Age–Income Dynamics over the Life Course: Cohort Transition Patterns in Relative Income Based on Canadian Tax Returns

Abstract

This article is concerned with patterns of cohort aging and income progression. We explore the dynamics of age–income progression through the use of state transition matrices, consider alternative cohort definitions, and introduce an artificial cross-sectional cohort based on the transition matrices. Our applications make use of individual income records from Statistics Canada’s Longitudinal Administrative Database. Relative income is defined by how an individual of a given age is positioned in the overall distribution of income in a given year. We derive the proportionate distribution of individuals in each decile group at each representative age, starting at age 24, and the transition matrices then show the movements from the distribution at one age to the distribution five years later.