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Income dynamics and the life cycle

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  • Rigg, John A.
  • Sefton, Tom

Abstract

This paper argues that our understanding of income and poverty dynamics benefits from taking a life cycle perspective. A person¿s age and family circumstances ¿ the factors that shape their life cycle ¿ affect the likelihood of experiencing key life events, such as partnership formation, having children, or retirement; this in turn affects their probability of experiencing rising, falling, or other income trajectories. Using ten waves of the British Household Panel Survey, we analyse the income trajectories of people at different stages in their lives in order to build a picture of income dynamics over the whole life cycle. We find that particular life events are closely associated with either rising or falling trajectories, but that there is considerable heterogeneity in income trajectories following these different events. Typically, individuals experiencing one of these life events are around twice as likely to experience a particular income trajectory, but most individuals will not follow the trajectory most commonly associated with that life event. This work improves our understanding of the financial impact of different life events and provides an indication of how effectively the welfare state cushions people against the potentially adverse impact of certain events.

Suggested Citation

  • Rigg, John A. & Sefton, Tom, 2004. "Income dynamics and the life cycle," LSE Research Online Documents on Economics 6310, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:6310
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    File URL: http://eprints.lse.ac.uk/6310/
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    References listed on IDEAS

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    1. Stephen P Jenkins & John A. Rigg, 2003. "Disability and Disadvantage: Selection, onset and duration effects," CASE Papers 074, Centre for Analysis of Social Exclusion, LSE.
    2. Burgess, Simon & Gardiner, Karen & Propper, Carol, 2001. "Growing up: school, family and area influences on adolescents' later life chances," LSE Research Online Documents on Economics 6432, London School of Economics and Political Science, LSE Library.
    3. Burgess, Simon & Gardiner, Karen & Jenkins, Stephen & Propper, Carol, 2000. "Measuring income risk," LSE Research Online Documents on Economics 51327, London School of Economics and Political Science, LSE Library.
    4. Burgess, Simon & Gardiner, Karen & Propper, Carol, 2001. "Growing up: school, family and area influences on adolescents' later life chances," LSE Research Online Documents on Economics 6432, London School of Economics and Political Science, LSE Library.
    5. Sarah Jarvis & Stephen P. Jenkins, 1997. "Low income dynamics in 1990s Britain," Fiscal Studies, Institute for Fiscal Studies, vol. 18(2), pages 123-142, May.
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    Cited by:

    1. Sara Ayllón, 2015. "Youth Poverty, Employment, and Leaving the Parental Home in Europe," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(4), pages 651-676, December.

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    More about this item

    Keywords

    income dynamics; life cycle; poverty;
    All these keywords.

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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