Transition Events in the Dynamics of Poverty

Chapter VI:
Results

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Contents

1. Dynamics Behind Changes in the Poverty Rate Over Time
   • Decomposing the Annual Poverty Rate
   • Likelihood of Entering and Exiting Poverty Over Time
2. Events Associated with Poverty Entries and Exits
   • Descriptive Analysis
   • Multivariate Analysis

Endnotes

VI.1. Dynamics Behind Changes in the Poverty Rate Over Time

Decomposing the Annual Poverty Rate

How has the poverty rate changed over time and what dynamics lie behind those changes? In periods where poverty rates remained high, was it because the number of entries and exits were high or low? With its many years of data, the PSID can be used to analyze how the poverty rate has changed from 1975 through 1996 and the dynamics behind those changes. In the mid-to-late 1970s the annual poverty rate was relatively low, followed by relatively high poverty rates through the early-to-mid 1980s, and moderate poverty rates in the mid-to-late 1980s (Table 2). The early-to-mid 1990s saw a return to high poverty rates, with a peak of 13 percent in 1993.⁽³⁴⁾

Table 2—PSID Data:  Decomposing the Annual Poverty Rate

Year	Sample Size	Number Poor	Number Enter Poverty	Number Exit Poverty	Net Change in Number Poor	Poverty Rate
1975	18,521	22,424
1976	18,672	20,303	7,417	9,133	-1,716	7.8
1977	18,811	18,977	6,739	7,567	-828	7.4
1978	18,954	17,997	6,625	7,317	-693	7.0
1979	19,254	19,908	7,117	7,344	-227	6.2
1980	19,548	21,736	8,674	6,938	1,737	7.6
1981	19,614	23,793	9,538	7,059	2,479	8.6
1982	19,875	23,893	8,328	8,159	169	8.5
1983	20,119	23,261	7,493	7,940	-447	8.4
1984	20,202	24,001	8,187	10,231	-2,044	7.0
1985	20,446	24,428	9,329	8,510	820	8.2
1986	20,192	22,609	6,968	8,630	-1,662	7.7
1987	20,235	22,322	6,937	6,904	33	7.7
1988	20,272	22,674	7,860	7,631	229	7.7
1989	20,223	25,355	7,727	9,197	-1,470	6.5
1990	20,498	25,508	9,309	9,136	174	7.8
1991	20,532	26,030	9,074	8,435	639	8.1
1992	21,933	28,584	10,951	8,339	2,612	8.8
1993	22,942	41,749	22,019	8,811	13,208	12.6
1994	25,044	37,603	12,324	18,087	-5,763	10.7
1995	24,340	36,056	12,195	14,561	-2,366	10.1
1996	23,530	29,762	11,979	9,712	2,267	11.5
Notes:  Poverty rates in the PSID are lower than official poverty rates produced by the U.S. Census Bureau from the March Current Population Survey (CPS). Evidence suggests that the lower poverty rates are due to the more complete income reporting at the lower end of the income distribution in the PSID than in the CPS (Citro and Michael 1995, p. 403). The 1993-96 income data are from the early release PSID files and thus, are preliminary. Population numbers in thousands. Numbers do not sum precisely due to minor changes in the PSID sample over time.

The poverty rate measures the number of poor persons (numerator) as a fraction of the total population (denominator). As described in the Conceptual Model (Section III.2), the poverty rate can be decomposed to highlight the variables responsible for its changes: the number of people who enter and exit poverty, and the number of people who enter and exit the total population. We focus on the number of people who enter and exit poverty because our main objective is to explain poverty dynamics, not population dynamics, and the PSID is not a strong data source for explaining population dynamics.⁽³⁵⁾

Our examination of the dynamics behind changes in the poverty rate over time illustrates that, not surprisingly, the number of people entering poverty is greater than the number of people exiting poverty when the poverty rate is increasing. Conversely, the number of people entering poverty is smaller than the number exiting poverty when the poverty rate is decreasing (Table 2).

While there were year-to-year changes in the number entering and exiting poverty, these numbers fluctuated within a band between roughly 7 and 10 million per year from 1975 until the early 1990s. Then, both entries and exits jumped dramatically. The number of entries hit a peak in 1993, doubling between 1992 and 1993, and the number of exits hit a peak in 1994, more than doubling from its 1993 level.⁽³⁶⁾

The high levels of poverty entries and exits in the mid 1990s suggest that poverty rates remained high over this period because entries and exits were both high, not because they were both low. Many people were cycling in and out of poverty rather than a few people staying in poverty. A look at the early-to-mid 1980s, another period where poverty rates remained high, reveals that this was not always the case. The number of people entering and exiting poverty in this period was comparatively low. The early-to-mid 1980s were characterized by fewer people staying in poverty rather than many people cycling through.

