The role of mobility in offsetting inequality: a nonparametric exploration of the CPS

Abstract

This paper explores how annual earnings mobility offsets annual earnings inequality, using matched CPS data. Mobility in the economy is estimated using nonparametric quantile regression, for which we adapt state-of-the-art smoothing techniques. Mobility is measured through the churning process (changes in earnings given initial earnings) in order to identify different mobility patterns for different earnings groups. For instance, upward mobility in high earners is far weaker than its converse, downward mobility for low earners. We assess the (positive or negative) contribution to offsetting of each pattern in mobility. Innovations in our approach also allow us to identify trends and minute changes in mobility, and to pinpoint which changes in mobility have offset the increases in inequality observed over the decades. Show more