Wage Mobility in the United States

This paper examines the mobility of individuals through the wage and earnings distributions. This is of extreme importance since mobility has a direct implication for the way one views the vast changes in wage and earnings inequality in the United States over the last few decades. The measures of wage and earnings mobility analyzed are based on data for individuals surveyed in the National Longitudinal Survey for Youth from 1979 to 1991. We introduce summary measures of mobility computed over varying time horizons in order to examine how the effect on measured inequality as the time horizon is increased. The results suggest that mobility is predominantly within group mobility and increases most rapidly when the time horizon is extended up to four years, reducing wage inequality by 12-26%. We proceed therefore with more detailed examination of short-term (year-to-year) within group mobility, by estimating non-parametrically transition probabilities among quintiles of the distribution. We find that the staying probabilities, by quintiles, were higher at the higher quintiles throughout the period for both wages and earnings, and that mobility is declining over time. Hence, this paper suggests that while the level of wage inequality in the United States is somewhat lower once mobility is taken into account, the sharp increase in inequality during the 1980's is worse than it appears, due to falling mobility over time.