In summary, our examination of changes in the poverty rate and the dynamics behind it over the 22 years from 1975 through 1996, using PSID data, suggests that the early-to-mid 1990s look different from earlier time periods. The early-to-mid 1990s were characterized by relatively high poverty rates and high numbers of people cycling in and out of poverty. These differences are also reflected in the likelihood of entering and exiting poverty over time.

Likelihood of Entering and Exiting Poverty Over Time

The likelihood of entering and exiting poverty in each year, from the mid-1970s through the mid-1990s, is presented in Table 3. Our analysis of PSID data suggests that the likelihood of entering poverty averaged 2.8 percent in the mid-to-late 1970s, 3.0 percent in the 1980's, and 4.2 percent in the early to mid-1990s, a substantial jump from the previous decades (Table 3, column 1). These estimates of poverty entry in the 1970s and 1980s are similar to estimates in the early 1990s by Eller (1996) and Naifeh (1998). Eller and Naifeh both find a roughly three percent likelihood of entering poverty per year, using SIPP data from the early 1990s. We find, however, a substantial jump in the likelihood of entering poverty to 7.4 percent in 1993—the year in which poverty rates hit record highs. Poverty entry rates were somewhat lower in 1994 through 1996—3.8 to 4.3 percent—but remained higher than the rates experienced over the 1970s and 1980s.

The likelihood of exiting poverty has fallen somewhat across the three decades examined. The likelihood of exiting poverty averaged 39.3 percent in the mid to late 1970s, 35.5 percent in the 1980's, and 34.4 percent in the early to mid 1990s (Table 3, column 2). These estimates are considerably higher than estimates by Eller (1996) and Naifeh (1998), who use SIPP data. They find that the likelihood of exiting poverty was between 22 and 24 percent per year in the early 1990s. Interestingly, as the likelihood of entering poverty was increasing during the 1991 through 1993 period, the likelihood of exiting poverty was declining. For example, the likelihood of exiting poverty stood at 36.0 percent in 1990 and fell to 30.8 percent in 1993. While the likelihood of exiting poverty declined through the early 1990s, it increased to 43.3 percent in 1994. Consistent with results in Table 2, we find that the early to mid 1990s look different than earlier periods. The likelihood of entering poverty was substantially higher, on average, than in the prior one and a half decades and the likelihood of exiting poverty was slightly lower.

Our examination of changes in the poverty rate over the 22 years from 1975 through 1996, using PSID data, finds that the annual poverty rate was relatively low in the mid-to-late 1970s, moderate in the mid-to-late 1980s, and high in the early-to-mid 1980s and early-to-mid 1990s. Analysis of poverty entries and exits over these two decades shows that the early-to-mid 1990s look different from earlier years. The high poverty rates in the mid-1990s were characterized by many people cycling through poverty, while the high poverty rates in the early-to-mid 1980s were characterized by fewer people staying in poverty.

VI.2. Events Associated with Poverty Entries and Exits

Descriptive Analysis

The PSID and SIPP samples are each split into two separate samples: (1) persons at risk of entering poverty in the current period t, (i.e., persons not in poverty in the prior period t-1) and (2) persons at risk of exiting poverty in the current period t (i.e., persons in poverty in the prior period t-1). In this section we provide basic descriptive statistics for each of these samples and a description of the relationship between events and poverty transitions.

Events Associated with Poverty Entries

PSID: Of the 217,427 person-year (20,741 person) observations at risk of entering poverty in the PSID, 3.4 percent enter poverty as measured on an annual basis (Table 4, column 2). Examining the key trigger events, we find that changes in each of the events affect a small, but significant portion of the sample over the course of a year (1.2 to 6.9 percent, column 1). A loss of employment by the wife or other household members is the most common event (6.5 and 6.9 percent of the sample), followed by the household head becoming disabled (5.5 percent) and by the birth of a child (4.8 percent). Other changes in household composition—including a change from a two-adult to a female-headed household and a young adult setting up his or her own household—are relatively rare events experienced by less than two percent of the sample.

