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

Fachinger, Uwe; Himmelreicher, Ralf K. Article Income Mobility – Curse or Blessing? Mobility in Social Security Earnings: Data on West-German Men since 1950 Schmollers Jahrbuch – Journal of Applied Social Science Studies. Zeitschrift für Wirtschafts- und Sozialwissenschaften Provided in Cooperation with: Duncker & Humblot, Berlin Suggested Citation: Fachinger, Uwe; Himmelreicher, Ralf K. (2012) : Income Mobility – Curse or Blessing? Mobility in Social Security Earnings: Data on West-German Men since 1950, Schmollers Jahrbuch – Journal of Applied Social Science Studies. Zeitschrift für Wirtschafts- und Sozialwissenschaften, ISSN 1865-5742, Duncker & Humblot, Berlin, Vol. 132, Iss. 2, pp. 175-203, https://doi.org/10.3790/schm.132.2.175 This Version is available at: https://hdl.handle.net/10419/292366 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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Mobility in Social Security Earnings: Data on West-German Men since 1950 By Uwe Fachinger and Ralf K. Himmelreicher 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. JEL Classification: D63, C82, B16, D91 1. Introduction The description and explanation of the income of people, households, and families has a long tradition in economics as income and its distribution are seen as an important aspect of the wealth of nations. In this context, distribution and how it alters over time are of great interest from both a theoretical and an empirical point of view and considerable research has been undertaken to answer questions such as how distribution is formulated or what the underlying distribution-generating process is. If it is possible to answer such questions, one could also offer solutions for economic policy measures concerning income distribution and therefore, in turn, also to those questions addressing the wealth of nations. Schmollers Jahrbuch 132 (2012), 175 –203 Duncker & Humblot, Berlin Schmollers Jahrbuch 132 (2012) 2 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 In this context the issue of changes in income or income mobility is of particular importance (Gottschalk/Danziger, 1997; Hills; 1999, Yaqub, 2000; Benabou/Ok, 2001a). One assumption in economic theory is that people are normally risk averse. Therefore they are interested in a steady income and consumption stream. This can be called the security aspect of income mobility (Kaufmann, 1970; Sinn, 1980; Aaberge/Mogstad, 2008). The expectation of future income is relevant when planning expenditures and savings: Usually, the less stable an income stream is, the more concerned are people with the arrangement of spending and saving money. Many goods and services such as rent, contributions for insurances, or redemption of credits have to be paid for on a continuous basis. An unsteady income stream involves the risk of not being able to fulfill the expectations and may therefore hinder long-term financial commitments (Bristol, 1958; Burgess et al., 2000; Amiel/Cowell, 2001). Another aspect of income mobility from an economic point of view is the incentive aspect. Upward income mobility provides incentives for economic activity, as it is possible to be successful and to be rewarded by moving up the income ladder and by a higher social standing. Downward mobility epitomizes the “stick”for economic activity. Being unsuccessful entails moving down the income distribution scale and in the worst case, stigmatization as a failure. Additionally, income mobility is seen as an aspect which can offset the inequality of income distribution (Organisation for Economic Co-Operation and Development OECD, 1996; Gardiner/Hills, 1999; De Fontenay et al., 2002; Clark, 2003; Millimet et al., 2003; Kopczuk et al., 2007; Gottschalk/Smeeding, 2000, 294). The existence of a general possibility of moving up the wealth ladder – often called the American Dream or the Horatio Alger Myth –is generally assumed (Sarachek, 1978; Holtz-Eakin et al., 2000). In other words income mobility is considered to equalize opportunities. Mobility characterizes an open society, where everyone has a chance to climb the ladder of success, which is to some extent manifested in the income position (Bigard et al., 1998; Van Kerm, 2003; Ayala/Sastre, 2008; Van Kerm, 2006). Last but not least, in a more technical view, income mobility can be regarded as just another form of redistribution –albeit a stochastic one (Benabou/Ok, 1998; Benabou/Ok, 2001b). Our analysis is based on two sets of longitudinal micro-data drawn from the German Federal Pension Insurance. These data sets contain biographical and pension information on those who retired with an old-age pension. The investigation is limited to West-German men born in 1921 and 1945 who retired at the age of 60 in 1981 or 2005, respectively. Both samples cover process produced earnings information for each month in the entire occupational biography. In contrast to surveys, this data represents an error-free measure of earnings without problems of panel attrition. In this way we can show wage profiles by age and we are thus looking at income mobility within the two selected cohorts in different historical and biographical backgrounds. 