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The author proposes analyzing the dynamics of income positions using dynamic panel ordered probit models. The author disentangles, simultaneously, the roles of state dependence and heterogeneity (observed and non-observed) in explaining income position persistence, such as poverty persistence and affluence persistence. The author applies the approach to Chile exploiting longitudinal data from the P-CASEN 2006–2009. First, the author finds that income position mobility at the bottom and the top of the income distribution is much higher than expected, showing signs that income mobility in the case of Chile might be connected to economic insecurity. Second, the observable individual characteristics have a much stronger impact than true state dependence to explain individuals’ current income position in the income distribution extremes.

The purpose of this paper is to examine the determinants of poverty and the persistence of poverty in Benin using a longitudinal data for the years 2006-2011. The paper also seeks to understand the dynamic of poverty and what factors explain households’ mobility across poverty status over time.

To answer the research questions, the paper develops and estimates logit and probit models of poverty. In addition to households’ characteristics as explanatory variables, the models control for the previous years’ poverty status to test for the hypothesis of persistence in poverty. Next, the paper extends the analysis to compute poverty transition matrix and estimates a multinomial models of the determinants of these transitions.

The paper finds that households’ demographic and socio-economic characteristics are strongly correlated with their poverty status. It also finds a strong evidence of persistence of poverty: being poor in a year increases the likelihood of remaining poor in the following years. The analysis of the dynamic of poverty reveals that there is a large and rapid change in poverty with households moving in and out of poverty. Across all models, it appears that human capital accumulation through education and labor skills are the strongest forces lifting households out of poverty and persistence of poverty.

Taken together, the results suggest that public policies should not only seek to lift households out of poverty, but also seek to reduce re-entries into poverty by investing in education and improving employment skills.

A key contribution of the study is the characterization of the profile of poor and persistently poor households in Benin, and the analysis of the factors explaining the dynamic of poverty. It updates and complements previous studies on poverty in Benin using the most recent nationally representative longitudinal data. The findings stress the crucial importance of human capital as a key force to lift households out of poverty.

We consider the link between poverty and subjective well-being, and focus in particular on the role of time. We use panel data on 49,000 individuals living in Germany from 1992 to 2012 to uncover three empirical relationships. First, life satisfaction falls with both the incidence and intensity of contemporaneous poverty. Second, poverty scars: those who have been poor in the past report lower life satisfaction today, even when out of poverty. Last, the order of poverty spells matters: for a given number of years in poverty, satisfaction is lower when the years are linked together. As such, poverty persistence reduces well-being. These effects differ by population subgroups.

We analyse the determinants of poverty transitions, defined as movements across a low-income threshold, in Luxembourg. Data used are those from the Luxembourg socio-economic panel ‘Liewen zu Lëtzebuerg’ (PSELL3) running from 2003 to 2009. Using an endogenous switching first-order Markov model, we control for potential endogeneity to low-income transitions due to both initial conditions and non-random attrition. We find that employment protects from both remaining poor and entering poverty while several characteristics of the head of the household, such as low education or citizenship, and also household composition and housing tenure status are correlated to poverty entry but not to poverty persistence. In addition, attrition and initial low income are found to be endogenous processes with respect to low-income transitions. Finally, genuine state dependence accounts for a substantial level of aggregate state dependence.

The paper analyses the effects of individual and household characteristics on current poverty status, while controlling for initial conditions, past poverty status and unobserved heterogeneity in 14 European countries for the period 1994–2001, using the European Community Household Panel. The distinction between true state dependence and individual heterogeneity has important policy implications, since if the former is the main cause of poverty it may be crucial to break the ‘vicious circle’ of poverty using income-supporting social policies, whereas if it is the latter anti-poverty policies should focus primarily on education, training, development of personal skills and other labour market oriented policies. The empirical results are similar in qualitative terms but rather different in quantitative terms across the EU countries covered in the paper. State dependence remains significant in all model specifications, even after controlling for unobserved heterogeneity or when removing possible endogeneity bias. Higher poverty rates and higher poverty persistence are associated with particular welfare state regimes, although the link is substantially weakened when other explanatory variables are included in the analysis.

