Middle Class,Government Effectiveness and Poverty in the EU: A Dynamic Multilevel Analysis

Using the 2008-2011 EU-Statistics on Income and Living Conditions data, we implement a dynamic three-level model to analyze poverty persistence in 26 EU countries. We isolate true state dependence phenomena by disentangling the effects of observed and unobserved heterogeneity at country level and employ cofactors not previously considered by the literature. Estimates show that unobserved heterogeneity across individuals remains large, even after explicitly controlling for the observable components of individual characteristics. The initial value of poverty has large effects on current poverty status but this effect is not uniform across countries. The risk of poverty is negatively related to the size of the structural middle class and to the level of structural social expenditure but it increases when lagged total public expenditure increases (with respect to the structural value). There is strong evidence of true state dependence.     

Youth Poverty,Employment, and Leaving the Parental Home in Europe

This paper studies the nature of youth poverty dynamics in Europe. First, it analyzes to what extent experiencing poverty in a given period is in itself positively related to the probability of living below the poverty line again in the future. That is, we assess the degree of poverty genuine state dependence among young people. Second, we study the interrelationships between poverty, employment, and residential emancipation. The results show that youth poverty genuine state dependence is positive and highly significant, but this scarring effect is short‐lived in Scandinavia compared to Southern or Continental Europe. Moreover, although we find a strong association between poverty and leaving home in Nordic countries, time spent in economic hardship does not last long. On the contrary, in Spain and Italy, young adults tend to leave their parental home much later in order to avoid falling into a poverty state that is more persistent.     

Patterns of poverty among elderly Americans: a latent class Markov model

This article studies poverty persistence and the role of social security programmes on poverty among elderly in the US. We use a Latent Markov model to disentangle unobserved heterogeneity and state dependence. Because of its dynamic nature, unobserved heterogeneity is modelled to vary over time. This allows to capture different latent states of poverty that change over time. Result indicates the existence of three unobserved types evolving over time according to their propensity to be poor. Moreover, a strong persistence in poverty especially for women, individuals living alone and ethnic minorities is found. Finally, the estimates indicate that giving social assistance tends to reduce poverty.     

State dependence,serial correlation and heterogeneity in the union membership dynamics

In order to distinguish the true and spurious state dependence from the complicated dynamics of union membership, the simulation estimators incorporating the lagged dependent variables, unobserved individual heterogeneity and correlations among the errors are implemented in this article to study union membership dynamics. It is found that the true state dependence of union membership under multivariate t assumption is much higher than the standard dynamic panel probit estimators which are under multivariate normal assumptions. On the other hand, the spurious state dependence (the variance of the unobserved individual heterogeneity) is estimated to be higher when using the standard dynamic panel probit estimators than under multivariate t assumption. Moreover, blacks and married men are found to have higher union membership true state dependence than whites and unmarried men.     

Does low‐pay persist across different regimes? Evidence from German Unification

Using German administrative data, we study across‐regime low‐pay persistence in the context of an economic transformation process. We first show that individuals' initial allocation to the post‐unification low‐wage sector was close to random in terms of market‐regime unobservables. Consistent with a weak connection between individuals' true productivity and their pre‐unification low‐wage status, the extent of across‐regime state dependence is found to be small and appears to vanish over time. For males, across‐regime state dependence is most pronounced among the medium‐ and high‐skilled, suggesting the depreciation of human capital as an explanation.     

State Dependence in Welfare Benefits in a Non-Welfare Context

This study investigates state dependence in social assistance benefits in Turkey, where benefit receipt and persistence rates have significantly increased over the past decade. We estimate state dependence through dynamic random-effects probit models, controlling for observed and unobserved heterogeneity, and endogenous initial conditions. In particular, we employ Wooldridge’s estimator to achieve consistent and correct estimates of state dependence and compare the results with estimates from Heckman’s reduced-form approach as a sensitivity check. Both estimators enable us to disentangle true state dependence from its spurious components and address the potential bias due to the short panel length. Our results suggest that the receipt of benefits in the last year increases the likelihood of benefit receipt in the current year, namely the structural state dependence, by 17.2–19.5 percentage points.     

Poverty and social exclusion: two sides of the same coin or dynamically interrelated processes?

There is growing interest in the analysis and measurement of social exclusion, to complement the static and dynamic literature on income poverty. On theoretical grounds, social exclusion and income poverty are seen as different processes, but with closely interrelated dynamics. However, our empirical understanding of the way these two processes dynamically interact at the individual level is still very limited. To shed some light on the issue, we use a dynamic bivariate probit model, controlling for unobserved heterogeneity and Wooldridge (2005)-type initial conditions. Both the first- and second-order Markov dynamics are examined. We estimate the model using the Italian sample of the European Community Household Panel (ECHP), waves 1–8, and find a sizable extent of state dependence in both poverty and social exclusion. Moreover, there are dynamic cross-effects implying that poverty and social exclusion are mutually reinforcing. Social policies aimed at eradicating poverty and avoiding individuals’ social and economic marginalization should take these interaction effects explicitly into account.     

