Transition Events in the Dynamics of Poverty. Likelihood of Entering and Exiting Poverty Over Time

09/01/2002

The likelihood of entering and exiting poverty in each year, from the mid-1970s through the mid-1990s, is presented in Table 3. Our analysis of PSID data suggests that the likelihood of entering poverty averaged 2.8 percent in the mid-to-late 1970s, 3.0 percent in the 1980's, and 4.2 percent in the early to mid-1990s, a substantial jump from the previous decades (Table 3, column 1). These estimates of poverty entry in the 1970s and 1980s are similar to estimates in the early 1990s by Eller (1996) and Naifeh (1998). Eller and Naifeh both find a roughly three percent likelihood of entering poverty per year, using SIPP data from the early 1990s. We find, however, a substantial jump in the likelihood of entering poverty to 7.4 percent in 1993—the year in which poverty rates hit record highs. Poverty entry rates were somewhat lower in 1994 through 1996—3.8 to 4.3 percent—but remained higher than the rates experienced over the 1970s and 1980s.

The likelihood of exiting poverty has fallen somewhat across the three decades examined. The likelihood of exiting poverty averaged 39.3 percent in the mid to late 1970s, 35.5 percent in the 1980's, and 34.4 percent in the early to mid 1990s (Table 3, column 2). These estimates are considerably higher than estimates by Eller (1996) and Naifeh (1998), who use SIPP data. They find that the likelihood of exiting poverty was between 22 and 24 percent per year in the early 1990s. Interestingly, as the likelihood of entering poverty was increasing during the 1991 through 1993 period, the likelihood of exiting poverty was declining. For example, the likelihood of exiting poverty stood at 36.0 percent in 1990 and fell to 30.8 percent in 1993. While the likelihood of exiting poverty declined through the early 1990s, it increased to 43.3 percent in 1994. Consistent with results in Table 2, we find that the early to mid 1990s look different than earlier periods. The likelihood of entering poverty was substantially higher, on average, than in the prior one and a half decades and the likelihood of exiting poverty was slightly lower.

 

Table 3—PSID Data:
Likelihood of Entering and Exiting Poverty Over Time
  Likelihood of:
Year entering poverty exiting poverty
1976 3.0 40.7
1977 2.7 37.3
1978 2.7 38.6
1979 2.9 40.8
Avg. 1976-1979 2.8 39.3
1980 3.2 34.8
1981 3.6 32.5
1982 3.2 34.3
1983 2.9 33.2
1984 3.2 44.0
1985 3.3 35.5
1986 2.5 35.3
1987 2.5 30.5
1988 2.9 34.2
1989 2.9 40.6
Average 1980s 3.0 35.5
1990 3.1 36.0
1991 3.0 33.1
1992 3.7 32.0
1993 7.4 30.8
1994 4.3 43.3
1995 4.1 38.7
1996 3.8 26.9
Average 1990-1996 4.2 34.4
Note:  Numbers multiplied by 100.

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. Analysis of poverty entries and exits over these two decades 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.

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