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This study examines both the dynamics behind changes in the poverty rate over time and the events that trigger entries into and exits from poverty. We decompose the poverty rate and examine how the number of entries into and exits from poverty relate to changes in the poverty rate over time. This decomposition answers questions such as “In periods where poverty rates remained high, was it because the number of entries and exits were high or low?”
In analyzing events that trigger entries into and exits from poverty, we use both descriptive statistics and discrete-time multivariate hazard models. The events examined are motivated by the conceptual model, and include changes in household composition, labor supply, disability status, educational attainment, and economic conditions. Our multivariate approach disentangles the relationship between one event and poverty transitions from that of other events and demographic characteristics, thereby providing information about the role specific events play in individuals' entries into and exits from poverty. Several studies have examined the relationship between events and poverty transitions, but most use only descriptive analyses. While informative, descriptive analyses provide limited information because individuals can experience more than one event at a time, thereby making it impossible to disentangle the relationship between one event and a poverty transition from that of other events or demographic characteristics. This study also examines whether the events that trigger poverty entries and exits differ for long versus short spells of poverty and whether they have changed over time.
We examine poverty transitions using two nationally representative longitudinal data sets. We use yearly data from the 1975 panels of the Panel Study of Income Dynamics (PSID) and monthly data from the 1988, 1990, and 1996 panels of the Survey of Income and Program Participation (SIPP). Our analysis of PSID data includes an examination of whether trigger events differ for persons entering/exiting poverty spells of four or less years (short spells) and more than four years (long spells). And, using the SIPP, we examine whether the trigger events differ in the 1988-92 period—prior to welfare reform—and the 1997-99 period—after welfare reform. Our three research questions and findings are discussed below.
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. The dynamics behind these changes in the poverty rate illustrate that, not surprisingly, the number of people entering poverty is greater than the number of people exiting poverty when the poverty rate is increasing and vice versa when the poverty rate is decreasing.
The number of people entering and exiting poverty remained relatively constant from 1975 until the early 1990s, when both jumped dramatically. 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 both were low. Many people were cycling in and out of poverty. But this has not always been the case. A look at the early-to-mid 1980s, another period where poverty rates remained high, finds the number of people entering and exiting poverty comparatively low. In general, 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.
Many events throw people into poverty and many events help people exit from poverty. There appears to be no single path into or out of poverty. We find that household events—including changes in composition, employment, and disability status—are important, as well as economic conditions. These findings suggest that multiple policies can be considered to help alleviate poverty.
Descriptive statistics suggest that those who shift from a two-adult household to a female-headed household and vice versa are the most likely to transition in and out of poverty, although individuals experiencing all of these trigger events are more likely to enter and exit poverty than those not experiencing the events. While the multivariate results confirm that many events affect individuals’ likelihood of entering and exiting poverty, a different event is identified as most important in poverty transitions. Individuals living in a household that experience a loss or gain of employment are the most likely to enter and exit poverty, followed by individuals in households that shift from being headed by two adults to being headed by only a female, and vice versa. Controlling for household characteristics and other variables reduces the observed relationship between household structure shifts and poverty, and employment changes emerge as being 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.
Consistent with the findings from the total sample, changes in employment are also identified as most important in individuals' entries into and exits from long and short poverty spells. We do, however, find some differences across the two groups. For example, we find that a spouse’s employment loss is related to entries into short poverty spells, but not long poverty spells. And, that employment gains of other household members are more important for exiting a long versus short poverty spell.
A comparison of the 1988/1990 and 1996 SIPP panel results shows many similarities, but one substantial difference. Over the 1988-92 (i.e., 1988/1990 SIPP panel) to 1997-99 (i.e., 1996 SIPP panel) time period, shifts from two-adult to female-headed households and vice versa—measured while controlling for shifts in employment—became less important in individuals' poverty transitions. Further analysis suggests that 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.
We find the likelihood of entering or exiting poverty is highest for persons living in households with employment changes. In the pre-1996 period, this is followed by persons living in households with a shift in headship, but this event has a relatively small relationship with poverty transitions in the 1997-99 time period. The monthly SIPP results highlight the role that completing an educational degree can play in helping individuals to exit poverty.
The likelihood of entering poverty is relatively similar for the annual and monthly data. It ranges from an average of roughly two percent for the total PSID and SIPP samples to a high of nearly 17 percent for persons living in households where the head loses employment. The likelihood of exiting poverty differs in the annual and monthly data. In the annual PSID data, it ranges from an average of 35 percent for the total sample to a high of 65 percent for persons living in households where the spouse gains employment. In the monthly SIPP data, it ranges from the sample average of roughly 10 percent to a high of 38 percent for persons living in households with employment gains.
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, using PSID data, 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.
This study’s main descriptive finding—that persons who experience a major shift in household structure are the most likely to transition into and out of poverty—is somewhat overlooked in the literature because most studies examine events only among those who enter or exit poverty. In doing so, these studies place emphasis on the likelihood of experiencing an event among poor persons rather than on the likelihood of entering/exiting poverty among persons who experience an event. Since the likelihood of experiencing a shift from a two-adult to a female-headed household or vice versa is low, especially relative to the likelihood of experiencing a change in employment, the shift in household structure appears less important than a change in employment. As descriptive analyses by Ruggles and Williams (1987) and Duncan and Rodgers (1988) find, major changes in household composition are rare, but they are associated with large changes in the likelihood of a change in poverty status when they do occur.
The main finding from the multivariate analyses—that changes in employment, not household composition, are the most strongly related to poverty transitions—is a new finding in that earlier studies have not examined the relationship between household events and poverty in a multivariate framework. Changes in employment are even more important in the recent 1997 to 1999 time period—after federal welfare reform and during a booming economy—than in the 1988 to 1992 time period. In addition, changes in household composition—measured while controlling for changes in employment—became less important in this time period. Future research should examine how these events differ for important subgroups in the population such as children and minorities.
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