Income mobility within the life-cycle and inequality in Iceland 2000-2023

Abstract

This article presents the first comprehensive study of intragenerational income mobility in Iceland, using full-population register data covering the years 2000–2023. While income inequality in Iceland has been extensively documented, much less is known about how individual incomes evolve over time and the extent to which short-term fluctuations translate into longer-term redistribution. I examine both absolute mobility, defined as year-to-year changes in equivalised household income, and relative mobility, defined as changes in individuals’ positions within the income distribution. The results show that a substantial share of the population experiences large annual income shifts: in most years, over one third of individuals see their incomes rise or fall by at least 10 percent. Relative mobility is also considerable, but dominated by short-range movements of one income decile, with relatively little long-range movement. Persistence is strongest at the top and bottom of the distribution, where “stickiness” has increased over time. I also show that much of observed mobility is temporary, with a large share of individuals returning to their original income decile within a few years. Finally, income mobility has only modest equalising effects: averaging incomes across five years lowers the Gini coefficient by less than 10 percent.