Income Mobility – Curse or Blessing? Mobility in Social Security Earnings: Data on West-German Men since 1950

Abstract

Descriptions and analyses of citizens' or households' income have a long tradition in economics. A large body of research has recognized that levels of income and how income is distributed are important contributors to the wealth of nations. Within the broader context of income and its distribution, there has also been a considerable amount of research on the process underlying income distribution that is, income mobility. The relevance of income mobility is manifold. First of all, mobility is an indicator for an open society providing economic opportunities for everyone. As people are normally risk averse, they are interested in a steady income stream. This can be called the security aspect. Another facet of income mobility is the incentive aspect. Upward mobility provides incentives for successful economic activity as it is possible to move up the income ladder. If upward mobility offers the „carrot", downward mobility epitomizes the „stick" of economic activity. Downward mobility increases insecurity and insecurity is harmful to well-being. We use data covering the whole working lives of workers/employees to shed light on income mobility. This will result in more information about the adequacy of some assumptions of the life-cycle theory concerning the development of income over time – and especially on the inverse U-shape assumption of income profiles.