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Income dynamics in the United Kingdom and the impact of the Covid-19 recession

Author

Listed:
  • Bell, Brian
  • Bloom, Nicholas
  • Blundell, Jack

Abstract

In this paper, we use an employer-based survey of earnings and hours to set out the key patterns in UK earnings dynamics from 1975 to 2020, with a particular focus on the most recent recession. We demonstrate that (log) earnings changes exhibit strongly procyclical skewness and have become increasingly leptokurtic, and thus less well approximated by a log-normal distribution, over the period of study. This holds across genders and sectors. Exploiting the long duration of our panel, we then explore the responsiveness of earnings and hours to aggregate and firm-level shocks, finding ample heterogeneity in the exposure of different types of workers to aggregate shocks. Exposure is falling in age, firm size, skill level, and permanent earnings, and is lower for unionized and public sector workers. The qualitative patterns of earnings changes across workers observed in the Covid-19 recession of 2020 are broadly as predicted using the previously estimated exposures and size of the shock. Firm-specific shocks are important for wages given the variation in within-firm productivity and the patterns of heterogeneity are markedly different than for aggregate shocks.

Suggested Citation

  • Bell, Brian & Bloom, Nicholas & Blundell, Jack, 2022. "Income dynamics in the United Kingdom and the impact of the Covid-19 recession," LSE Research Online Documents on Economics 117637, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:117637
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    File URL: http://eprints.lse.ac.uk/117637/
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    Cited by:

    1. Jose Garcia-Louzao & Linas Tarasonis, 2025. "Earnings Inequality and Risk over Two Decades of Economic Development in Lithuania," GRAPE Working Papers 105, GRAPE Group for Research in Applied Economics.
    2. Bell, Brian & Johnson, Philip, 2024. "Immigrant downgrading: new evidence from UK panel data," LSE Research Online Documents on Economics 126753, London School of Economics and Political Science, LSE Library.
    3. Matthew Nibloe, 2025. "Levelling down: the distributional consequences of public pay caps," IFS Working Papers W25/27, Institute for Fiscal Studies.
    4. Tessa Hall & Alan Manning & Rebecca Rose, 2024. "Ethnic minority and migrant pay gaps over the life-cycle," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 40(3), pages 556-578.
    5. Brian Bell & Philip Johnson, 2024. "Immigrant downgrading: New evidence from UK panel data," CEP Discussion Papers dp2032, Centre for Economic Performance, LSE.
    6. René Böheim & David Pichler, 2025. "Earnings volatility in Austria," Economics working papers 2025-04, Department of Economics, Johannes Kepler University Linz, Austria.
    7. Søren Leth‐Petersen & Johan Sæverud, 2022. "Inequality and dynamics of earnings and disposable income in Denmark 1987–2016," Quantitative Economics, Econometric Society, vol. 13(4), pages 1493-1526, November.
    8. Darapheak Tin & Chung Tran & Nabeeh Zakariyya, 2025. "The Evolution of the Earnings Distribution in a Sustained Growth Economy: Evidence from Australia," ANU Working Papers in Economics and Econometrics 2025-704, Australian National University, College of Business and Economics, School of Economics.
    9. Marco D’Amico & Martina Fazio, 2025. "Modelling income risk dynamics in the UK: a parametric approach," Bank of England working papers 1129, Bank of England.
    10. Alex Bryson & John Forth & Lucy Stokes & Van Phan & Carl Singleton & Felix Ritchie & Damian Whittard, "undated". "Accounting for Firms in Ethnic Wage Gaps Across the Earnings Distribution," National Institute of Economic and Social Research (NIESR) Discussion Papers 570, National Institute of Economic and Social Research.

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    Keywords

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    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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