Hood, Andrew, Joyce, Robert, (2015), “Income changes and their determinants over the lifecycle”, IFS Working Paper, 21 December.
What explains the variation in how income changes as people age? Using household panel data, we investigate the contribution of different time-varying factors in explaining variation in income changes over prime working-age life (between 35-44 and 50-59). We find that demographic changes, such as acquiring or losing a partner and the entry or exit of children to and from the household, account for a larger share of the variation in household income changes than shifts in employment status or occupation. This is particularly true for women, for whom demographic changes explain 82% of ex-post predictable variation in household income changes, compared to only 12% explained by employment status and occupation. We find a similar result when looking at the transition into retirement (between 50-59 and 66-75). These results illustrate an important limitation of the extensive literature examining consumption and savings behaviour over the lifecycle: focusing on earnings and income whilst ignoring changes in household composition excludes the largest source of ex-post predictable variation in income changes.
Relevant Posts
- Magalhães, C. P. & Ceka, B. (2014) “The meaning of democracy changes for Europeans depending on their education status, income and national context”, LSE EUROPP Blog, 27 August.
- Jaumotte, Florence, Osorio Buitron, Carolina, (2015), “Union power and inequality”, VoxEU, 22 October.