Here’s what determines whether your income level rises or falls

(Press-News.org) Economists call it “income mobility”. This means how easy or difficult it is for you or your family to go up or down in income compared to others in the community around you.

People in Norway have a high level of income mobility. It is quite possible for people to increase their incomes. But also for those incomes to drop.

“Your income is the sum of what you earn from work and from capital income,” says Professor Roberto Iacono at the Norwegian University of Science and Technology's (NTNU) Department of Social Work.

Capital income is the return on shares, housing or businesses.

Understanding what drives income mobility is a core issue in economics. But what is most important in terms of work and capital income has been poorly investigated.

So which factors are most important for people to improve their income, and what determines when our income drops compared to others? Iacono and colleagues have looked at this.

Work is most important in increasing income Iacono, Marco Ranaldi from University College London and Joël Bühler from Universitat de Barcelona used detailed data from Norway’s income registers (Statistics Norway). These include almost 300,000 people over the age of 26. The researchers also introduced a new method for analysing the impact of work and capital income over the course a person’s working life. The numbers are clear.

“When people’s income increases compared to others, it is largely due to what their earnings from work,” Iacono said.

A job with a good income is thus most important in determining whether you get ahead. Capital income can contribute, but almost never determines everything.

That’s not the case when things go downhill.

Capital determines most when income drops “When people’s income declines compared to others, it is mostly due to the fact that their capital income is declining,” says Iacono.

Although capital income is most important in determining if your income drops, it often coincides with a decrease in your employment income.

Most of us have to work if we want to improve our finances compared to people around us.

“Labour income systematically lifts individuals up in comparison to others. Capital income, which is more unstable and concentrated, is more often associated with decreasing income,” Iacono said.

Labour and capital work differently Labour and capital income work in completely different ways. That’s why we see these differences, Iacono says.

“Employment income often increases gradually throughout life, such as when we gain more experience, switch to better jobs or increase our skills. These processes mean that many people’s incomes increase over time,” he said.

But capital income works differently.

“Capital income is more unevenly distributed; it fluctuates a lot and can easily fall if the markets go down or an investment fails. A few earn very well on capital, but for most this is more uncertain and more often results in a decline than sustained growth,” Iacono said.

There are also big differences in who actually has capital. People with the highest incomes have a much larger share of their money from capital than the rest of the population. For most people, employment is by far the most important source of income.

Work and capital together when you can afford it Thus, for most people, upward mobility usually results from employment income, either alone or in combination with some income from capital.

“Lasting progress in an income position is usually based on solid income from work, which can later make it possible to save and earn more capital,” he said.

Reference:
Ranaldi, Marco; Bühler, Joêl, Iacono, Roberto. Capital and labor income mobility. World Inequality Lab. https://prod.wid.world/www-site/uploads/2025/10/WorldInequalityLab_WP2025_24_-Capital-and-Labor-Income-Mobility_Final.pdf

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