💼 Income: why some progress while others regress?

Why do some personal financial trajectories progress steadily, while others experience sudden setbacks?

This question, at the heart of studies on income mobility, finds elements of an answer in a vast analysis conducted in Norway, a country known for its high level of economic mobility. Researchers from the Norwegian University of Science and Technology, in collaboration with international teams, have scrutinized data from nearly 300,000 people to identify the drivers of financial ascents and falls.


The conclusions of this research are clear. When a person sees their income increase relative to others, this rise is primarily attributable to their earnings from work. A stable job plays a determining role in climbing the income ladder. Capital income, such as that from investments, can contribute to it, but they rarely determine success on their own in the long term.

Conversely, decreases in income follow a different logic. They are frequently linked to a decrease in capital income. These losses often occur alongside reductions in employment income, but the variations affecting capital usually have the most pronounced effect. For the majority of individuals, paid work remains indispensable for maintaining or improving their financial position. Consequently, the volatility of capital can cause notable setbacks, even in an apparently stable employment environment.

But how to explain that these two types of income act in such opposite ways? Labor income tends to grow gradually with experience, promotions, or skill acquisition. In contrast, capital income is more irregular and concentrated; it fluctuates with the markets and can fall rapidly in the case of poor investments. Access to capital also differs widely from one individual to another, with high earners generally benefiting more. These distinctions explain why work constitutes a more solid foundation.

As a result, sustained income progression most often begins with stable gains from work. These incomes then allow for saving and generating capital income. The study shows that financial stability and advancement rely primarily on the regular earnings from employment, with capital frequently being added on in a second phase.

Capital income: sources and volatility

Capital income refers to money earned from assets such as stocks, real estate, or business ownership. Unlike labor income, it does not come directly from professional activity but from investments. These sources can offer growth opportunities, but they are often associated with significant risks.

The volatility of capital income is due to its dependence on economic conditions and financial markets. For example, stock prices can fluctuate daily, and real estate prices can vary by region. This makes this type of income less predictable than wages, which generally follow a more linear progression with seniority and skills.

For most individuals, capital income represents a minor portion of their total earnings. High-income individuals often derive greater benefit from it, which can accentuate inequalities.

Although capital can provide supplementary income, its unstable nature makes it unreliable as a primary foundation. A balanced strategy, combining work and savings, generally ensures long-term financial security.