A New Approach to Unidimensional Poverty Analysis: Application to the Tunisian Case

Fuzzy conceptualization of privation has been a step closer to more realistic handling of poverty. However, fuzzy approaches to poverty are still grounded on parametric axioms. Moreover, construction of poverty lines within these approaches still relies on ad‐hoc methods. In this paper, we advance instead a fuzzy procedure based on the non‐parametric bootstrap method, allowing us to depict fuzzy unidimensional privation states with boundaries drawn spontaneously from data. Fuzzy non‐parametric measures of privation within each state as well as a collective fuzzy non‐parametric index of poverty are derived, along with their corresponding confidence intervals. The new approach is applied to the analysis of poverty in Tunisia in 2005.     

Childbirth and poverty in Europe: A dynamic bivariate approach

We use the 2015–2018 European Union Statistics on Income and Living Conditions panel data and a dynamic bivariate probit model to estimate the impact of childbirth on the risk of poverty in 25 European countries. We model both poverty and childbirth mechanisms, identifying genuine state dependence and accounting for feedback effects from past poverty to childbirth. We find that childbirth slightly increases the risk of poverty in Europe, but some heterogeneities emerge at the country level. When disentangling the effects of childbirth conditional on past poverty status, it appears that childbirth determines redistributive effects possibly induced by welfare systems. We find evidence of genuine state dependence and suggests that discouraging factors induced by the experience of poverty itself has increased over time. The risk of poverty is triggered by the presence of dependent members in the household, while education and employment stability are helpful to combat poverty.     

A Behavior‐Based Approach to the Estimation of Poverty in India

Estimates of poverty in India are crucial inputs for the understanding of world poverty, yet there is much disagreement about the numbers and the legitimacy of methods used to derive them. In this paper, we propose and justify an alternative approach to identify the poor, which uses the proportion of income spent on food. Our estimates have weaker data requirements than official methods, and they compare favorably with several validation tests. Most notably, households around our state poverty lines obtain their calories from similar sources, whereas this is not true of official poverty lines. We also find that rates of self‐reported hunger are higher in states that we classify as poor.     

Poverty is a Public Bad: Panel Evidence From Subjective Well‐Being Data

Previous research has found that subjective well‐being (SWB) is lower for individuals classified as being in poverty. We extend the poverty‐SWB literature by focusing on aggregate poverty. Using panel data for 39,239 individuals living in Germany from 2005–2013, we show that people's SWB is negatively correlated with the regional (state‐level) poverty ratio while controlling for individual poverty status and poverty intensity. This suggests that poverty is a public bad. The negative relationship between aggregate poverty and SWB is more salient in the upper segments of the income distribution and is robust to controlling for the rate of unemployment and per capita GDP. The character of poverty as a public bad suggests that poverty alleviation is a matter not only of distributive justice, but of allocative efficiency.     

Do Scarring Effects of Low‐Wage Employment and Non‐Employment Differ BETWEEN Levels of Qualification?

This study investigates how the effects of low‐wage employment and non‐employment on wage prospects vary depending on qualification. Based on theories on signalling effects, human capital and job search, we discuss why there may be heterogeneity in state dependence in both labour market states. We find that episodes of low‐wage employment incur a significantly lower risk of future non‐employment than episodes of non‐employment for low‐qualified workers. In contrast, for workers with a middle or high level of qualification the risk of non‐employment is not significantly different when being low‐paid instead of not employed.     

Self‐employment Dynamics in Australia and the Importance of State Dependence

Using Australian labour force data, both cross‐sectional and longitudinal, this study examines the dynamics of self‐employment with a particular focus on workers transitioning between self‐employment and salaried employment, and the extent to which self‐employment is the result of workers’ observed and unobserved characteristics or is instead determined by their prior employment experience itself. Probability models of self‐employment using both pooled‐panel probit and dynamic random‐effects panel probit methods are estimated, and the results are found to be extremely sensitive to the differences in the econometric methods. Once unobserved heterogeneity and initial conditions are controlled for in the dynamic model, the importance of observed characteristics in determining self‐employment is greatly diminished. Instead, workers’ past experience in self‐employment (as opposed to salaried employment) is found to have a large favourable effect on their future self‐employment prospects. The influence of this state dependence is also considerably more important in determining self‐employment outcomes than salaried ones. Despite establishing the importance of state dependence, however, what this effect implies about why individuals choose to become self‐employed or the role that self‐employment plays in the labour market remains unresolved.     