176 Uwe Fachinger and Ralf K. Himmelreicher Schmollers Jahrbuch 132 (2012) 2 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 In most analyses, the time period covered by the data is relatively short, preventing analysis of the special aspects of the life-cycle theories. As we can use data on employees covering their whole working life, we are able to shed some light on the income mobility over their entire careers. This will result in more information about the adequacy of some assumptions of the life-cycle theory concerning the development of income over time –especially about the inverse U-shape assumption of income profiles (Kruse, 2000; Börsch-Supan et al., 2004; Kliegl, 2004; Skirbekk, 2004; Zimprich, 2004; Bundesministerium für Familie, Senioren, Frauen und Jugend, 2005; Myck, 2007). Furthermore, we will fill the knowledge gap of Germany’s income mobility that is mainly neglected in the area of distributional and social policy analysis (Bundesregierung, 2001, 2005, 2009). The paper is structured as follows. First we give a short presentation of some relevant theoretical aspects that have to be taken into account when analyzing income mobility. It is shown that most of the studies are descriptive, providing information only about the changes of income over time without trying to construct or test an explanatory model. This is exemplified for Germany by the literature review in section 3. However, due to the restricted socio-economic information in our data base, we are also unable to test explanatory models, as can be seen in section 4 in which the data and the method are briefly explained. Though, as the time span covered by our data is large, we provide information on the relevance of age, period and cohort effects for explaining income mobility. The results are shown and discussed in section 5. Overall, income mobility is quite high and the development of individual profiles and income mobility does not correspond very well to the assumptions of distributional theory. However, due to data restrictions we could not answer the question of what the relevant determinants of income mobility are. 2. Some Theoretical Remarks First, it has to be stated that in all empirical and theoretical analyses, income mobility is defined as the change in income from one period to another for the same subject of the study –individuals, households, or families –also considering the intergenerational dimension (Österberg, 2000; Solon, 1992; Pikkety, 2000). Independent of the income definition and the research unit, six theoretical concepts of mobility are discussed and analyzed in the literature (Fields, 2004; Dragoset/Fields, 2007): 1. time-dependence with different entities: including intergenerational mobility of children and parents and mobility studies with the same underlying entity 2. positional movement: a concept that explores changes in economic positions in the income distribution (using classifications like ranks or quantiles) Income Mobility –Curse or Blessing? 177 Schmollers Jahrbuch 132 (2012) 2 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 3. share movement; this concept focuses on changes to the recipient’s share of total income in the population 4. income instability, which analyzes the size of changes in income levels but not their direction 5. directional income movement, which measures how many recipients move up or down the income distribution scale and by how far 6. mobility as an equalizer of longer-term income, which compares the inequality of income at a point in time with the inequality of income over a longer time period All these concepts are used in analyses with different definitions of income and different subjects (individuals, families or households). However, using families or households as research units is problematic as these units are not stable over time (Duncan/Hill, 1985; Pendakur, 1998; Burgess et al., 2000; Dickens/McKnight, 2008b; Chen, 2009; Shi et al., 2010). Nevertheless, for comparing income mobility between countries, it is necessary to take the different structures of households into account, because their size and composition differs (Gottschalk/Danziger, 1997; Schluter, 1997; Jenkins, 1998; Jarvis/Jenkins, 1998; Aaberge et al., 2002; Abatemarco, 2003; Cruces, 2005; Hills et al., 2006; Chen, 2009). Therefore, even though much research has been undertaken on the methods of income measurement or earnings mobility (Ayala/Sastre, 2008), ‘the income mobility literature is still distressingly far from being unified on how to measure mobility and make mobility comparisons’(Fields/Ok, 1999, 586). In the international literature, most economic mobility studies work with transition matrices (Atkinson et al., 1992; Buchinsky/Hunt, 1999; Fields, 2001). The rows and columns of such matrices are typically quantiles of the base year and final year income distributions. Most of the discussion is not about mobility and its explanatory variables or determinants but about the adequacy of methods of measurement (Fachinger, 1991; Madduri, 1976; Fields/Ok, 1996; Schluter/Van de Gaer, 2003; Ruiz- Castillo, 2004; Cruces, 2005; Bandyopadhyay/Cowell, 2006; Contini et al., 2007; Aaberge/Mogstad, 2008; Fields, 2008; Silber/Weber, 2008; Altonji et al., 2009). In the literature new axiomatic content and analytical properties equal to those applied in the static analysis of income distribution have been discussed. They form the foundation of new methods and techniques for the measurement of income mobility that have been developed. There are for example some axiomatic lines of research establishing the basic assumptions that mobility indices should reflect the movement of incomes through time (Fields/ Ok, 1996; Cowell/Schluter, 1998; Cowell/Schluter, 