From the short view to the long view: Volatility and continuity John Hills, Centre for Analysis of Social Exclusion, LSE Longview Conference, Oxford, 21.

From the short view to the long view:Volatility and continuity

John Hills, Centre for Analysis of Social Exclusion, LSE

Longview Conference, Oxford, 21 July 2006

Initial income group

(tenths of individuals)

in 1991

Percentage of each initial income group

Ending up in each income group in 1992

Poorest 2 3 4 5 6 7 8 9 Richest

Poorest 46 21 15 5 4 5 3 1 0 2

2 23 39 20 11 4 1 1 1 0 1

3 12 19 28 22 8 3 3 2 2 1

4 7 9 19 27 20 9 5 2 0 2

5 2 4 11 15 30 22 7 5 2 1

6 3 5 5 10 17 25 18 10 5 2

7 3 1 1 4 11 20 36 14 6 3

8 2 1 1 2 2 11 19 34 17 6

9 4 2 2 2 2 6 8 23 41 13

Richest 2 1 1 1 1 2 3 7 24 58

BHPS data: Income mobility between 1991 and 1992

Initial income group

(fifths of individuals)

in 1991

Percentage of each initial income group

ending up in each income group in 2001

Poorest 2 3 4 Richest

Poorest 41 26 16 10 7

2 24 30 22 16 8

3 15 22 25 22 16

4 12 13 22 29 24

Richest 9 8 16 24 45

A longer view: Income mobility between 1991 and 2001

An even longer view: Parents’ incomes and daughters’ earnings, 1958 and 1970 cohorts

Daughter’s earnings group (early 30s)

Parents’ net income group

Bottom quarter Top quarter

(a) Daughters born 1958

Bottom quarter 26 18

Top quarter 18 35

(b) Daughters born 1970

Bottom quarter 33 15

Top quarter 13 40

Source: Blanden et al.

But what underlies these snapshots?• CASE/ NatCen income tracking project: survey of

weekly incomes of low- to medium income working families with children for whole of 2003-04 (sample drawn from WFTC recipients in winter 2002/3)

• Selected to give mix: lone parents/couples; 1-3 children; 1-2 earners; tenants/owners; higher/lower WFTC

• 192 agreed to take part; 180 started income reporting; 129 still in survey after six months; 110 still in at end of year; 93 records complete enough to use in this analysis

• No evidence of significant bias in attrition by initial characteristics, nor by variability in first part of year (for those completing six-month interview). However, where partnerships split or formed respondents tended to drop out.

Example case with regular weekly income

0

50

100

150

200

250

300

350

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Week

£/w

eek

Child benef it Net pay Tax credit in pay Other tax credit Other income

Example case with changing circumstances

0

100

200

300

400

500

600

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Week

£/w

eek

Child Benef it Income Support JSA Net pay Tax credit in pay Other tax credits

Stable with blips

0

500

1000

1500

2000

2500

3000

1 2 3 4 5 6 7 8 9 10 11 12 13

Period

£/f

ou

r w

ee

ks

D1

D2

D3

D4

Highly erratic cases

0

500

1000

1500

2000

2500

3000

1 2 3 4 5 6 7 8 9 10 11 12 13

Period

£/f

ou

r w

ee

ks H1

H2

H3

H4

Trajectory types

Cases

Highly stable (± 10% x 13) 7

Stable (± 10% x 11+; ± 20% x 1-2) 8

Broadly stable (± 15% x 11+; ± 25% x 1-2) 13

Stable with blips (± 15% x 10) 32

Rising 4

Falling 3

Erratic (± 25% x 10) 18

Highly erratic (all other cases) 8

Distribution of period income as percentage of case’s annual average income

0

5

10

15

20

25

Range of values

% o

f ob

serv

atio

ns

Income changes depending on length of income periods compared

-60

-40

-20

0

20

40

60

-60 -40 -20 0 20 40 60

% change periods 1-6 to periods 7-13

% c

ha

ng

e p

eri

od

s 3

-4 t

o p

eri

od

s 1

0-1

1

Income changes using different pairs of periods

-100

-75

-50

-25

0

25

50

75

100

-100 -75 -50 -25 0 25 50 75 100

% change periods 3-4 to periods 10-11

% c

ha

ng

e p

eri

od

s 5

-6 t

o p

eri

od

s 1

2-1

3

Implications for measuring income mobility: There may be a lot of noise!

• For this group of low to middle earners with children, income was (surprisingly?) variable over the year. Checks with administrative data suggests most of this was genuine, not a result of reporting lapses.

• Short-term volatility was greatest for those with lower incomes

• For measuring changes in income receipts, choice of periods compared can make a very large difference

• However, what people report as ‘normal’ or ‘usual’ income may be less variable – under examination

• And although this involved a large number of weekly income reports, it was a small number drawn from a particular population: other population groups may have less (or more?) volatility