Understanding Society Scientific Conference 2019 - , University of Essex

Understanding income mobility at the bottom and the top: A persistence in income positions approach for Chile

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Day:Tue 2 Jul
  • Joaquin Prieto, London School of Economics

Understanding the mechanisms that explain why households that are in the lower end of the income distribution have a low probability of moving up (sticky floor), and those that are in the higher-end of the income distribution have low chances of moving down (glass floor) have gained attention in the last years in the academic and policy fields. I propose an income positions persistence approach that uses dynamic panel ordered probit models to analyse, simultaneously, the income mobility at the bottom and at the top of the income distribution. I examine the persistence observed in both ends of the income distribution based on (i) the components that can be attributed to state dependence, (ii) the non-observed heterogeneity, and (iii) the effects of the observed characteristics of individuals and households. I apply my approach to Chile using longitudinal data from the Panel CASEN 2006-2009. The results show, first, that income mobility at the bottom and the top of the income distribution is much higher than it initially expected for Chile showing signs of high economic insecurity. That is, all groups within the income distribution are likely to move upward in the income ladder, but this does not ensure the sustainability of those changes over time. And second, the observable individual characteristics in the current income position have a much stronger impact than the true state dependence. Additionally, the unobservable individual heterogeneity accounts for around 30 per cent of the unexplained variation in changes in the income distribution.