Income distribution and income dynamics in the United Kingdom

Jayasri Dutta (), James Sefton () and Martin Weale ()

Journal of Applied Econometrics, 2001, vol. 16, issue 5, 599-617

Abstract: In this paper, we propose a model of income dynamics which takes account of mobility both within and between jobs. The model is a hybrid of the mover-stayer model of income dynamics and a geometric random walk. In any period, individuals face a discrete probability of 'moving', in which case their income is a random drawn from a stationary recurrent distribution. Otherwise, they 'stay' and incomes follow a geometric random walk. The model is estimated on income transition data for the United Kingdom from the British Household Panel Survey (BHPS) and provides a good explanation of observed non-linearities in income dynamics. The steady-state distribution of the model provides a good fit for the observed, cross-sectional distribution of earnings. We also evaluate the impact of tertiary education on income transitions and on the long-run distribution of incomes. Copyright © 2001 John Wiley & Sons, Ltd.

Date: 2001
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Working Paper: Income distribution and income dynamics in the United Kingdom (1997)
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