Saturday, July 05, 2014

Picking Piketty Apart (7) Mobility

When analysing inequality, Thomas Piketty focuses on the share of income and wealth going to three groups, the top decile, the middle forty percent and the bottom fifty percent. He also looks at the share of the top one percent.

A limitation with this approach is that it does not tell us what is happening to individuals, families and groups over time. The people making up Piketty’s groups can change by economic events. People in the bottom half can move up. Others born into the top 10 percent can drop down.

There is always (by definition) a top ten percent in every society, but the membership of that group can change over time. To understand inequality we also need to understand income mobility.

In the beginning the 19th century, most of the top 10 percent were landed aristocracy. By the end of the century, most of the top ten percent were industrialist. A few would have made the transaction from renter to industrialist, but most did not.

By the end of the twentieth century, the landed gentry cannot afford to maintain their stately homes. Industrialists have been hammered by competition from China. The top 10 percent are now bankers and super manager. A place into the top 10 percent is never permanent.

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