Study: Wages Drive 95% of Upward Financial Mobility, Not Investments
Conventional financial advice often stresses investing as the primary path to prosperity. Build a portfolio early, let compounding do the work, and wealth will follow. But a large new study suggests a less glamorous truth: for most people, career income—not investments—is what actually moves them up the economic ladder.
The Big Finding, in Plain Terms
Researchers analyzed detailed tax records for nearly 300,000 Norwegians over 26 years. Their conclusion was strikingly consistent:
About 95% of people who moved up the income rankings did so because their wages increased, either alone or alongside modest investment gains.
Only 5% climbed the ladder through investment income alone.
In short, promotions, raises, and career progression did the heavy lifting. Portfolios, for most households, played a supporting role at best.
How People Move Up—and Down—the Income Ladder
When people experienced upward mobility, two patterns dominated:
41% moved up purely through higher wages
54% moved up through a combination of rising wages and investment income
Just 5% rose through capital income alone
Even when both income sources increased, wages overwhelmingly mattered more. Among people who advanced through both channels:
Average wage increases were about $38,000
Average investment income increases were just $9,200
For the typical individual, wages rose by $31,000, while investment income increased by only $308
In 93% of these cases, wage growth exceeded capital income gains—often by a wide margin.
However, the picture changes on the way down.
When people fell in the income rankings, capital losses played a much larger role than wage cuts if only one income source was responsible. Roughly half of those who fell experienced declines in both wages and investments at the same time, but when losses were isolated, investment income was the more destabilizing force.
As the researchers summarized:
Labor income tends to lift individuals up the income ladder, whereas capital income tends to push them down.
Why Wages and Investments Behave So Differently
The asymmetry comes down to how these income sources function.
Wages are relatively predictable. Over a typical career, skills accumulate, responsibilities grow, and pay tends to rise—especially between early adulthood and midlife.
Investment income is volatile and highly concentrated. A small fraction of people earn the vast majority of capital income. Returns fluctuate sharply, and downturns, business failures, or market crashes can erase gains quickly.
The data made this concentration clear. Capital income inequality in Norway was extreme, with Gini coefficients near 0.95, compared to 0.35–0.41 for labor income. Most people had capital income close to zero for much of their lives, while wages followed a more familiar bell curve.
Why Norway Is a Useful Case Study
Norway offers unusually high-quality data and an interesting economic structure: low overall income inequality, but a sharp divide in how people earn their income. Most households rely primarily on wages, while top earners derive a large share of their income from investments.
Despite generous social policies and widespread access to financial markets, the core result remained unchanged: labor income drives mobility for the vast majority of people.
What This Means in Practice
This research does not argue against investing. Portfolios matter for long-term wealth, financial security, and retirement. But it challenges the idea that investing alone is a reliable engine of upward mobility for most households.
For individuals, the implication is straightforward:
Your career trajectory is likely to matter more for your economic mobility than your asset allocation.
For policymakers, the findings suggest that labor market institutions, education, training, and wage growth may be more powerful tools for promoting mobility than policies narrowly focused on capital ownership.
Important Caveats
The authors are careful to note limitations. The study focuses on relative income rankings, not absolute wealth. It cannot fully capture how family wealth indirectly boosts career opportunities, nor does it observe inheritances directly. And while Norway is an excellent laboratory, results may differ in countries with weaker labor protections or different tax systems.
Still, across multiple robustness checks and even extreme cases—such as people jumping from the bottom 10% to the top 10%—the conclusion held.
For most people, economic mobility still looks old-fashioned: get better at what you do, move up the ladder, and earn more over time. Investing can help, but it rarely substitutes for a growing paycheck.
If your goal is to move up the income ladder, the evidence suggests a simple, if less exciting, truth: your salary matters more than your portfolio.