The three I's of downward income mobility: A directional subgroup decomposable measure

Abstract

AbstractThe Foster‐Greer‐Thorbecke class of indices and the TIP curve have become classical tools to measure poverty. In this paper we adapt these indices and curve to the income mobility literature and measure downward income mobility considering its three dimensions of incidence, intensity, and inequality. This strategy allows us to incorporate reference dependence, loss aversion and diminishing sensitivity, features emphasized as welfare determinants in Prospect Theory. We propose the use of a class of measures and a Three I's of Downward Mobility curve as a useful graphical device in the income growth framework. Based on this curve we can evaluate the degree of regressivity (or progressivity) of income losses. We provide an empirical illustration for Spain in two recent recession periods. Results show that even if for most households the pandemic shock was not as severe as the Great Recession, some sociodemographic groups had a more similar downward mobility experience in both crises.