1998; Mitra/Ok, 1998). In addition, the measurement of income mobility from a welfare point of view has been examined intensively in the literature. Such approaches generally re- 178 Uwe Fachinger and Ralf K. Himmelreicher Schmollers Jahrbuch 132 (2012) 2 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 late income mobility to the equality of opportunity and the removal of social barriers. A different approach is embodied by the Markovian model of mobility. This model uses stochastic processes for modeling the time path of income. The last approach sees income mobility as the transitory component of income development over time –with no “explanatory power”. This would mean that mobility is residual and cannot be explained. But this is unsatisfactory as the changes in the income position over time have to be explained. Therefore, the question of how to explain mobility remains, and its answer requires the identification of the determinants of income mobility. A natural starting point could be the life-cycle theory. The main goal of this theory is the explanation of the development of individual income over time. But this also implicitly includes the consideration of some of the six concepts mentioned above, and therefore the explanation of some aspects of income mobility. However, in life-cycle theory, income mobility is not explicitly addressed. It is seen rather as a residual factor or the transitory component contrary to the permanent income (Ramos 2003). In line with the life-cycle theory, the development over time of income and income mobility results in an inverse U-shaped profile for the (working) life-cycle as shown in Figure 1. Source: Authors’own illustration. Figure 1: Income profiles and income mobility Income Mobility –Curse or Blessing? 179 Schmollers Jahrbuch 132 (2012) 2 0 5 10 15 20 25 30 35 40 45 Work experience in years upward mobility downward mobility University entry qualification with professional education (duration 15 years) Secondary school with professional education (duration 12 years) Secondary school without professional education (duration 9 years) University degree (duration 18 years) Income (real or relative) OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 The profiles in Figure 1 indicate a special pattern of mobility but the figure is open to at least two interpretations. Firstly, the profile can be seen as the development of real individual income over time, representing the productivity of the worker (Skirbekk, 2008). Since the marginal productivity decreases over the whole career and employees are paid according to their productivity, the income profile follows this pattern.1Therefore, from their own points of view, individuals experience a rise in real income –upward mobility –and after about two-thirds of their working life, a decline in real income –downward mobility. Explaining this process would therefore be identical to explaining income mobility. Secondly, the development of real income may also lead to changes in the income position. Entering the labor market, the individual may start to climb up the income ladder over time as she or he is physically well-equipped and has the most current knowledge, for example of technology. The extent of human capital will therefore lead to greater productivity compared to older employees, resulting in a steeper upward-mobility profile and to higher productivity. The profile has a decreasing marginal rate of return as the human capital or earnings capability diminishes. Physical skills decline over time and intellectual assets get older. This means that we notice an upward mobility in the income distribution during the first part of the working life and a downward mobility thereafter. In other words, when analyzing mobility, we should look at the entire picture as short-term analyses cannot identify the long-term developments –even if in some years downward mobility dominates, it is important to take the development over a longer period into consideration. This concept of income mobility is a little bit trickier to explain as it has to take the distribution of income into account. It is not covered by the income function as one can experience upward mobility due to a rise in real income and at the same time, the relative position within the distribution may decrease. The first type of the income mobility measuring concept is called non-posi- tional income mobility because changes to the absolute real or nominal income over time are taken into account (Beenstock, 2004; Fields/Ok,1996). When the relative position and changes in the distribution are considered, this type of mobility is called positional mobility. Bearing this in mind, the inverse U-shape of an income profile in cross sectional analysis may be interpreted as a description of the development of an individual position in the income distribution over time. However, there are strong indications that it is not a good representation of an individual profile (Schäfer, 1981; Fachinger, 1994; Bager-Sjögren/Klevmarken, 1998; Burgess 180 Uwe Fachinger and Ralf K. Himmelreicher Schmollers Jahrbuch 132 (2012) 2 1For an empirical analysis in the context of income mobility see e.g., Bowlus/Robin (2004). OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 et al., 2000; Millimet et al., 2003; Klevmarken, 2004; Fachinger/Himmelreicher, 2007). 