The Relationship between Income and Net Worth in the United States: A Virtuous Cycle for High- but Not Low-Income Households

Is there a reciprocal relationship between household income and net worth and does that relationship depend on initial income? Using cross-lagged panel models of household income and net worth data from the Panel Study of Income Dynamics, the authors compare the income-wealth relationships of high- and low-income households from 1989 to 2011. Adjusting for demographic differences, the authors find a reciprocal relationship between income and wealth for high-, but not low-, income households. Results suggest intragenerational mobility works differently by initial income, which could partially explain the difficulty of escaping poverty and low U.S. support for liberal social welfare policy.