Why is income volatility associated with poor health? Longitudinal evidence from the UK and France

There is some evidence that income volatility (fluctuations in income over time) negatively affects mental and physical health, independently of the level of income. Evidence to date has examined fluctuations from year to year or from day to day, whereas a more relevant timescale might be month to month. Here, we use data from the Changing Cost of Living Study, a longitudinal panel from the UK and France with monthly data (n = 484). We examine the association between month-to-month income volatility and two outcomes, self-rated general health and anxiety-depression (a composite measure derived from GAD-7 and PHQ-8 scores). Higher volatility was associated with worse health on both measures, with volatility accounting for similar amounts of variation as the level of income. Some association between income volatility and health is to be expected as a consequence of the concavity of the income-health relationship: because of concavity, a downward fluctuation damages health more than the equivalent upward fluctuation improves it. We show that the observed associations are 3 and 4 times too strong to be explained by this mechanism alone. We suggest that volatility, because it introduces uncertainty and stress, has substantial direct health effects. This claim is important for public policy: it means that policies and institutions that smooth people's income streams can have beneficial health effects even if they don't raise anyone's income.