Income Risk Heterogeneity in the United Kingdom


The paper of the thesis measures the distribution of individual gross and net income risk in the United Kingdom. Whenever realised income differs from expected future income, individuals encounter an income risk. These risks are not uniformly distributed across individuals, which might result in losses of well-being. The current literature lacks an in-depth analysis of the potential heterogeneity of income risks. Therefore, this paper addresses two key aspects -- it analyses both the size and the heterogeneity of individual income risk, based on social and demographic factors in the United Kingdom. A detailed group decomposition reveals an individual gross and net income risk heterogeneity. Women face more than double the permanent income shock variance than for men. Further, individuals from Non-White ethnic backgrounds face slightly higher levels of permanent income shocks than White individuals. In particular, Non-White individuals indicate a 1.1 per cent point higher likelihood of a 20 per cent adverse permanent income shock compared to White individuals. Government policies such as taxes and benefits do not mitigate the income risk distribution. Consequently, the paper exposes evidence of income risk heterogeneity in the United Kingdom.