The PSID descriptive results presented in Table 4 suggest that persons who experience these key trigger events in a given year are significantly more likely to enter poverty that year than the overall sample. For example, of those who have a child under age six enter the household, 5.7 percent enter poverty as compared with 3.4 percent of the total sample (column 2). Persons who shift from living in a two-adult household to a female-headed household, a fairly rare event, are by far the most likely to enter poverty (12.4 percent). Persons experiencing changes in labor supply are less likely to enter (4.5 to 6.4 percent), as are persons living in a household where the head becomes disabled (6.8 percent), a young child is born (5.7 percent), or a young adult sets up his or her own household (5.2 percent).

While those who shift to a female-headed household are the most likely to enter poverty, this event does not explain why most people are poor, because only a small fraction of the population experiences this event. Employment loss is a far more likely explanation. In descriptive analyses of those entering poverty (not shown here), we see that employment is indeed the most common event associated with poverty entry. Nearly 40 percent of those entering poverty had a household member lose a job. A change in disability status plays the next largest role (11 percent of those entering poverty), followed by a young child entering the household (8 percent), a shift to a female-headed household (6 percent), and a young adult setting up their own household (2 percent).

SIPP:  The SIPP descriptive results highlight the lower likelihood of entering poverty or experiencing an event when measured monthly in the SIPP than annually in the PSID (Table 4). Only one percent of the SIPP person-month sample enters poverty in a given month as compared with three percent of the PSID person-year sample in a given year (Table 4, columns 2, 4, and 6). And, not surprisingly, persons are much less likely to experience an event in a month, than at any time over the past year. Only 0.1 to 1.3 percent experience each of the events in the SIPP monthly data as compared with 1.2 to 6.9 percent in the PSID annual data. The combined 1988/1990 SIPP sample and 1996 SIPP sample each have over two million person-month observations and over 93,000 persons.⁽³⁷⁾

The SIPP monthly data also confirm the general findings from the PSID annual data: (1) Persons who experience each of the key trigger events in a given month are significantly more likely to enter poverty that month than the overall sample (columns 4 and 6); (2) Persons who shift from living in a two-adult household to a female-headed household, a relatively rare event, are the most likely to enter poverty (columns 4 and 6); and (3) Even though persons who shift to a female-headed household are the most likely to enter poverty, this event accounts for a much smaller percent of poverty entries than a loss of employment because relatively few people experience a shift to a female-headed household.

Events Associated with Poverty Exits

PSID:  Of the 35,445 person-year (7,948 person) observations at risk of exiting poverty measured annually in the PSID, 35.8 percent exit poverty (Table 5, column 2). Changes in labor supply are the most common trigger events (6.2 to 10.5 percent, column 1), followed by a change in disability status (8.8 percent), and a shift from a female-headed to a two-adult household (1.4 percent). Less than one percent of the sample experienced a change in the household head’s education status. Persons experiencing each of the key exit trigger events in a given year are significantly more likely to exit poverty that year than the overall sample, with the exception of those whose household head received an associate’s degree or higher. Similar to the findings for poverty entry, persons who shift from living in a female-headed to a two-adult household are the most likely to experience a poverty transition—55.7 percent exit poverty. However, because relatively few people experience this event, it is less associated with poverty exits. Changes in labor supply are often associated with poverty exits in the total population.

SIPP: The SIPP data reveal a lower likelihood of exiting poverty when measured monthly than when measured annually in the PSID (Table 5 columns 2, 4, and 6). Only nine to 11 percent of the SIPP person-month samples exit poverty as compared with 36 percent of the PSID person-year sample. The other general descriptive results remain unchanged. Persons who shift from living in a female-headed to a two-adult household are the most likely to exit poverty (52 to 65 percent, columns 4 and 6), though relatively few people experience this event.

Summary of Descriptive Analysis and Comparison to the Literature

Our descriptive analysis highlights an important finding and confirms earlier findings in the literature. The main finding—that persons who experience a major shift in household composition are the most likely to transition into and out of poverty—is consistent with earlier findings from Ruggles and Williams (1987). This finding is largely missed in much of the literature, however, because most studies examine events only for those who enter (or exit) poverty (Bane and Ellwood 1986, Blank 1997). Since a very small portion of the population experiences a shift from a two-adult to a female-headed household (or vice versa), especially relative to those who experience a change in employment, the shift in household composition appears less important than a change in employment. Duncan and Rodgers (1988) highlight a similar finding in their analysis of child poverty: family breakups are relatively rare among children, but they have devastating effects when they do occur (pp. 1014-1015).

