No easy escape from low incomes despite fluctuations from year to year

The study, based on the experiences of over 7,900 people interviewed annually between 1991 and 1994, found that only a minority of those living in low income households in 1991 stayed that way for the next three years. But the variations in income were such that as many as a third of all those interviewed had experienced life on a low income in at least one of the four years.

Five out of ten individuals living in the poorest households in any one year had increases in disposable income in real terms over the following year that were enough to take them above the threshold of half average income measured in 1991. Yet those who 'escaped' low income in one year had a 30 per cent chance of again falling back below the threshold within a year.

The research found that fluctuations in disposable income affected a substantial proportion of households at all levels, including the richest. Even so, most income movement was short distance; there was relatively little long-range upward mobility from poor to rich and little downward mobility from rich to poor.

Although only 40 per cent found themselves in the same tenth of the income distribution from one year to the next, some 70 per cent were found in the same tenth or a neighbouring tenth. Likewise, 90 per cent could either be found in the same fifth of the income distribution or in a neighbouring fifth.

By following the same people over time, the research casts important new light on year-to-year changes in disposable income. These changes are not apparent from annual government statistics showing the proportion of individuals living in households whose incomes are below average because these are based on surveys interviewing different people each year.

Using a definition of 'low income' as having less than half average household income measured in the 1991 survey, the research found that:

• 52 per cent of those with low household incomes in 1991 stayed below the threshold in 1992;
• 41 per cent who had low incomes in 1991 were below the threshold in 1994, including 24 per cent whose incomes had remained low for each of the four years;
• One in ten of all those interviewed had experienced low household incomes for three or more years. The proportion who fell below the threshold during at least one of the four years was one in three.

Using an alternative measure of 'low income' as having a household income among the poorest 20 per cent for each year, the study found that:

• 61 per cent of those with the lowest household incomes in 1991 still had the lowest incomes in 1992;
• 54 per cent who had the lowest incomes in 1991 also had the lowest incomes in 1994, including 35 per cent who were among the poorest 20 per cent in all four years.

Looking at households with persistently low incomes (four years out of four), researchers from the ESRC Research Centre on Micro-social Change at the University of Essex found that they were predominantly single pensioners and families with children whose parents were not working. Finding paid work was a common reason for people moving above the level of low income. Unemployment, the arrival of a new baby, the death of a partner and divorce were important reasons for households falling below the threshold.

Prof. Stephen Jenkins, co-author of the study, said: "This research reveals considerable variation in the incomes of individual families and households from year to year. But the picture that emerges is of a churning of incomes rather than a one-way ticket out of poverty. People may leave poverty relatively quickly, but they may also re-enter poverty relatively quickly as well. The evidence that as many as one in three of all those interviewed experienced low income during at least one of the four years may help to explain the continuing climate of personal economic insecurity."

He added: "The study underlines the important role played by the benefit system in supporting large numbers of people on low incomes who need short-term help. But the findings regarding households with persistently low incomes suggest that an anti-poverty strategy should be targeted in two different ways: improved access to training and employment would help unemployed parents, but for older people there would be few alternatives to improving pensions."