Since the demise of modernization theory, social scientists have sought explanations for persisting differences in the stratification of industrialized societies, primarily by studying how educational and labor market institutions shape the life chances of individuals. This approach undervalues two key features of any stratification system: family dynamics and the welfare state. Employment changes, changes in household composition, and changes in the employment situation of a spouse or partner can all trigger large shifts in income and material well-being. The impact of these events is mediated by public tax and transfer mechanisms and by private actions taken by household members. This comparative analysis of household income dynamics in the United States and Germany shows that variations in welfare state policy produce distinct societal patterns of income mobility, and furthermore, shows that the relative importance of labor market events, family change, and welfare state policies for income dynamics depends on gender. The strong interrelationship between individual incentives and the structure of opportunity produces an asymmetry in the long-term impact of events. The negative effects of events that reduce income generally decay over time, while the effects of positive events generally persist.
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