3. Literature Review Little research has been done on income mobility in Germany studying differing methods and time periods, as can be seen from Table 1. Two databases were used to analyze income mobility: the German Socio-economic Panel (SOEP; see Wagner et al., 2007) and social security earnings records from the Statutory Pension Insurance (FDZ-RV2; see Himmelreicher/Stegmann, 2008). Most analyses were carried out using the SOEP, but with different population and statistical units, an issue that makes the results difficult to compare in detail. Table 1 Data sources and methods used in income mobility analyses in Germany References Source Population and statistical unit Period method Schäfer (1981) Various surveys special groups of workers 1886 to 1906; Cross section from 1900, 1905, 1910 non-positional mobility and hypothetical profiles based on cross section data Schmähl/ Fachinger (1989) Social security earnings records gross individual earnings 1961 to 1970 transition matrices, deciles Fachinger (1991) Social security earnings records gross individual earnings 1950 to 1979 hazard rate models, deciles Rendtel/ Schwarze (1991) SOEP equivalized3 household income 1984 to 1989 transition matrices, deciles Rohwer (1991) SOEP 1984 to 1989 transition matrices Berntsen (1992) SOEP transition matrices Table continued next page Income Mobility –Curse or Blessing? 181 Schmollers Jahrbuch 132 (2012) 2 2But this situation may change as such data are now provided by the Research Data Centre of the Federal German Pension Insurance (www.fdz-rv.de) and of the Federal Employment Agency at the Institute for Employment Research (http://fdz.iab.de/en. aspx). 3The equivalence scale used in this analysis was in accordance with German legislation for social aid: head of household 1.0, member of household older than 18 years 0.8, household members aged between 15 and 18 years 0.9, for household members 0.65 which are aged between 8 and 14 and for those younger than 7 years 0.55. OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 Table continued References Source Population and statistical unit Period method Rendtel et al. (1993) SOEP equivalized4house- hold income 1984 to 1986 transition matrices, two states above and below the poverty threshold Fachinger (1994)* Social security earnings records gross individual earnings 1950 to 1979 transition matrices, deciles Schluter (1997) SOEP equivalized5house- hold income 1984 to 1989 transition matrices with four groups with respect to the median*** Müller/ Frick (1997) SOEP equivalized6house- hold income 1990 to 1994 transition matrices Trede (1997)/ Trede (1998) SOEP gross labor incomes earned by males 1984 to 1992 mobility indices and transitions matrices Merz/Kirsten (1998) SOEP equivalized7house- hold income 1985 to 1994 Schluter (1998) SOEP equivalized8post-tax post-benefit household income 1984 to 1993 Shorrocks and Prais mobility indices Hauser/Fabig (1999) SOEP gross individual labor income, gross and net equivalent9 labor income of households 1990 to 1995 Bartholomew-Index and transition matrices with six classes Fabig (1999a)/ Fabig (1999b) SOEP gross and net equivalized10 1990 to 1995 Bartholomew-Index and transition matrices with seven classes 182 Uwe Fachinger and Ralf K. Himmelreicher Schmollers Jahrbuch 132 (2012) 2 4The equivalence scale used in this analysis was in accordance with German legislation for social aid: head of household 1.0, member of household older than 18 years 0.8, household members aged between 15 and 18 years 0.9, for household members 0.65 which are aged between 8 and 14 and for those younger than 7 years 0.55. 5New OECD equivalent scale: Income divided by household size raised to power 0.5. 6The equivalence scale used in this analysis was in accordance with German legislation for social aid: head of household 1.0, member of household older than 18 years 0.8, household members aged between 15 and 18 years 0.9, for household members 0.65 which are aged between 8 and 14 and for those younger than 7 years 0.55. 7Different equivalent scales. 8New OECD equivalent scale: Income divided by household size raised to power 0.5. 9Old OECD equivalent scale: head of household 1.0, member of household older than 14 years 0.7 and household members 14 and younger 0.5. 10 Old OECD equivalent scale: head of household 1.0, member of household older than 14 years 0.7 and household members 14 and younger 0.5. OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 5.1 Age-income-profiles of West-German men in the birth cohorts 1921 and 1945 To give an initial overview, we show average age-income profiles measured by average yearly earning points and by deflated yearly mean gross labor income for the two cohorts.18 The reason why the age-income profile of the older cohort begins at the age of 29 is that the accounting period of ASKVVL1981 starts some years after the Second World War in 195019, when the men born in 1921 were 29 years old. Source: FDZ-RV –VVL2005 and SKAVVL1981, own calculation; n (min) = 50. Real values deflated with 1999 as base year. Deflation of the nominal wages by the CPI provided by the German Federal Bureau of Statistics. Usage of the index for West-Germany up until 1990, usage of the index for entire Germany from 1991. Figure 4: Age-income profiles of West-German men of the birth cohorts 1921 and 1945 who retired in 1981 or 2005 In general, West-German men born in 1921 have flatter and lower age-in- come profiles than the younger cohort. In particular, the difference in the average of yearly real gross labor income is quite striking. As shown in Figure 1A Schmollers Jahrbuch 132 (2012) 2 Income Mobility –Curse or Blessing? 