Poverty Dynamics in Six OECD Countries

Abstract

Poverty rates are helpful indicators of the level of poverty in a country during a specific period of time. However, they do not provide important information about the extent of mobility into and out of poverty or about the length of time people remain in poverty. Whether an individual suffers poverty over a long period of time or a short period requires different policies responses. Such information would be then important for policy makers. The present study complements and extends previous work on trends in income distribution and poverty (Oxley et al., 1999) by examining more closely the dynamics of poverty. This study uses longitudinal data sets, which provide information on individual and household characteristics over time. It examines the following subject areas for six OECD countries for which suitable longitudinal data were available (Canada, Germany, the Netherlands, Sweden, the United Kingdom and the United States): - Flows into and out of poverty and “events” most closely associated with those transitions, such as getting or losing a job or experiencing divorce; - Which groups make up the short and longer-term poor; – Factors affecting the length of time individuals stay in poverty and the risk that people fall back into poverty. These issues are examined in two ways. First, tabulations give broad orders of magnitude of the flows into and out of poverty, the characteristics of the poor, the “events” associated with these transitions, the duration of poverty spells and the extent of subsequent re-entry into poverty. Second, econometric techniques allow a more precise evaluation of the factors associated with transitions, the duration of spells and the probability of re-entry. However, while these analyses provide a useful characterisation of the nature of poverty, there is no attempt to model household and individual behaviour which underlie transitions into and out of poverty. Thus, conclusions that purport to deal with structural relationships – between poverty programmes and transitions into or out of poverty, for example – need to be drawn with great care. In addition, cross-country comparability of the data is limited, providing another reason to exercise caution in interpreting the results. The paper is organised as follows. A summary of the main results is presented immediately below. A number of issues concerning the definition of income, poverty and particular characteristics of the data sets are then briefly addressed. This is followed by an overview of the various factors affecting poverty transitions using some broad indicators of poverty inflows, outflows and duration across countries. The next section looks in greater detail at the factors associated with poverty transitions, followed by an examination of duration and re-entry. Additional technical material is reported in Antolín, Dang and Oxley (1999), covering data sources, methodology and more detailed results.