A Markovian Model of Income Dynamics

Abstract This study presents a Markovian analysis of the earnings mobility of prime working age males and females. Transition matrices were calculated for all those who moved from a low to a non-low earnings category (and vice versa) sometime during 1957–1966. These matrices were non-stationary. It was hypothesized that changes in the level of economic activity were the primary cause of non-stationarity. Regression analysis results were consistent with this hypothesis. Increased growth was more beneficial for male non-white movers than for whites. A significant proportion of individuals stayed in a low earnings category for the entire period. The proportion of non-white males that did so was significantly greater than the corresponding white proportion.

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