Our descriptive results that measure the percent of individuals experiencing each event only for those who enter (or exit) poverty confirm earlier findings in the literature. Consistent with Bane and Ellwood (1986), Ruggles and Williams (1987), Duncan and Rodgers (1988) and Blank (1997), these descriptive results suggest that changes in employment are more important than changes in household composition for the overall likelihood of entering poverty. As Ruggles and Williams explain, “employment-related events, because they are so common in the population as a whole, are associated with a much higher proportion of all transitions into and out of poverty than demographic events” (p. 14). However, as with the findings from the literature, in making these comparisons it is important to bear in mind that these descriptive statistics do not control for persons experiencing multiple events and other household and economic characteristics. Next we turn to our multivariate results, which do control for multiple events and other household and economic characteristics.

Multivariate Analysis

Our multivariate analyses show that employment changes are the events most closely associated with entries into and exits from poverty. This is, in general, followed by shifts in household structure—two-adult to female-headed households and vice versa. These and other results are presented in Tables 6 through 9.⁽³⁸⁾ First, we discuss the poverty entry results for the PSID and SIPP (Tables 6 and 7) and then discuss the poverty exit results (Tables 8 and 9).

For the explanatory variables in each table, three numbers are presented—the coefficient, standard error, and change in the likelihood (i.e., probability) of entering/exiting poverty with a change in the explanatory variable. This third number provides a straightforward interpretation of the relationship between the explanatory variable and poverty, something the regression coefficient does not provide.⁽³⁹⁾ To calculate, for example, how a shift from a two-adult to a female-headed household affects the likelihood of entering poverty, we (1) calculate the likelihood of entering poverty when the household structure shift occurs, (2) calculate the likelihood of entering poverty when the household structure shift does not occur, and (3) calculate the difference between these two likelihoods.⁽⁴⁰⁾ This difference in the likelihood of entering poverty in these two scenarios provides an estimate of how the probability of entering poverty changes with a shift from a two-adult to a female-headed headed household.

Poverty Entries

PSID: Individuals experiencing many of our “trigger events” are significantly more likely to enter poverty, even after controlling for other events that may occur during the same time period as well as demographic characteristics and economic conditions (Table 6, column 1).⁽⁴¹⁾ We find that household events including household composition changes, employment changes, and disability changes are related to poverty entries. We also find that increases in the unemployment rate increase poverty entries. Of the trigger events examined, individuals living in households that experience a loss of employment are the most likely to enter poverty, followed by individuals in households that shift from being headed by two adults to being headed by only a female. This finding differs from those in our descriptive analysis, as the descriptive results suggest that shifts in household structure are more important than changes in employment. Controlling for characteristics of the household, many of which are related to female headship including minority status and having low levels of education, reduces the observed relationship between household structure shifts and poverty, and employment changes emerge as most strongly related to poverty entries. Our findings also suggest that many of the household, geographic, and economic characteristics are significantly related to poverty entries, as well as the poverty and non-poverty spell information.

Individuals experiencing all three household composition trigger events are more likely to enter poverty than individuals not experiencing these events. Persons who have a child under age six enter their household or shift from a two-adult to a female-headed household this year (at time t) or last year (at time t-1) are more likely to enter poverty this year, whereas young adults (under age 25) who set up their own households are not more likely to enter poverty in the year they make this transition, but are more likely to enter poverty one year later (i.e., a shift last year, t-1, is related to poverty entry this year, t). It may be that young adults who set up their own households receive financial support from a parent or other relative in the first year they live on their own, but that the support discontinues in subsequent years.

The probability of entering poverty is 2.4 percentage points higher for persons living in households that have a child under age six enter. If the child entered the household this year, the probability of entering poverty is higher by 1.1 percentage points and if the child entered last year the probability is higher by 1.3 percentage points, providing the total effect of 2.4 percentage points. The likelihood of entering poverty increases considerably if the household shifts from a two-adult to a female-headed household. The probability of entering poverty is 11.9 percentage points higher for persons who experience this shift in household structure—the probability of entering poverty is higher by 7.4 percentage points if the shift occurred this year and by 4.5 percentage points if the shift occurred last year. Setting up ones’ own household in the previous year is associated with a higher likelihood of entering poverty in the current year by 1.2 percentage points.

