Income and Earnings Mobility in U.S. Tax Data

Abstract

We use a large panel of federal income tax data to investigate intragenerational income mobility in the United States. We have two primary objectives. First, we 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. Second, we evaluate how federal income taxes stabilize or destabilize post-tax income changes relative to pre-tax changes. We find a relatively high degree of income mobility, with almost half of workers exhibiting earnings 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. We also observe that large income gains are most likely among families that add workers – either through marriage or through a second family member entering the workforce.