Transition Events in the Dynamics of Poverty. Descriptive Analysis

09/01/2002

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).

 

Table 4—Summary Statistics for Persons at Risk of Entering Poverty
Entry Trigger Events

Entry Trigger Events

PSID SIPP
Event Mean Enter Poverty 1998 & 1990 1996
Event Mean Enter Poverty Event Mean Enter Poverty
  (1) (2) (3) (4) (5) (6)
Total Sample   3.36   1.07   1.25
Change in Household Composition
Child under age 6 enters household 4.8 5.73 0.47 5.93 0.38 6.48
Two-adult becomes female-headed household 1.74 12.4 0.11 27.94 0.1 20.05
Young adult sets up own household 1.23 5.18 -- -- -- --
Change in Labor Supply
Loss of employment, head 2.61 6.41 0.44 17.84 0.7 19.2
Loss of employment, wife 6.54 5.38 0.84 6.97 0.75 10.47
Loss of employment, others in household 6.92 4.54 1.2 6.45 1.24 8.83
Change in Disability Status
Head becomes disabled 5.51 6.76 0.81 4.03 0.45 6.36
 
Number of person-years/months 217,427   2,034,658   2,211,724
Number of persons 20,741   97,936   93,267
Notes:  Table presents weighted means multiplied by 100. Summary statistics based on person-years for the PSID and person-month for the SIPP. Events are measured as a change between time t and t-1, where t is measured in years for the PSID and months for the SIPP. Summary statistics for changes in economic status and control variables are shown in Appendix Table B1.

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.

 

Table 5—Summary Statistics for Persons at Risk of Exiting Poverty
Exit Trigger Events
Exit Trigger Events PSID SIPP
Event Mean Exit Poverty 1988 & 1990 1996
Event Mean Exit Poverty Event Mean Exit Poverty
  (1) (2) (3) (4) (5) (6)
Total Sample   35.8   10.9   9.1
Change in Household Composition
Female-headed becomes two-adult household 1.4 55.7 0.2 65.2 0.1 51.9
Change in Labor Supply
Gain of employment, head 10.4 38.9 1.7 36.9 2.9 37.6
Gain of employment, wife 6.2 42.5 1.1 39.3 1.2 46.8
Gain of employment, others in household 10.5 39.5 1.7 40.3 1.8 40.5
Change in Disability Status  
Head ceases to be disabled 8.8 39.8 0.4 30.4 0.8 21.7
Change in Education with stable household composition
Head graduated high school 0.6 44.1 0.2 26.8 0.2 23.4
Head received associates degree or higher 0.3 34.9 0.1 32.3 0.1 33.3
 
Number of person-years/months 35,445   272,639   517,902
Number of persons 7,948   27,409   40,153
Notes:  Table presents weighted means multiplied by 100. Summary statistics based on person-years for the PSID and person-month for the SIPP. Events are measured as a change between time t and t-1, where t is measured in years for the PSID and months for the SIPP. Summary statistics for changes in economic status and control variables are shown in Appendix Table B2.

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.

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