# Transition Events in the Dynamics of Poverty. III.2. Poverty Rate

The poverty rate measures the percentage of the population living below the poverty line during some fixed time interval, usually a year. While the poverty rate itself is a static measure, much can be learned by decomposing the poverty rate to look at the dynamics behind its year to year changes. Equation 1 below provides such a poverty rate decomposition:

[1]

The numerator of the decomposed poverty rate breaks down the number of people living in poverty at the time of interest, T. It says the number of people in poverty at time T is the number of people who were in poverty at some initial time (Np,0), plus the number of people who have entered poverty since the initial time period, minus the number of people who have exited poverty since the initial time period. The denominator breaks down the number of people in the population at the time of interest, T, in a similar manner. It says the number of people in the population at time T is the number of people who were in the population at some initial time (N0), plus the number of people who have entered the population (through births or immigration) since the initial time period, minus the number of people who have exited the population (through deaths or emigration) since the initial time period.

The decomposed poverty rate highlights the variables responsible for changes in the poverty rate: the number of people who enter and exit poverty and the number of people who enter and exit the population. It will be used to help us answer one of our primary research questions: What are the dynamics behind changes in the poverty rate over time? We now turn to the empirical model.

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