The Life-Cycle Dynamics of Wealth Mobility

Audoly, Richard; McGee, Rory; Ocampo, Sergio; Paz-Pardo, Gonzalo

doi:10.59576/sr.1097

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The Life-Cycle Dynamics of Wealth Mobility

Abstract: We use 25 years of tax records for the Norwegian population to study the mobility of wealth over people’s lifetimes. We find considerable wealth mobility over the life cycle—exceeding income mobility. To understand the underlying mobility patterns, we group individuals with similar wealth histories using agglomerative hierarchical clustering, a tool from statistical learning. The mobility patterns we elicit provide evidence of segmented mobility. Over 60 percent of the population remains at the top or bottom of the wealth distribution throughout their lives. Mobility is driven by the remaining 40 percent, who move only within the middle of the distribution, reflecting glass ceilings preventing most people from rising to the top or from the bottom of the distribution. We show parental wealth is the key predictor of who is persistently rich or poor, while human capital is the main predictor of those who rise and fall through the middle of the distribution. Highly-educated individuals drive upwards mobility by converting high labor incomes into property wealth early in life and financial assets afterwards. Downward mobility is primarily driven by declining or stalling business wealth.

JEL Classification: D14; D15; E21;

https://doi.org/10.59576/sr.1097