News Story

Economist: Top 1 Percent Not 'Private Club'

Evidence shows that income is mobile

The top 1 percent of the wealthiest Americans who Occupy Wall Street protesters have demonized do not belong to an exclusive club, says one economic expert.

Mark Perry, a member of the Mackinac Center's for Public Policy's Board of Scholars and chairman of the economics department at University of Michigan-Flint, said the dynamism of the U.S. labor market is underappreciated by the Occupy Wall Street crowd.

“In the discussions on income inequality and wage stagnation (including from the OWS), we frequently hear about the ‘top 1 percent’ or the ‘top 10 percent’ or the ‘bottom 99 percent’ and the public has started to believe that those groups operate like closed private clubs that contain the exact same people or households every year,” Perry wrote in an email. “But the empirical evidence tells a much different story of dynamic change in the labor market.”

A November 2007 U.S. Treasury study found that 57 percent of the richest 1 percent of households fell out of that category by 2005. The study also pointed out that 58 percent of the lowest 20 percent of households in 1996 had moved to a higher income by 2005.

“Many of today’s low-income households will rise to become tomorrow’s high-income households, and some will even eventually be in the ‘top 10 percent’ or ‘top 1 percent,’" Perry added. "And many of today’s ‘top 1 percent’ or top income quintile members are tomorrow’s middle or lower class households, reflecting the significant upward and downward mobility in the dynamic U.S labor market — an important point in any discussion about ‘exploding income inequality.’ ”

In other words, the battle lines in class warfare are drawn in sand, not set in stone.

Said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy: “It took less than a decade for the majority of poor Americans to climb out of poverty. The people earning the most don’t stick around, either.”

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.