This study sheds light on three questions that remain largely unanswered in the poverty literature:
- What are the dynamics behind changes in the poverty rate over time?
- What events increase individuals' likelihood of entering and exiting poverty? Have these events changed over time? Do the events differ for short and long poverty spells?
- What is the likelihood of entering and exiting poverty given these different events?
These questions and our contribution to the literature are discussed below.
What are the dynamics behind changes in the poverty rate over time?
The poverty rate is a static statistic that measures the percentage of the population living below the poverty line during some fixed time interval, usually a year. While the poverty rate in a particular year provides information about the prevalence of poverty, what we learn from the poverty rate is limited. In particular, it does not provide information on the dynamics of poverty (i.e., transitions into and out of poverty). The numerous studies on poverty dynamics do not tie dynamics to changes in the overall poverty rate. Our analysis decomposes the poverty rate providing a better understanding of changes in the poverty rate over time. This analysis allows us to answer questions such as “In periods where poverty rates remained high, was it because the number of entries and exits were high or low?”
What are the events that increase individuals' likelihood of entering and exiting poverty?
While several studies examine the relationship between events and poverty transitions, most use only descriptive analyses (Bane and Ellwood 1986, Blank 1997, Duncan 1984, Duncan and Rodgers 1988, Ruggles and Williams 1987). Descriptive analyses examining this relationship are somewhat problematic because this approach does not identify the relative importance of the different events in individuals' transitions. We add to the literature by using a multivariate framework to examine how events such as changes in marital status, disability status, and employment status affect poverty entries and exits. This multivariate approach allows us to disentangle the relationship between one event and poverty transition from that of other events or demographic characteristics. We further add to the literature by examining whether the events that trigger poverty entries and exits have changed over time and whether these events differ for long versus short spells of poverty.
What is the likelihood of exiting and reentering poverty given these different events?
Our framework for examining what events increase individuals' likelihood of entering and exiting poverty (question 2) allows us to easily calculate how the probability (i.e., the likelihood) of entering and exiting poverty is affected by different events. We also examine how the probabilities have changed over time and the extent to which they differ for long and short spells of poverty.