filers who have made the list since 1992, 73 percent were on the list just once. Virtually no one remains on the list for all 18 years, but for privacy concerns the IRS did not report exactly how many did, if any. In last year’s report, just 4 people remained on the list for all 17 years. This suggests that most top earners do not have a portfolio of big investments that can be cashed in year after year, but rather one big asset, such as a family farm or business or stock, the sale of which triggers a capital gain.

The Fortunate 400 By William McBride

A slightly more targeted answer:

Considering those whose information was found in both years, approximately half of taxpayers in the lowest and highest income quintiles remained in the same quintiles 20 years later. Nearly one-fourth of those in the bottom quintile moved up one quintile, while 4.7 percent moved to the top quintile. About one-fourth of those in the top 1 percent were also in the top 1 percent 20 years later, but nearly 70 percent remained in the top income decile. The overall results suggest that, while there is considerable persistence among observed taxpayers, there is also meaningful movement even within this narrow age cohort. Some taxpayers start from the bottom and move to the top and vice versa.

NEW PERSPECTIVES ON INCOME MOBILITY AND INEQUALITY Gerald Auten, Geoffrey Gee, and Nicholas Turner (2013)

share|improve this answer
    
Thank you, that pretty much answers my question. – Cass Feb 8 at 16:53
11  
@Cass Bear in mind that the top 1% of people in the US would be 3.2 million people. This article is only about the top .01% of the top 1%, so it's probably not representative. – Robert Feb 8 at 19:21
    
I seem to recall that a similar idea holds across generations, with a much lower than (perhaps) expected number of elite grand- or great-grandchildren continuing on as elite. I'm not fluent with the topic, but I know this job market paper is related. – MichaelChirico Feb 8 at 19:47
    
Maybe that's because anyone who gets on the list is shocked by how much taxes they have to pay and starts looking for ways to hide their income from the IRS :) – Philipp Feb 9 at 16:11
2  
I haven't taken the time to find a reference to source material (why this is a comment rather than an answer) but the top 1% of income earners is actually very fluid. Many of the top 1% is not your "idle wealthy" but are instead high earning professionals at the peak of their earning potential (mid 50s) and they are only in this range for a very short period of time. The top 1/10 of 1% IS very stable. The likelihood that someone earning in the top 1/10 of the top 1% falling out of the top 1% entirely is very, very, very small. – K. Alan Bates Feb 9 at 16:13

To answer the question: Yes, the 1% is relatively stable. From The Economist:

Membership in America's 1% is relatively stable; three-quarters of the households in the percentile one year will still be there the next.

Also your "belief" that the vast majority of the income that the 1% receive is variable, from borrowing, etc, isn't actually true.

The richest 1% earn roughly half their income from wages and salaries, a quarter from self-employment and business income, and the remainder from interest, dividends, capital gains and rent.

So half isn't variable at all, a quarter is slightly variable and, a quarter isn't all that variable, but is subject to market shocks.

Source

And that isn't even getting into whether or not this question has any relevance. There's two big problems with your question:

  1. Is income even the stat we should be looking at?

The wealth gap, as measured by net worth, is much more extreme than the chasm as measured by income.

The Times had estimated the threshold for being in the top 1 percent in household income at about \$380,000 dollars. That is 7.5 times median household income. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly \$8.4 million dollars, or 69 times the median household’s net holdings of \$121,000. source

The government goes after income more than it goes after wealth. For example, you can live in a \$8 million mansion and get Universal Healthcare subsidies if you make less than ~$94,000 a year with a family of four.source

At the end of the day, when Bill Gates retired from Microsoft, he wasn't suddenly poor. If you think there is a problem with wealth inequality, looking at income isn't a great way to find out if you are right or not.

  1. If there are socio-economic problems cause be income inequality, how does the fact* that the faces of the ultra rich change factor into those problems? Does it factor into it at all?

If there's 5 people, with enough food for 5 people and person 1 eats it all today. Tomorrow person 1 leaves and a new guy comes in. He eats all of today's food. When the 4 people sitting there starving start complaining that the share of the food is unequal and that they are starving, what does it matter that it wasn't the same guy who ate it all twice in a row? The problem here is the inequality itself not who is getting the unequal treatment.

*Not actually a fact. Data shows this is the opposite of a fact.

share|improve this answer
7  
A 75% retention over one year does not strike me as all that stable! – Loren Pechtel Feb 8 at 20:48
2  
¯_(ツ)_/¯ It strikes me and the Editors over at the Economist as stable. 75% year to year and 70% over decades is pretty damned stable. But it isn't like there is a bright red line between stable and random, YMMV. – Shane Feb 8 at 21:39
    
@Shane, gotta agree with you. Initially, I figured that would translate into a lot of churn (potentially, if that 75% figure stays the same from year to year, the 1% could consist mostly of new people within 2 or 3 years, depending on your assumptions). However, (i) that's a bit unlikely, and (ii) on the other hand, despite the original question, it might be more meaningful to talk about something broader than 1%--maybe 3%? 5%? 10%? We'd have to see some figures. – Mathieu K. Feb 9 at 4:05
1  
It's no wonder wealth inequality is far larger than income inequality. Wealth is the integral of income, and in fact integrated over generations. – gerrit Feb 9 at 17:03
    
But there aren't any external people. There are only five people. If the first person eats all the food in the first day and the second person eats all the food on the second day and so on and so forth, the food may be equally divided. Each person eats every fifth day. Obviously, that doesn't describe the real circumstance either. It's more like what happens if the first and second person switch off days. Perhaps the first person has five days a week and the second person gets weekends. And of course, we're stuck with the problem that if there are only five people, there's no 1%. – Brythan Feb 9 at 19:00

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.