All three employment transition events and their lags are significantly related to poverty entry. The loss of employment by the household head has the largest impact on poverty entry. The probability of entering poverty is higher by 9.5 percentage points if the household head lost his/her job this year and by 3.8 percent if the job loss occurred last year—for a total effect of 13.3 percentage points. The loss of employment by a spouse or other household members has a smaller, yet significant, relationship with poverty entries—the likelihood of entering poverty is higher by a total (this year and last year) of 5.5 percentage points if the spouse loses a job and by a total of 3.8 percentage points if another household member loses a job. Our finding that the loss of employment in the previous year is related to poverty entries in the current year suggests that some individuals are able to keep themselves out of poverty in the year the job loss occurs, perhaps because of government transfers such as unemployment insurance benefits, but that they enter poverty in the following year.

Individuals living with a household head who becomes disabled are more likely to enter poverty. The probability of entering poverty when the household head becomes disabled is higher by a total of 2.4 percentage points. The final two events are changes in economic conditions. We find that a 0.5 percentage point increase in the unemployment rate increases the likelihood of entering poverty by only 0.1 percentage points, and that GDP has no significant effect on poverty entries.(9)

Many of the model’s control variables also help to explain poverty entry. Characteristics of the household head including his/her age, race, and educational attainment are related to poverty entry. Persons living in a household headed by an individual under age 25 or age 55 or older are more likely to enter poverty than persons whose household head is between ages 25 and 54. Consistent with analyses by Eller (1996), Naifeh (1998), and Rank and Hirschl (1999a and 1999b), persons who live in households headed by black individuals are more likely to enter poverty than persons who live in households headed by non-black individuals. We also find that higher educational attainment of the household head is associated with a lower probability of entering poverty. Persons who live in households headed by individuals with more than a high school degree are the least likely to enter poverty, followed by persons in households where the head has a high school degree only, and finally, those in households headed by persons with no high school degree are the most likely to enter poverty.

Household structure also plays a role in poverty entries. Person in households that have been female-headed for two or more years, as well as persons in single male-headed households (i.e., a male heads the household without a female partner), are more likely to enter poverty than persons in two-adult households.(10) The presence of dependent children in the household is also related to entries—the likelihood of entering poverty is higher for persons in households with more children. We also find that individuals who live in metropolitan areas are less likely to enter poverty, which may be due to the fact that there tends to be more employment opportunities in metropolitan areas as compared to non-metropolitan areas. The level of the state unemployment rate also matters. Facing a high unemployment rate increases the likelihood of entering poverty.

In terms of spell information, we find that the length of the non-poverty spell matters. The probability of entering poverty declines as we observe the individual out of poverty for more years, although the largest difference occurs in the first few years. This pattern in the coefficients suggests that one of the following is taking place: (1) persons who have longer non-poverty spells are different from persons with shorter non-poverty spells in a way that the model does not capture (e.g., more disciplined and hard-working), and that these unobserved differences produce the pattern;(11) (2) there is duration dependence; or (3) a combination of the two. Because it is unlikely that our model captures all differences between individuals, it is unlikely that this series of coefficients is identifying a pure duration dependence effect.

Having a prior (observed) non-poverty spell, which indicates that a poverty spell has occurred, increases ones’ probability of entering poverty. That is to say, persons who have previously experienced a spell of poverty are more likely to enter poverty than persons who have never been in poverty. Finally, we find that individuals whose spell information is left-censored are less likely to enter poverty. This finding is not surprising as persons whose non-poverty spells are left-censored likely have a longer non-poverty spell than what is observed in the data.

Likelihood of Entering Poverty if Event Occurs: From these multivariate estimates we calculate the overall likelihood of entering poverty if an individual experiences a particular event (not shown in table).(12) Recall from our descriptive analysis that the average likelihood of entering poverty in a year is 3.4 percent. The multivariate results suggest that the likelihood of entering poverty is higher for persons living in households with an employment loss, a shift in household composition, and the onset of a disability. The likelihood of entering poverty is highest, all else equal, for persons living in households with a head who loses employment, 16.7 percent, which is significantly higher than the average entry likelihood of 3.4 percent. The likelihood of entering poverty if one shifts from two-adult to female-headed household is slightly lower at 15.3 percent. If the spouse loses employment, another household member loses employment, or the head becomes disabled the likelihood of entering poverty is 8.9 percent, 7.2 percent, and 5.8 percent, respectively. For the two remaining household composition shifts—child under age six enters household and young adult sets up own household—the likelihood of entering poverty if these events occur are 5.8 percent and 4.6 percent, respectively.