Poverty dynamics and the ability of the Italian welfare system to reduce poverty are investigated by using the 1991‐1995 panel of the Bank of Italy’s Survey of Household Income and Wealth. Households most exposed to poverty live in the South, have a larger size, a young or female head, with a low educational level or a discontinuous work profile. The dynamic and static effectiveness (in terms of poverty reduction) of social transfers is analysed, as well as the factors affecting exclusion from the safety net. A closer look is taken at the effects of a minimum income guarantee in the experimental phase in Italy.

Poverty and informal employment are often regarded as correlated phenomena. Many empirical studies have shown that informal employment has a causal impact on household poverty, mainly through low wages. Yet other studies focus on the reverse causality from poverty to informality, arising from a range of constraints that poverty poses to jobholders. Only recently have empirical researchers tried to study the simultaneous two-way relationship between poverty and informality. However, existing studies have relied upon cross-sectional data and static econometric models.

This chapter takes the next step and studies the dynamics of poverty and informality using longitudinal data. Our empirical analysis is based on a bivariate dynamic random-effect probit model and recent panel data from Argentina. The method used provides a means of assessing the persistence over time of poverty and informal employment at the individual level, while controlling for both observed and unobserved determinants of the two processes. The results show that both poverty and informal employment are highly persistent processes. Moreover, positive spillover effects are found from past poverty on current informal employment and from past informality to current poverty status, corroborating the view that the two processes are also shaped by interrelated dynamics in segmented labor markets.

This paper investigates the effect of household size, and in particular of the number of children of different age groups, on poverty, defined as being in a situation of low income. We apply various static and dynamic probit models to control for the endogeneity of the variables of interest and to account for unobserved heterogeneity, state dependence, and serially correlated error components. Using Luxembourg longitudinal data, we show that the number of children of different age groups significantly affects the probability of being poor. However, the magnitude of the effect varies across different specifications. In addition, we find strong evidence of true poverty persistency due to past experience, spurious poverty persistency due to individual heterogeneity, and transitory random shocks.

The purpose of this paper is to investigate the determinants of the probability of low income for households with disabled members in Italy, over the period 2004‐2007, with special focus on the role of persistence.

Households with disabled members are compared with those without disabled members, and those with disabled members temporary limited. Alternative definitions of disability are considered. The probability of low income is estimated adopting dynamic probit models accounting for unobserved heterogeneity, state dependence and endogenous initial conditions.

Evidence is found of significant true state dependence for households with disabled members. However, true state dependence does not significantly differ from that of other households. The probability of low income for households with disabled members is also determined by some structural variables, such as employment of disabled individuals, living in the South, household's partner employment and household size.

In the short run, money transfer is effective to lift households with disabled members from low income and to prevent the risk of low income in the future. Structural policies are possibly relevant in reducing the long‐term risk of low income. These include interventions to favour employment of disabled members and development of caring services for disabled members to free family members for outside work.

Not much is known about how disability affects the conditions of households with disabled members. The paper contributes to this literature with a novel analysis of low income persistence, providing some policy suggestions.

Immigrant and native child poverty in Denmark, Norway, and Sweden 1993–2001 is studied using large sets of panel data. While native children face yearly poverty risks of less than 10 percent in all three countries and for all years studied the increasing proportion of immigrant children with an origin in middle- and low-income countries have poverty risks that vary from 38 up to as much as 58 percent. At the end of the observation period, one third of the poor children in Norway and as high as about a half in Denmark and in Sweden are of immigrant origin. The strong overrepresentation of immigrant children from low- and middle-income countries when measured in yearly data is also found when applying a longer accounting period for poverty measurement. We find that child poverty rates are generally high shortly after arrival to the new country and typically decrease with years since immigration. Multivariate analysis shows that parents years since immigration and education affect risks of the number of periods in persistent poverty. While a native child is very unlikely to spend nine years in poverty, the corresponding risk for a child to a newly arrived immigrant was found to be far from negligible. Much of the pattern is similar across the three countries but there are also some notable differences.