Income and earnings mobility in U.S. tax data

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Authors:

Jeff Larrimore, Federal Reserve Board
Jacob Mortenson, Georgetown University and the Joint Committee on Taxation
David Splinter, Joint Committee on Taxation

Abstract:

This paper uses a large panel of federal income tax data to investigate intragenerational income mobility in the United States and to explore the determinants of two-year changes in individual labor earnings and family incomes, such as job or industry changes, marriage, divorce, and geographic mobility. Further, it evaluates how federal income taxes stabilize or destabilize post-tax income changes relative to pre-tax changes. The data reveal a relatively high degree of income mobility, with almost half of workers exhibiting earnings changes – increases or decreases – of at least 25 percent, and two-fifths of tax units experiencing income changes of this magnitude. Male and female labor income mobility patterns are remarkably similar, though marriage is associated with earnings gains among men, but is associated with modest earnings declines among women. Large income gains are most likely among families that add workers—either through marriage or through a second family member entering the workforce.