Short and Long Poverty Spells: The relationship between the trigger events and poverty entries may differ for persons entering short and long poverty spells, so we examine them separately. For example, a young adult who sets up his or her own household may enter a short poverty spell, but not a long poverty spell. A short poverty spell is defined as lasting four or less years and a long spell as lasting five or more years. It is not possible, however, to categorize every poverty spell as either short or long. The problem arises because some poverty spells have an observed duration of four or less years but the true duration is unknown because the end of the poverty spell is not observed (i.e., the spell is censored). In this case, the true length of the spell could be more than four years, and since it is not known whether it is a short or long spell, these spells are not included in either group. This categorization and elimination of censored spells results in 9,039 person-year observations in the analysis of entries into short poverty spells and 3,537 person-year observations in the analysis of entries into long poverty spells.⁽⁴⁶⁾

Looking at the results for short and long spells, one general pattern emerges—fewer events are associated with entries into long poverty spells than short poverty spells. This lower level of statistical significance could, in part, be due to the smaller sample that these models are estimated on.

The only household composition trigger event significantly related to entries into short and long poverty spells is a shift from a two-adult to a female-headed household (Table 6, columns 2 and 3). Among those who experience a short spell of poverty, the probability of entering poverty increases by 26.6 percentage points if this household shift occurs. For those individuals who experience a long spell of poverty, the probability of entering poverty increases by 22.5 percentage points if the household shifts from two-adult to female-headed.

The employment loss of the household head and other household members are associated with higher probabilities of poverty entry for both groups, and these probabilities are similar. For both groups, employment of the head is the most important employment shift. The employment loss of the spouse is related only to entries into short poverty spells, not long poverty spells. We find no significant relationship between changes in the disability status of household heads and entries into long or short poverty spells. In addition, changes in the unemployment rate and in GDP are not found to affect entries into either short or long poverty spells.

SIPP: Even though the SIPP analysis examines monthly poverty entries and the PSID examines yearly poverty entries, the SIPP and PSID results are quite similar. This multivariate analysis of poverty entry with SIPP data confirms many of the PSID findings. Similar to the PSID entry results, we find that the loss of employment among family members is the event most related to poverty entries. Results from the 1996 SIPP panel analysis are presented first, and then are compared with findings from 1988-90 SIPP panels.

The 1996 SIPP results suggest that many of the entry trigger events are significantly related to individuals’ likelihood of entering poverty (Table 7). Employment losses are identified as the event most often associated with poverty entries. This is not, however, followed by shifts from two-adult to female-headed households, as in the PSID analysis. The next most important event is the entry of a child under age six into the household, followed by the onset of a disability of the household head and then a shift in household structure.

Loss of employment by the household head has the largest impact on poverty entry. The likelihood of entering poverty is higher by 12.3 percentage points for individuals living in a household where the household head stops working.(14) Losses of employment by the spouse and other family members have smaller, yet significant, effects: 6.0 percentage points for the spouse and 5.3 percentage points for others in the household. The percentages from the PSID analysis are quite similar—the likelihood of entering poverty increases by 13.3 percentage points if the head loses employment, 5 percentage points if the spouse loses employment, and 3.8 percentage points if another household member loses employment.

Having a child under age six enter the household increases the likelihood of entering poverty by 3.8 percentage points, which is similar to the 2.4 percentage point increase found in the PSID analysis. Our second household composition trigger event has a substantially smaller relationship with poverty entries. Shifting from a two-adult to a female-headed household is found to increase the likelihood of entering poverty by only 1.3 percentage points, which is considerably smaller than the 11.9 percentage point increase found in our analysis of PSID data.

Changes Over Time: The SIPP results suggest that over the 1988-92 (i.e., 1988/1990 SIPP panels) to 1997-99 (i.e., 1996 SIPP panel) time period, shifts from two-adult to female-headed households—measured while controlling for shifts in employment—became less important in individuals' poverty entries.⁽⁴⁸⁾ Shifting from a two-adult to a female-headed household is important in the both periods, but is found to increase the likelihood of entering poverty by 8.9 percentage points in the 1988-92 period and only 1.3 percentage points in the 1997-99 period. Because changes in household structure are often associated with changes in employment, we estimated a second set of models that exclude employment changes (not shown). The results from these models show a similar relationship between poverty entries and household structure shifts in the 1988-92 and 1997-99 periods. One possible explanation for this pattern is that in the latter period changes in household structure are operating through employment to a greater extent than in the earlier period. Our analysis also suggests that the loss of employment became more important in individuals' poverty entries over this time period, particularly the employment of the spouse and other household members. For example, the loss of employment by the spouse increased the likelihood of entering poverty by 1.1 percentage points in the 1988-92 period, while the same employment loss increased the likelihood of entering poverty by 6.0 percentage points in the 1997-99 period.

