Economists have found out what influences the rise and fall of incomes
Why investments don't guarantee a steady income.
Whether a person's income rises or falls relative to others depends on different factors - and they do not work in the same way. This is the conclusion reached by economists at the Norwegian University of Science and Technology (NTNU) after studying data on the incomes of hundreds of thousands of people in the country.
In economics, this process is called income mobility - the ability of an individual or family to rise or fall in income relative to other members of society.
Work is the main source of income growth
The research has shown: income growth is almost always associated with earnings from labour. It is working, upgrading skills, changing jobs or moving to a higher-paying job that most often allows people to improve their financial situation.
"When a person's income rises relative to others, it is mainly due to labour income," explains Professor Roberto Iacone from NTNU's Department of Social Work.
Capital income - such as from shares, property or businesses - can supplement earnings, but rarely plays a decisive role in sustainable income growth.
Why earnings are more likely to fall because of capital
A very different picture is seen when earnings are falling. In this case, falling capital gains are more likely to be the key factor.
Investment returns are much more volatile: they depend on market conditions, asset values and the success of the investment, according to Yacone. If the market dips or an investment is unsuccessful, a person's overall income can drop dramatically - even if they keep their job.
The decline in capital income is often accompanied by a decline in labour earnings, but it is capital that is more often the trigger for financial deterioration.
Labour and capital work according to different rules
Researchers emphasise the fundamental difference between these sources of income:
Labour income usually grows gradually - with experience, career progression and skill development.
Capital income is unevenly distributed, fluctuates widely, and is more likely to lead to a decline than to steady growth.
Most capital income is concentrated in the highest income earners. For the majority of the population, work remains the main and most reliable source of money.
Sustainable growth - first through work
The authors of the study note that in the long term, income growth most often starts with labour income. Afterwards, when there is a stable income, it becomes possible to accumulate capital and invest.
"As a rule, sustainable financial improvement is built on a reliable income from work, which over time can also lead to capital growth," summarises Yacone.