Mobility and volatility: What is behind the rising income inequality in the United States

Inequality of family incomes in the United States has increased significantly in the past four decades. This is largely interpreted as a result of unequal mobility, e.g., the rich can get richer at a faster pace than the rest of the population. However, using nationally representative data and the Fokker-Planck equation, our study shows that income mobility in the United States has remained stable. Instead, we find another factor income volatility, which measures the instability of incomes has increased considerably and caused the surge of income inequality. In addition, the rising volatility is associated with the plummeting of income-growth opportunity, creating the feeling that the American Dream is in decline. Volatility has often been overlooked in previous studies on inequality, partially because mobility and volatility are usually studied separately. By contrast, the Fokker-Planck equation takes both mobility and volatility into consideration, making it a more comprehensive model. (C) 2017 Elsevier B.V. All rights reserved.