The Existence and Structure of Rural Households’ Income Mobility: Evidence from Panel Data in Ethiopia

Abstract

Ethiopia's economic reports on income inequality, poverty, and other welfare indicators have been promising for the last two decades. It is quite relevant to understand how rural households from different income classes perform over time, income mobility. Income mobility can be regarded as a transformation between two income vectors over a period of time where some are expected to climb or may slide down and moves from one step to another at different rates. This study investigates the existence and structure of households’ income mobility in Ethiopia using three waves of the household panel survey for the period of 2011to 2016. It employs Shorrock’s rigidity index, transition probability matrix, and Field and Ok (1999) methods for the analysis. The finding of the study points out that income mobility exists with a higher rate of both relative and absolute income mobility. The result of decomposition of income sources have showen that income obtained from nonfarm sources have positively contributed to the difference in income mobility between rural households whereas the decomposition of income effects have revealed that growth effect is the leading factor compared to transfer effect. Hence, the finding shows the need to implement policies targeting income growth to shorten mobility gaps.