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Income Volatility

NOW's story on the economic volatility faced by American families "Risky Business" incorporates many of the economic issues of our day: debt and bankruptcy, employment outlook, wages, income inequality as well as the economic issues clouding our future: Social Security, pensions, rising healthcare costs. Those are also among the challenges documented in a unique long-term study, the Panel Study of Income Dynamics (PSID) at the University of Michigan. Begun in 1968, the PSID is a longitudinal study of a representative sample of U.S. individuals (men, women, and children) and the family units in which they reside. It emphasizes the dynamic aspects of economic and demographic behavior, but also includes sociological and psychological measures. The sample size has grown from 4,800 families in 1968 to more than 7,000 families in 2001. By the end of 2003 the PSID had collected information about more than 65,000 individuals spanning as much as 36 years of their lives.

The study supplies a rich resource for economists, sociologists and journalists. Some of the studies that used PSID data have addressed issues as diverse as the chances of remarriage for single mothers of boys versus single mothers of girls to the lifetime chance of an individual of falling into poverty. Take a look at some of the results below.

Climbing the Income Ladder

The statistical reality of the American Dream — or rather lifetime upward mobility — was the subject of a study by economists Katharine Bradbury and Jane Katz whose analysis of PSID data found that income inequality has grown in the United States and upward economic mobility for the lowest income groups has not increased.

Where Families Ended on the Economic Ladder, By Quintile, 1988-1998 Decade

Where Families StartedPoorestSecondThirdFourth Fifth
Figures from the Panel Study of Income Dynamics, analyzed in "Are Lifetime Incomes Growing More Unequal," Federal Reserve Bank of Boston, REGIONAL REVIEW Q 4, 2002

Lifetime Chance of Poverty

Both the PSID and the Census Bureau offer surprising statistics about an American's chance of living in poverty. A federal study found that about 25 percent of Americans and 34 percent of children experienced poverty at some point between 1987 and 1996. Mark Rank of Washington University calculates PSID figures to determine the chance Americans have of being poor at some stage in their lives. Though the condition was rarely permanent — it was surprisingly common. [The federal poverty level in 2003 stand at $8,980 for individuals, $12,120 households of two; $15,260 for three; $18,400 for four.]

Percentage Who Have Lived Below the Poverty Line

Figures from the Panel Study of Income Dynamics, analyzed by Mark Rank, Washington University of St. Louis

Additional sources: "Keep Your Résumé Current," Kristie M Engemann, Leora Friedberg, Michael T Owyang; REGIONAL ECONOMIST, January 1, 2005; "Brief Bouts of Poverty Common For Many," Richard Morin, WASHINGTON POST, August 29, 2004; "Twenty Years of Rising Inequality in U.S. Lifetime Labour Income Values," Audra J Bowlus and Jean-Marc Robin, REVIEW OF ECONOMIC STUDIES, July 1, 2004; "Call It the Family Risk Factor," Jacob S. Hacker, THE NEW YORK TIMES, January 11, 2004; "Many Find Themselves Crossing the Poverty Line ; Two Out of Five Americans Fall Into Poverty at Some Point," Jean Hopfensperger, STAR-TRIBUNE, October 18, 2003; Beyond "Rich" and "Poor," Douglas Clement, Federal Reserve Bank of Minneapolis, Volume 17, Issue 2, June 2003.

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