189 18 For a detailed discussion of age-income profiles and the adequacy of methods of measurement, see Fachinger (1994). 19 In the time before the Second World War the reporting processes of income data were totally different –e.g., people had to buy and collect stamps (Göbel, 1983) and the income information was categorized in income classes. OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 in the Appendix, this is mainly due to economic growth and reflects the increase in overall wealth in Germany. The average age-income profiles of the income positions (EGPT) for both cohorts increase until the age of 40. Whereas the income position of the younger cohort remains more or less the same from age 40 until age 60 (EGPT1945), the income position of the older cohort decreases at the end of their working life (EGPT1921). Furthermore, the income position of the younger cohort is 30 percent higher overall. However, it is unclear why such a development has taken place and why such differences between the cohorts occur. Nevertheless, reasons for such profiles cannot be found only in individual characteristics but also in macro-economic effects as Figure 1A indicates (for the latter see also Fachinger, 1991). 5.2 Income mobility of West-German men of the cohorts 1921 and 1945 Arguing along the line of the positional mobility and looking at the profiles in the previous Figure the subsequent hypothesis could be tested: After entering the labor market for men, upward income mobility will determine income changes over a time span of about ten years, but contrary to the profiles in Figure 1, only minor mobility within the distribution will take place in the phase after positioning in the distribution between ages 35 to 40 on average. Below we show the results of our analysis of income mobility for three categories: stayers/non-movers (immobility), upward movers and downward movers. Furthermore, to compare income mobility developments over time we distinguish between intra-cohort mobility and inter-cohort mobility, starting with intra-cohort mobility. 5.2.1 Comparing mobility levels within the cohorts Income mobility can be interpreted in the sense of openness of the distribution or flexibility of income position. In the following Figures the development of the percentage of stayers/non-movers and the percentage of upward or downward mobility –the percentage of people in a different income class in the next year –is shown. For West-German men in the 1921 birth cohort, we see an increasing share of stayers/non-movers by age, a near constant share of downward movers and a falling share of upward movers. The profiles of West-German men in the 1945 birth cohort show longer periods with immobility of over 50 percent, while downward and upward movement stay at similar levels and show no visible trend over the examined time span. There are three visible spikes, where the share of stayers/non-movers decreases for one period, while either the downward or the upward movement increases for this period. In the next period, the share of immobile income rises back over the 50 percent line. These Schmollers Jahrbuch 132 (2012) 2 190 Uwe Fachinger and Ralf K. Himmelreicher OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 Source: SKAVVL1981, own calculation; n (min) = 50. Figure 5: Intra-cohort income mobility of West-German men of the 1921 birth cohort who retired in 1981 Source: FDZ-RV –VVL2005, own calculation; n (min) = 50. Figure 6: Intra-cohort income mobility of West-German men of the 1945 birth cohort who retired in 2005 large spikes happen in 1983/84 and 1989/90, with a parallel increase in downward movement, and in 1996/97, with a parallel increase in upward movement. In general, the 1945 cohort exhibits less income mobility than the 1921 Schmollers Jahrbuch 132 (2012) 2 Income Mobility –Curse or Blessing? 191 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 cohort. In the last years before retirement, immobility decreases below the 50 percent value, parallel to more downward than upward movements. Those developments can be seen as an indication of period effects. For example when searching reasons for the spin at age 44/45, it has to be considered that in 1989 the former GDR was integrated into FDR. This might be one reason why the development of real labor income stagnated, the percentage of stayers/ non-movers decreased and the percentage of downward movers increased (see Figure in the Appendix). The spin in 1983 can also be seen as connected to the development of real labor income. Regarding the development over the last five years of employment it is well known that a lot of employment instability has occurred (see e.g., Fachinger/Himmelreicher, 2007, 2008). The lower number of stayers/non-movers towards the end of an employment career may be a reflection of the working situation combined with legal regulation of the SGB VI. However, there is also some evidence for macro-economic effects as income mobility seems to be higher during times of economic instability. 