Daniel Carroll and Nick Hoffman of the Cleveland Fed:
New Data on Wealth Mobility and Their Impact on Models of Inequality: Wealth inequality, the unequal distribution of assets across households, has been rising for decades. However, this statistic alone gives an incomplete picture of the inequality of households’ economic experiences and opportunities. A fuller understanding comes from also knowing how much movement within the distribution households experience over time. For instance, is it likely that someone with low wealth today will be a wealthy person at some point in the future, or are they rigidly stuck at the bottom? In other words, a fuller understanding of households’ economic opportunity comes from a combination of data on both wealth inequality and wealth mobility.
This Commentary explores the topic of wealth mobility in the United States during the past three decades (see Carroll and Chen 2016 for similar work on income inequality and mobility). Examining supplemental data from the Panel Study of Income Dynamics (PSID), which track families’ wealth over time, we calculate changes in relative wealth mobility; that is, how likely families are to move up or down the wealth distribution, relative to one another. We find that wealth mobility has declined since the 1980s, a trend that is robust to a wide range of measures. Finally, we identify savings behaviors that are associated with more mobile families. Such behaviors may explain the disparity between observed levels of mobility and the levels predicted by the standard model used to study inequality. ...
Conclusion Wealth mobility depends on luck and household choices. It is a reflection of households’ opportunities as well as their responses to those opportunities. Panel data from the past 30 years show a decline in wealth mobility across several measures. It appears that families are less likely to change wealth quintiles over time, while those that do move are less likely to move very far. The reasons for these trends are not fully known, but increasing wealth inequality has contributed to the decline. Families that do make large movements through the wealth distribution appear to be more likely to own some form of a risky asset, as compared to families that do not make large movements.