Similar to the PSID results, many of the model’s control variables help to explain poverty entry. Race and educational attainment are both important. One difference is the relationship between age and poverty exits. In both SIPP analyses, we find that individuals in households headed by older adults (age 55 or older) are less likely to enter poverty, which differs from our PSID finding, but is consistent with a similar finding by Naifeh (1998), also using SIPP data (p. 70-63).

Like our PSID findings, we find that household composition also plays a role in poverty entry in the SIPP analyses. Persons in households that have been female-headed for two or more years are more likely to enter poverty than persons in two-adult and single male-headed households. The number of adults in the household and the presence of dependent children in the household also affects poverty entries—the likelihood of entering poverty decreases with the number of adults and increases with the number of children in the household.

Consistent with our findings from the PSID analysis, we find that individuals who live in metropolitan areas are less likely to enter poverty. Finally, the results suggest that economic conditions matter. An increase in the state unemployment rate is found to increase individuals' likelihood of entering poverty in both SIPP models. Again, we find that the duration of the poverty spell matters. The longer individuals are out of poverty the less likely they are to enter poverty.

Likelihood of Entering Poverty if Event Occurs: Again, the coefficients from the multivariate models are used to calculate the overall likelihood of entering poverty if an individual experiences a particular event (not shown in table).(16) The descriptive analysis shows that the average likelihood of entering poverty in a month is 1.1 percent in the 1988-92 period and 1.3 percent in the 1997-99 period. In the 1997-99 period, employment loses dominate the other events and are more likely to lead to a poverty entry. The likelihood of entering poverty in a month is 13.6 percent if the head loses employment, 7.3 percent if the spouse losses employment, and 6.6 percent if another family member loses employment—significantly higher than the average entry likelihood of 1.3 percent. In the 1988-92 period, these probabilities are somewhat lower: 11.1 percent, 2.2 percent, and 3.5 percent, respectively. As mentioned above, the most significant difference between the 1988-92 and 1997-99 period is the estimated relationship between household composition shifts and poverty entries. The likelihood of entering poverty if the household shifts from two-adult to female-headed (controlling for employment changes in the model) is 10.0 percent in the 1988-92 period, and is 2.6 percent in the 1997-99 period. If a child under age six enters the household, the likelihood of entering poverty is roughly 5 percent in both the 1988-92 and 1997-99 periods.

Poverty Exits

PSID: Similar to the poverty entry model, individuals experiencing many of the trigger events are significantly more likely to exit poverty, even after controlling for other events, demographic characteristics, and economic conditions (Table 8, column 1). Like our examination of poverty entries, the results suggest that shifts in employment are the most important events followed by shifts in household structure. These differ from our descriptive results which identified shifts in household structure as more important than shifts in employment. As discussed above, the events included in the poverty exit models differ somewhat from those included in the poverty entry models. A shift in household structure—from a female-headed to a two-adult household—is the only family composition trigger event included in the poverty exit models and we allow a change in educational attainment to affect exits.

We find that individuals living in households that shift from female-headed to two-adult headed are more likely to exit poverty than those who do not experience the shift. This impact is immediate—a shift last year (t-1) is not related to poverty exits this year (t). The likelihood of exiting poverty is higher by 12.4 percentage points if an individual experiences this event. In terms of employment transition events, the employment gain of a spouse is the most important, followed by another household member and then the household head. The likelihood of exiting poverty is higher by a total of 29.4 percentage points if the spouse gains employment, 15.0 percentage points if another household member gains employment, and 7.3 percentage points if the head gains employment.

While individuals living with a household head who becomes disabled are more likely to enter poverty, individuals who live with a household head who ceases to be disabled are not more likely to exit poverty. We also examine whether a change in educational attainment is related to the probability of exiting poverty, but find no relationship.⁽⁵⁰⁾

Many of the model’s control variables help to explain poverty exits. Characteristics of the head including his/her age, race, and educational attainment are related to poverty exits. Persons living in a household headed by individuals under age 25 are less likely to exit poverty than persons whose household head is age 25 to 54. Surprisingly, the results suggest that individuals who live in a household headed by an older person, over age 54, are more likely to exit poverty. This is counter to Stevens’ (1999) finding that persons over age 54 are less likely to exit poverty than those age 25 to 54. Our findings on race and educational attainment are, however, consistent with the literature. We find that persons living in households headed by black individuals are less likely to exit poverty than persons living in households headed by non-black individuals (Eller 1996, Naifeh 1998, and Stevens 1999). Like Stevens (1999), we find that higher educational attainment is associated with a higher probability of exiting poverty.

