Transition Events in the Dynamics of Poverty. What is the likelihood of entering and exiting poverty given these different events?


We find the likelihood of entering or exiting poverty is highest for persons living in households with employment changes. In the pre-1996 period, this is followed by persons living in households with a shift in headship, but this event has a relatively small relationship with poverty transitions in the 1997-99 time period. The monthly SIPP results highlight the role that completing an educational degree can play in helping individuals to exit poverty.

The likelihood of entering poverty is relatively similar for the annual and monthly data. It ranges from an average of roughly two percent for the total PSID and SIPP samples to a high of nearly 17 percent for persons living in households where the head loses employment. The likelihood of exiting poverty differs in the annual and monthly data. In the annual PSID data, it ranges from an average of 35 percent for the total sample to a high of 65 percent for persons living in households where the spouse gains employment. In the monthly SIPP data, it ranges from the sample average of roughly 10 percent to a high of 38 percent for persons living in households with employment gains.


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, using PSID data, 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.

This study’s main descriptive finding—that persons who experience a major shift in household structure are the most likely to transition into and out of poverty—is somewhat overlooked in the literature because most studies examine events only among those who enter or exit poverty. In doing so, these studies place emphasis on the likelihood of experiencing an event among poor persons rather than on the likelihood of entering/exiting poverty among persons who experience an event. Since the likelihood of experiencing a shift from a two-adult to a female-headed household or vice versa is low, especially relative to the likelihood of experiencing a change in employment, the shift in household structure appears less important than a change in employment. As descriptive analyses by Ruggles and Williams (1987) and Duncan and Rodgers (1988) find, major changes in household composition are rare, but they are associated with large changes in the likelihood of a change in poverty status when they do occur.

The main finding from the multivariate analyses—that changes in employment, not household composition, are the most strongly related to poverty transitions—is a new finding in that earlier studies have not examined the relationship between household events and poverty in a multivariate framework. Changes in employment are even more important in the recent 1997 to 1999 time period—after federal welfare reform and during a booming economy—than in the 1988 to 1992 time period. In addition, changes in household composition—measured while controlling for changes in employment—became less important in this time period. Future research should examine how these events differ for important subgroups in the population such as children and minorities.

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