MS40045E: Reflective Essay on Household Income Distribution in the UK

This reflective essay delves into the distribution of household income in the UK, highlighting its significance as an economic indicator. It examines changes in average incomes, income inequality, and poverty levels, drawing upon statistical data and research to illustrate key trends. The essay notes the decreasing income inequality in the UK over the last decade, while also pointing out the persistent disparity between the richest and poorest households. Regional variations in household income and the concerning rise in child poverty and in-work poverty are also discussed. The essay concludes by emphasizing the vulnerability of children and pensioners to poverty and the need for government intervention to ensure economic security for these groups. Desklib offers a wealth of resources, including similar essays and solved assignments, to aid students in their studies.

INTRODUCTION TO RESEARCHING BUSINESS ECONOMICS
REFLECTIVE ESSAY
STUDENT ID:
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The given task has proved to be immensely useful with regards to doing research in the
context of business economics. A key concept that has been highlighted in the slides is that of
household income which acts as a critical economic indicator. Household income refers to the
sum of income of all the members that tend to reside within a given household. It is not
limited to only the salaries and tends to include the various benefits. This plays a crucial role
in the business economies as the household income is closely linked with the disposable
income which refers to the underlying income that the household has which may be spent on
various purchases. Some amount of this income may also be saved for future use or
investment.
In the recent years, there has been an increase in the household income which has reached its
highest refer historically. However, when compared to the pre-downturn (before 2008 crisis)
income, the trends tend to differ for the richest and poorest households. The current
household income for the poorest households tends to exceed the pre-downturn level but this
is not the case for the richest households. This is rather interesting and hints at potential
reduction in disparity between the richest and poorest.
Using statistics, it is possible to compare household income of different time periods after
inflation adjustment has been done. This is imperative as household income is adjusted based
on underlying inflation. In the UK context, the available evidence indicates that during the
last decade, the household income inequality is decreasing which augers well for the
economy. The analysis of the household income distribution for the UK at the present clearly
highlights that the distribution is skewed with positive outliers. This is not surprising
considering there is presence of ultra rich households. Evidence regarding this is also
presented from the median income (£27,300) which is lesser than the mean income
(£32,700). Adjusted for inflation, it may be concluded that the mean household income for
UK is £1,600 higher than the corresponding levels during 2008 (Jenkins, 2016).
It is evident that household income tends to act as a reliable indicator of the health of the
economy. This is because during period of economic recession or downturn in economy,
there is a decrease in household income which is reflected in the empirical data for UK
households. Considering that the consumer spending would depend on the household
income, hence there is a close relation between GDP and household income. Typically both
indicators tend to move in the same direction. It is noteworthy that despite the improvement
in terms of income inequality in UK in the last decade, the income equality still is quite
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significant. The average monthly disposable income for the households belonging to the
bottom 10% is only £ 9.644. In sharp contrast, the average monthly disposable income for the
UK households belonging to the top 1% is more than 25 times greater (Brewer and Wren‐
Lewis, 2016).
It is interesting to note that the household income is also impacted by the underlying region.
This is not surprising as the level of economic development and underlying cost of living
tend to differ across cities and regions located in UK. Hence, it is expected that London
would have high average household incomes on account of high cost of living coupled with
its status as the financial capital. A concerning trend noticed during the research relates to the
issue of child poverty which is on the increase during the last two decades especially in cases
of children belonging to working families. This trend may be attributed to the fact that the
income earned by working families is not sufficient especially for those involved in unskilled
tasks. The extent of poverty in UK can be highlighted from the fact that 4.1 million children
are below the poverty line while the total individuals below poverty line in UK stand at 14
million. Clearly, children are quite vulnerable to poverty which is not surprising considering
that they have limited means of earn a living and support themselves (Fräßdorf, Grabka, and
Schwarze, 2011).
Another disturbing trend which has emerged is the continuous increase of in-work poverty
which implies that even though people are employed but still they are poor. As a result,
unemployment rate continues to be significantly low even though the poverty amongst the
working class families is on the rise. Another group which seems vulnerable comprises of the
pensioners who are increasingly not able to meet their expenses based on the pension
payment received. Clearly, the poverty in UK seems to target the two most vulnerable groups
in the form of children and pensioners. Going forward, this issue can lead to lowering of
savings rate as more disposable income is diverted towards the old and children. As a result,
drastic measures are required on the part of the government to address the issues identified
and provide economic security to pensioners and children.
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References
Brewer, M. and Wren‐Lewis, L., 2016. Accounting for changes in income inequality:
decomposition analyses for the UK, 1978–2008. Oxford Bulletin of Economics and
Statistics, 78(3), pp.289-322
Fräßdorf, A., Grabka, M.M. and Schwarze, J., 2011. The impact of household capital income
on income inequality—a factor decomposition analysis for the UK, Germany and the
USA. The Journal of Economic Inequality, 9(1), pp.35-56.
Jenkins, S.P., 2016. The Income Distribution in the UK. Social Advantage and Disadvantage,
ed. by H. Dean, and L. Platt, pp.135-160.
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