Transition Events in the Dynamics of Poverty. 1. Probabilities Associated with Entries into, Exits from, and Reentries into Poverty

09/01/2002

Poverty Entries

The literature examining entry rates into poverty is somewhat limited, particularly as compared to studies that examine exits from poverty. Nonetheless, several studies have examined entries into poverty. The rate of entry into poverty for the total U.S. population during the early 1990s has been estimated at roughly three percent per year. Using SIPP data, Eller’s (1996) analysis suggests that 3.0 percent of all people entered poverty in 1993 (p. 5). Naifeh (1998), also using SIPP data, finds a very similar entry rate of 3.2 percent during the 1993-94 period (p. 6).(9) Both researchers find that blacks, Hispanics, female-headed families, and children are the groups most likely to enter poverty.

Researchers also use PSID data to study poverty entry. Rank and Hirschl (1999a and 1999b) use the PSID to estimate the proportion of the population that will have experienced poverty by a particular age, rather than estimating entry rates for a particular year. Using a life table based approach, they find that 27.1 percent of adults will have experienced poverty by age 30, 41.8 percent will have experienced poverty by age 50, and 51.4 percent will have experienced poverty by age 65 (Rank and Hirschl 1999b, p. 206). Consistent with the findings of Eller (1996) and Naifeh (1998), Rank and Hirschl find that blacks are more likely to experience poverty than whites.

Poverty Exits

PSID. Some of the key papers in the literature examine exits from poverty. Bane and Ellwood (1986), Stevens (1994), and Stevens (1999) examine poverty exit rates using the PSID, while papers by Eller (1996) and Naifeh (1998) examine exit rates using the SIPP. The three PSID studies produce similar results. In general, the results suggest that the longer a person has been poor, the less likely it is that he or she will escape poverty. Using the 1970-82 waves of the PSID, Bane and Ellwood find that the probability of exiting a poverty spell starts at 0.45 for one-year spells, falls to 0.29 for two-year spells, and falls further to 0.21 for four-year spells. Using an additional six waves of the PSID, Stevens replicates Bane and Ellwood's results. Stevens also reestimates the exit probabilities on data that are not smoothed to eliminate some one-year spells, a procedure used by Bane and Ellwood,(10) and obtains slightly higher exit probabilities: 0.53 for one-year spells, 0.36 for two-year spells, and 0.23 for four-years spells.

SIPP. The SIPP data examined in the literature contain a maximum of 44 months of information, so the exit probabilities estimated by Eller (1996) and Naifeh (1998) based on SIPP data are not directly comparable to those based on PSID data. Using the 1991 and 1992 SIPP panels, Eller calculates the proportion of persons who were poor in 1992, but no longer poor in 1993. Unlike Bane and Ellwood (1986) and Stevens (1994, 1999), persons defined as poor in 1992 have various poverty spell lengths. Eller finds 21.6 percent of persons exited poverty between 1992 and 1993. This estimate is similar to that found by Naifeh, who calculates an exit rate of 23.8 during 1993-94 using the 1993 SIPP panel.

Sub-groups. Poverty exit rates have been found to be quite different across population sub-groups. Analyses carried out separately by race show that poverty exit rates are higher for whites than for blacks (Eller 1996, Naifeh 1998, Stevens 1999). Stevens (1994) examines whether the growth rate in real GDP differentially affects whites’ and blacks’ probability of exiting poverty, and finds that GDP growth has a smaller impact on the probability of escaping poverty for blacks than for whites. In other words, a strong economy reduces poverty among whites to a greater degree than it reduces poverty among blacks. Persons age 65 and over and persons living in central cities also have lower exit rates from poverty (Naifeh), while persons with greater education levels have higher exit rates (Iceland 1997b, Stevens 1999). Several studies have also examined exits from poverty by type of household head, such as female-headed or married-couple household, and in general find that households headed by females are disproportionately less likely to exit poverty (Eller, Naifeh, Stevens 1994).(11)

Over Time. Stevens (1994) also examines how exits from poverty changed over the period from 1970 to 1987. She finds that during this period, households headed by females experienced decreases in mobility from poverty, while households headed by males experienced no significant change in mobility from poverty. These differences across gender occur for households headed by both whites and blacks. Stevens investigates whether the decreased mobility for female-headed households can be explained by changes in the characteristics of these households or by differences in the events leading into our out of poverty, but finds no solid evidence of either.

Poverty Reentry

Once an individual exits poverty, are they likely to reenter? Stevens (1994, 1999) examines reentries into poverty and finds relatively high reentry rates. She finds that the probability of entering a poverty spell is 0.27 after being out of poverty one year, 0.16 after being out of poverty for two years, and 0.08 after being out five years. With these reentry rates, she calculates that more than one-half of those who previously escaped poverty will return to poverty within five years (Stevens 1994, p.36). For the subset of persons who were poor for at least five years before exiting, more than two-thirds will return to poverty within five years (Stevens 1994, p.37). Consistent with findings on entry and exit rates by race, Stevens (1999) finds that blacks have a higher reentry rate than whites. Households headed by females and by individuals with less than a high school education are also more likely to reenter poverty. Examining trends in reentry rates, Stevens (1994) finds that the tendency to experience repeated poverty spells has increased between 1970 and 1987 for people living in households headed by white females.

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