Scott McKinley
Tulane University
Title
Inequality and Mobility in a Minimal Model for Evolving Income Distributions
Abstract
In this work we explore the dynamic relationship between income inequality and economic mobility through a pairing of a population-scale partial differential equation (PDE) model and an associated individual-based stochastic differential equation (SDE) model. We focus on two fundamental mechanisms of income growth: (1) that annual growth is percentile-dependent, and (2) that there is intrinsic variability from one individual to the next. Under these two assumptions, we show that increased economic mobility does not necessarily imply decreased income inequality. In fact, we show that the mechanism that directly enhances mobility, intrinsic variability, simultaneously increases inequality.
Using Growth Incidence Curves, and other summary statistics like mean income and the Gini coefficient, we calibrate our model to US Census data (1968-2021) and show that there are multiple parameter settings that produce the same growth in inequality over time. Strikingly, these parameter settings produce dramatically different mobility outcomes. This analysis echoes the exhortations of Carrol and Chen (Economic Commentary, 2016), among others, to consider these aspects of the economy in parallel. Even in the simplest of models, enhancing economic mobility, in and of itself, is not a prescription for decreasing income inequality.
