Change in earnings occurs due to change in demand for labor and change in supply of labour. If demand for labor increases the earnings increases. If supply of labour decreases the earnings increases.
Although patterns of change differ from person to person and some individuals remain in poverty for extended periods of time, most of us experience fairly large changes in income over time. Our earnings from work and our investment income are likely to change over our lifetime as we first enter, and then leave, the workforce; we may receive irregular or infrequent sources of income; persons may enter or leave our households; and our incomes are influenced by factors affecting the economy as a whole.
Over the course of our working careers, most of us experience fairly substantial income changes as our earnings follow the typical lifetime pattern. We usually begin our working careers at relatively low-paying entry-level jobs. As we gain skills and work experience, move to new jobs that better match our skills and interests, and further our on-the-job training and formal education, we become more valuable as employees and are rewarded with increases in pay. During our working years, we may defer some portion of current earnings for later years. As we near retirement, our pay is likely to peak, and then be partially replaced by pensions and Social Security — forms of deferred compensation — when we fully retire from the workforce.
Lifetime Investment Income
Our incomes also tend to change in a regular pattern as our savings behavior, and therefore our investment income, changes over our lifetimes. We typically do not save much from the relatively low pay we earn when we first enter the labour force. Over time, as our pay increases, we usually begin to save some of our income, build our house, and make other investments. The income from these investments added to our increasing pay gives us much higher incomes than we had as young adults. By the time we retire, we often have accumulated investments that provide a source of income that can be drawn down over time.
Fluctuating Patterns of Income
While most of us will have income from earnings and investments that follow the regular lifetime patterns outlined above, others will experience relatively large year-to-year fluctuations in their incomes. For example, workers in economically cyclical industries, such as construction, often have some good years, when income is well above average, and some bad years, when income is well below average. Fishermen, farmers and other small business owners also often experience wide fluctuations in income.
Further, even workers whose incomes normally follow a regular lifetime earnings pattern may, for a variety of reasons, experience income fluctuations in some years. For example, someone may, for an unexpected reason, may lose his job and and that year will be a difficult year for him.
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