You're Probably Going to Be Poor

A homeless man begs for money in the Financial District in San Francisco in 2012. A study conducted by sociologists from Washington University and Cornell found that about 60 percent of Americans will experience rough times. Robert Galbraith/REUTERS

College undergraduates—even those headed into lucrative fields like computer engineering, consulting and finance—often live in mortal anxiety over the possibility of being poor. According to a study published this week, their fears might be well founded. Around 60 percent of people between 25 and 60 will fall into the 20th percentile of incomes at some point in their lifetime, while 40 percent will dip below the 10th percentile line, according to Mark Rank, a professor of social welfare at the University of Washington, St. Louis.

The findings suggest that for many Americans, a steady income and a stable career trajectory are not necessarily the norm. Using data from households collected between 1968 and 2011, Rank finds that over the course of a lifetime, Americans' economic situations can shift drastically. In a previous study published in his book Chasing the American Dream, Rank found that a striking 54 percent of Americans at one point fell below the U.S. poverty line.

"Taken together," Rank said in a Washington University press release, "These findings indicate that across the American life course there is a large amount of income volatility." In other words, when it comes to going through hard times, the question may not be "if," but rather "for how long?" While 60 percent of people will experience poverty for at least a year, the new study says, around 25 percent are likely to experience five or more years of poverty, while about 12 percent are likely to go through five years of extreme poverty.

"Poverty is often thought of as a 'them' issue," says Rank. "What these findings indicate is that poverty is an 'us' issue. It's something that many of us, not just some, should be concerned about."

The study, conducted in conjunction with Cornell sociology professor Thomas A. Hirschl, used data from the Panel Study of Income Dynamics, a long-term survey that began in 1968. The PSID is one of the few compilations of poverty statistics that aggregates data over decades. In contrast, the Census Bureau's poverty statistics only capture "snapshots," taken for a single year.

"The official measures of poverty," says Columbia urban studies professor Irwin Garfinkel, "are really problematic."

Because of this, Rank's study defines poverty relatively, rather than using the standard of the U.S. poverty line. The national line is based on a minimum threshold for living conditions, but someone above the line could still be considered "poor." The line, Rank's study notes, has remained fixed since it was instituted in 1964, in spite of the fact that income inequality has increased. What was considered poor in 1964 potentially excludes large numbers of Americans who—while not technically below the line—still find themselves at the bottom of the wealth hierarchy.

Garfinkel contends that increasing income inequality is a defining modern economic trend. "We've destroyed the unions, and we've allowed the minimum wage to erode," he says. "I would characterize the last 40 years as a period of near class warfare, waged from the top against the bottom."

Rank says that the high chances of experiencing poverty should incentivize Americans to maintain safety nets and pay standards such as the minimum wage. "We don't know what the future is going to be," says Rank, "But these findings come from actual data on what has happened to people [from 1968 to 2011]; it is not an extrapolation."

Garfinkel does not use relative definitions of poverty in his own research, but he acknowledged that it is important to have a sense of the likelihood that a typical person will enter "the poorest fifth"—in other words, Rank's bottom 20 percentile.

To that end, Rank is currently researching a "Risk Calculator." In the next few months, he hopes to develop an algorithm that will be able to estimate the likelihood that someone will become poor, based on factors like age, career and geographic location.

According to David Grusky, the head of the Center on Poverty and Inequality at Stanford University, "The research [in Rank's study] makes it clear that we live in a volatile economy in which large swaths of the population are exposed to risk."

So what should the paranoid college senior do to prepare for a life of income instability? Rank's numbers show that facing uncertainty should be expected. "When you think about many years of a lifetime, a lot of things occur to people that they did not think were going to occur."