Household composition also plays a role in poverty exits. Persons in households that have been female-headed for two or more years, as well as persons in single male-headed households, are less likely to exit poverty than persons in two-adult households. The presence of dependent children in the household is also related to poverty exits—the likelihood of exiting poverty is lower for individuals in households with more children. We also find that individuals who live in metropolitan areas are more likely to exit poverty, which may be due to the fact that there tends to be more employment opportunities in metropolitan areas as compared to non-metropolitan and rural areas. The level of the state unemployment rate also matters, although GDP does not significantly affect poverty exits. Facing a high unemployment rate decreases the likelihood of exiting poverty.

We also find that the poverty spell information matters. Persons who have previously experienced a poverty spell are less likely to exit poverty than persons who are experiencing their first poverty spell. And, persons with long poverty spells are less likely to exit poverty than persons with short poverty spells.

Likelihood of Exiting Poverty if Event Occurs: As with the poverty entry models, coefficients from the multivariate analysis are used to calculate the overall likelihood of exiting poverty if an individual experiences a particular event (not shown in table).⁽⁵¹⁾ First, recall from the descriptive analysis that the average likelihood of exiting poverty in a year is 35.8 percent. The multivariate results suggest that the likelihood of exiting poverty is above average for persons living in households with a gain in employment (of the head, spouse, or others) and those living in households that shift from female-headed to two-adult headed. The likelihood of exiting poverty in a year is 65.2 percent if the spouse gains employment, 50.8 percent if another household member gains employment, and 43.1 percent if the head gains employment—significantly higher than the average exit likelihood of 35.8 percent. For persons living in a household that shifts from female-headed to two-adult headed, the likelihood of exiting poverty in a year is 48.2 percent. Individuals in a household where the head increases his/her educational attainment or ceases to be disabled are no more or less likely to exit poverty than those individuals who do not experienced the event.

Short and Long Poverty Spells: Next, we examine whether the exit trigger events differentially affect individuals exiting “long” versus “short” poverty spells. We again define a short poverty spell as one that lasts four or less years and a long spell as one that lasts five or more years. As mentioned in the discussion of poverty entries, some poverty spells cannot be identified as short or long because the full spell is not observed. If the beginning or the end of a one to four year spell is not observed (i.e., the spell is left censored—the beginning of the spell is not observed, or right censored—the end of the spell is not observed), the spell is not categorized as either long or short. The true length of these censored poverty spells could be more than four years, so they are omitted. This categorization and elimination of censored spells results in 9,039 person-year observations in the analysis of short poverty spells and 7,534 person-year observations in the analysis of long poverty spells.

Like the model estimated on the full sample, the short and long poverty spell results suggest that poverty exits are more strongly related to employment gains than shifts in household structure. In fact, individuals in households that shift from female-headed to two-adult headed are no more likely than their counterparts who did not experience the event to exit a short poverty spell (Table 6, column 2). Further, this household structure shift is negatively related to the likelihood of exiting long poverty spells, an unanticipated sign (Table 6, column 3).

Employment gains by the household head, spouse, and other household members are associated with higher probabilities of exiting poverty for both groups, although more important for persons exiting long versus short poverty spells. For example, the probability of exiting poverty if the spouse gains employment is higher by 20.9 percentage points for individuals exiting long poverty spells but is higher by only 9.6 percentage points for individuals exiting short poverty spells.

Like the model estimated on the full sample, living with a household head who ceases to be disabled is not related to exits from long or short poverty spells. In terms of educational gains, individuals in households where the head completed high school are more likely to exit a short poverty spell—their probability of exiting poverty increases by a total of 18.4 percentage points. We do not include changes in educational attainment in our examination of exits from long poverty spells because very few household heads in the midst of a long poverty spell had a change in educational attainment. Finally, we find that neither economic change variable—change in unemployment or GDP—affects exits from short or long poverty spells.

SIPP: Again, individuals experiencing many of our trigger even