This determines whether your income level rises or falls

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's entirely possible for people to increase their incomes.

But also for those incomes to drop.

This has been little studied until now

“Your income is the sum of what you earn from work and from capital income,” says Roberto Iacono, a professor at NTNU’s Department of Social Work.

Capital income is returns from 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? This is what Iacono and his colleagues have looked at.

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 nearly 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's largely due to what they earn from work,” says Iacono.

A job with good pay is therefore 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 matters most when income drops

“When people’s income declines compared to others, it's 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 those 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,” the researcher says.

Labour and capital work differently

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

“Labour 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 says.

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,” he says.

There are also big differences in who actually has capital. 

Those with the highest incomes receive a much larger share of their money from capital than the rest of the population.

Work and capital together when you can afford it

For most people, employment is by far the most important source of income.

Upward mobility therefore usually comes from labour income for most of us, either alone or in combination with some capital income.

“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 says.

Reference:

Ranaldi et al. Capital and labor income mobility (PDF), World Inequality Lab Working Papers, 2025.

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Read the Norwegian version of this article on forskning.no

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