We focus on three
questions in particular. First, how
representative is income over a relatively
short period of that received over the
whole year? In short, it is not necessarily
very representative. This may have
implications for the interpretation of
income distribution statistics drawn from
household surveys: some families’
circumstances will, for instance, look
more favourable if aggregated over a
whole year, rather than just over a single
month. However, it may be incomes over
a short period that are most important to
those with the least resources, and who
have to budget on the basis of current
income. Of course, not all the ‘variability’
measured in the way we do was
undesirable: for a small number of the
families, it represented a significant
improvement in their circumstances over
the year. For the great majority, however,
the variation was not around any
clear trend.
Second, we examined patterns of
income mobility at a finer grain level
than has been visible before. Those
patterns involve greater volatility of
income within the year (for this particular
kind of working family) than many might
have expected. Some of the families had
patterns of income receipt that were very
variable indeed. The patterns of shortterm
income variation within the year
that we observe may also have
implications for the measurement of
income mobility between years. Part of
this observed mobility may actually
reflect differences between shorter-term
variations, rather than a longer-term
change in circumstances.
Third, we investigated the extent to
which state transfers smoothed families’
net incomes by comparison with those
they obtain from the market. Here we
found that both social security benefits
and tax credits succeeded in reducing
inequality between the total net incomes
of the 93 cases, and did so to a similar
extent. However, while both social
security benefits and tax credits
succeeded in reducing the variability of
individual families’ incomes within the
year, benefits did so to a somewhat
greater extent than tax credits.
These findings illustrate a dilemma facing
those administering systems such as tax
credits. Such systems can be run on a
basis of fixing payments for a while on
the basis of past income. Alternatively
payments can be adjusted to reflect
current incomes. On the one hand, the
degree of variation we show occurring
within the year suggests that families’
circumstances can change very rapidly,
and that the justice involved in basing
tax credits on past incomes would be
rough. On the other hand, this degree of
income variation makes administration of
a system intended to adjust for it during
the year very difficult. Given the
generosity of the new tax credit system,
making up more than a quarter of the
sample families’ total net incomes, the
ways in which credits are paid obviously
have major effects on their income flows
through the year, and hence on living
standards that are often determined by
short-term income receipts.
Presented by:
John Hills (LSE)
Date & time:
November 27, 2006 4:00 pm - November 27, 2006 12:00 am
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