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Income Dynamics
Graph of fluctuating income

Data from the Panel Study of Income Dynamics shows that families may experience episodes of relative poverty or affluence.

Credit: Alex Jeon, National Science Foundation

The Panel Study of Income Dynamics (PSID) is one of the most widely used social science data sets in the world. Started with a sample size of 4,800 in 1968, the survey included 7,000 families in 2001. The growth in respondent family numbers reflects the low attrition of participants and the ability to monitor children as they grow older and start their own families. The PSID is the only survey that has followed the same nationally representative U.S. families and split-off families for more than 30 years. The PSID questionnaire was administered annually until 1999, but is now collected every other year. Unlike surveys that take “snapshots” of income data at certain times, these data show the ups and downs of American family incomes over time. Thus, analysts can look at how successful various families are, what types of families are more successful than others, how wealth and earning capacity are transmitted across generations and so on.

The PSID was born out of the poverty-fighting concerns of the 1960s and has long since been broadened to provide the data that policymakers need to craft a wide variety of effective programs. Children are a particular focus of the PSID, and its data (including school outcome information) supplied background knowledge for many child-related policies, such as the No Child Left Behind Act. The PSID has been further broadened in recent years to include substantial information about health as it relates to income and other family characteristics.

Today, the PSID is a major resource for scholars and has been used as a model for efforts outside the United States, including in Europe and Australia. NSF has supported the PSID since the early 1980s.

Examples of PSID Results:

The long-running PSID has produced a wealth of valuable knowledge, both intuitive and surprising. Here are some examples of PSID results.

  • Poverty and Affluence Not Static States
    In one of its more notable achievements, PSID data has transformed research on poverty. Formerly, scientists and analysts held a static view of families as either "poor" or "rich" (the view of snapshot data). However, PSID data present a much more dynamic view of families, which may experience episodes of relative poverty or affluence over the course of many years. PSID-based insights have consequently influenced national welfare policy formulation.
  • Wealth Runs in the Family
    The PSID is the only long-term database that includes data on wealth across all age groups and over generations. One study using PSID wealth statistics found that young adults raised in families that owned bank accounts or stocks are more likely to have these kinds of financial assets themselves compared to adults whose families did not have such resources. The study also found that the types of financial assets adults hold are influenced a great deal by the holdings of their parents.
  • Mommies Fall Behind But Catch Up
    Again, PSID data that follow the same individuals over time can reveal more complete stories than snapshot data. Research results show that women who drop out of the workforce to raise a family fall far behind in income. However, when they return to the workforce, the catch-up effect is more rapid than expected.
  • Bankruptcy No Longer a Stigma
    PSID data enabled researchers to show that bankruptcy has increased for two reasons: (1) more families are more deeply in debt and (2) over time, social disapproval of bankruptcy has lessened. These results imply that monetary policy has only a limited effect in a recession: people respond to lower interest rates by borrowing on their homes, but they could have trouble repaying their debts, even going bankrupt, if the recession stretches out.

Some of the topic areas of PSID-based studies are: why people move; acquisition of job skills; fertility and mortality; health, divorce, child care and many others. For a complete list of study topics, see: http://psidonline.isr.umich.edu/Publications/Bibliography/BrowseKeywords.aspx.

Any opinions, findings, conclusions or recommendations presented in this material are only those of the presenter grantee/researcher, author, or agency employee; and do not necessarily reflect the views of the National Science Foundation.
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