5.2.2 Comparing mobility levels across the cohorts In the following sub-section, the mobility levels of both cohorts are compared. It can be seen that the older cohort has a smaller number of stayers/nonmovers in all but the last periods. In the final years before retirement, the younger cohort exhibits more income movement than over most of the span of the examined period, while the percentage of income immobility of the subjects born in 1921 increases until retirement. Source: FDZ-RV –VVL2005 and SKAVVL1981, own calculation; n (min) = 50. Figure 7: Inter-cohort income mobility of West-German men of the birth cohorts 1921 and 1945 who retired in 1981 or 2005: stayers/non-movers Schmollers Jahrbuch 132 (2012) 2 192 Uwe Fachinger and Ralf K. Himmelreicher OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 In the first phase of one’s working career a great deal of the evident mobility can be assumed to be connected to finding a position within the income distribution context. After people have found their respective working positions –in the middle of the working career –there may be little mobility. During the last third of one’s career lower productivity due to health effects or reduced human capital, may lead to an increase in mobility as productivity does not decline for all cohort members at the same time. The following figures are offered to test whether this holds true in reality and also to investigate the possibility of improving an income situation. We also consider whether the distribution is open for successful individuals, showing the profiles of upward and downward mobility. While the general trend of the upward mobility of the 1921 cohort seems to match the theory (it decreases from 50 to 29 percent over the examined period), the 1945 cohort does not exhibit this trend to the same extent. Nevertheless, a much smaller decrease from 30.2 to 24.9 percent over the full period is found, with most values somewhat below 30 percent. For most of the time, the 1921 cohort shows higher upward-mobility movement, which only decreases below the values of the younger cohort in the last 10 years. A specific structure of downward mobility, one reflecting age, cohort or period effects, cannot be identified. It seems as if there only a percentage of people –between 20 and 40 percent each year –moving down the income distribution ladder. Source: FDZ-RV –VVL2005 and SKAVVL1981, own calculation; n (min) = 50. Figure 8: Inter-cohort upward mobility of West-German men of the birth cohorts 1921 and 1945 who retired in 1981 or 2005 Schmollers Jahrbuch 132 (2012) 2 Income Mobility –Curse or Blessing? 193 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 Source: FDZ-RV –VVL2005 and SKAVVL1981, own calculation; n (min) = 50. Figure 9: Inter-cohort downward mobility of West-German men of the birth cohorts 1921 and 1945 who retired in 1981 or 2005 Overall the differences in the development of the cohort profiles might be a result of the economic situation during working life, as the members of the older cohort were working within a prospering economy during the 1960s and 1970s for the most part. One could assume from these different trends, that income during the last years of the working life has become less stability-reli- able in recent years than before. That would be one reason for the increase in the percentage of stayers/non-movers in the younger cohort; but it could also be derived from an increasing number of people working up until retirement, and those workers finding themselves having to accept precarious employment. 6. Conclusion With our data it was possible to cover a large time period –much larger than any other analysis has covered to date –with different overall economic development phases, and to distinguish between age, period and cohort effects. The amount of mobility is high20: on average, over 50 percent of the 1945 cohort members and over 60 percent of the 1921 cohort members are not staying in the same income class on a year to year basis. For income from regular dependent employment without phases of unemployment, reduction of working time, and during a time of full employment with mainly frictional unemploy- Schmollers Jahrbuch 132 (2012) 2 194 Uwe Fachinger and Ralf K. Himmelreicher 20 A high degree of income mobility is also a result of the analysis of Cantó (2000) for Spain and Joseph Rowntree Foundation (1997) for Great Britain. OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.132.2.175 | Generated on 2023-01-16 13:36:35 ment, one would have expected that the percentage of stayers/non-movers would be higher –especially considering risk averse behavior. Of course, there is no such thing as an optimal level of mobility. Transitory income elements seem to be quite high. This is remarkable as just one income source is analyzed: the individual gross monthly labor earnings that attract social security contributions. Income components such as interest earnings or self-employment income that are mainly seen as unsteady over time are not considered. Our analysis shows that the development of individual profiles and income mobility does not correspond very well to assumptions of the human capital and life-cycle theories. Those theories would suggest dominant mobility in the first ten or 20 years of working life, dominant immobility afterwards, and an increase in mobility in the waning of one’s career. However, this is not a satisfying result as the higher the transitory component, the lower the explanatory power of theoretical models with regard to economic rationalization. Therefore the dominance of the transitory component restricts the analysis merely to a description of the income distribution and its development over time. At least one more problem arises in measuring and explaining income mobility. One has to take into account the composition of income. 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