Land rental markets and rural poverty dynamics in Northern Ethiopia: Panel data evidence using survival models

There is growing interest in understanding the links between land reforms, land markets, and poverty reduction in Africa. The study uses four‐wave panel data from the northern highlands of Ethiopia to assess the dynamics of rural poverty taking into account the status of participation of rural households in the land rental market. Applying both nonparametric (Kaplan–Meier estimator) and semi‐parametric survival models that control for duration dependence of poverty transition, results show participation and degree of participation on the supply side of the tenancy market (landlords) have highly significant and positive effect on the chances of escaping poverty while the same cannot be said about the demand side of the tenancy market (tenants). The empirical evidence also confirms that households headed by older and literate people have relatively larger exit rates from poverty as compared with households headed by younger and illiterate ones. Though transacting farmers may engage themselves in win–win rental arrangements by the time they join the tenancy market, results indicate that gains are unequal as those tenants who enter the markets from low economic leverage (were poor) are liable to face a lower margin of net gains, which may limit their ability to move out of poverty.     

Need,Merit and Politics in Multilateral Aid Allocation: A District‐level Analysis of World Bank Projects in India

We assess the targeting of foreign aid within recipient countries by employing Poisson estimations on the determinants of the World Bank's allocation of project aid at the district level in India. The evidence of needs‐based location choices is very weak as long as the poverty orientation of overall commitments is taken as the yardstick. It is only for some sectors that we find stronger indications of needs‐based allocation when combining sector‐specific commitments with corresponding measures of need. The evidence for a merit‐based allocation of World Bank aid is even weaker. We typically do not find evidence that aid allocation is affected by political patronage at the state or district level. However, the World Bank prefers districts where foreign direct investors may benefit from projects related to infrastructure.     

A NON‐PARAMETRIC MEASURE OF POVERTY ELASTICITY

We estimate the growth elasticity of poverty (GEP) using recently developed non‐parametric panel methods and the most up‐to‐date and extensive poverty data from the World Bank, which exceeds 500 observations in size and represents more than 96 percent of the developing world's population. Unlike previous studies which rely on parametric models, we employ a non‐parametric approach which captures the non‐linearity in the relationship between growth, inequality, and poverty. We find that the growth elasticity of poverty is higher for countries with fairly equal income distributions, and declines in nations with greater income disparities. Moreover, when controlling for differences in estimation technique, we find that the reported values of the GEP in the literature (based on the World Bank's now‐defunct 1993‐PPP based poverty data) are systematically larger in magnitude than estimates based on the latest 2005‐PPP based data.     

True versus spurious state dependence in firm performance

This paper analyzes the persistence of firms’ exporting behavior in a panel of German manufacturing firms using dynamic binary choice models. We distinguish between true and spurious state dependence in exports and apply fixed effects methods that allow us to verify the robustness of our results to critical assumptions on firms’ initial export status. We find robust evidence of state dependence in the current export status of firms. We also document an important role of unobserved permanent firm heterogeneity (spurious state dependence) and quantify the relative importance of different export determinants. Our results, which are consistent with the findings of previous studies on firms in developing countries and in the United States, show the presence of important sunk costs in export market entry and a depreciation of knowledge and experience in export markets. This paper benefitted substantially from three anonymous referees and Bernd Fitzenberger, one of the editors of this journal. The authors wish to thank the Centre for European Economic Research (ZEW), Mannheim, for its hospitality during the time this study was carried out. Both authors gratefully acknowledge helpful comments received at a workshop hosted by the Centre for Applied Microeconometrics, University of Copenhagen workshop, especially those from Bo Honoré. Useful discussions with Georg Licht also lead to improvements of this paper. We thank Ken Chay for sharing Gauss codes used in parts of the paper. Lastly, we would like to thank Bettina Peters, a member of the ZEW team that compiles the data set used in this study, for data guidance and numerous helpful comments. The activities of the Centre for Applied Microeconometrics are financed by a grant from the Danish National Research Foundation.     

Health status and labour market outcome: Empirical evidence from Australia

This paper uses eight waves of Australia Household, Income and Labour Dynamics data to study the issues of state dependence and the short‐run and long‐run response to health shocks on the labour market. We consider six alternative panel data binary dependent variable models with different ways of modelling labour market dynamics and individual heterogeneity. We find that the key results with regard to labour market dependence and the impacts of health shocks are sensitive to model specification and pooling of male and female samples with differences as large as sixfold. Specification analysis is conducted and favours the dynamic fixed effects logit model for separate male and female samples. Methods for evaluating dynamic response paths to a one‐time health shock for binary outcomes are also suggested and results are presented.     

BUSINESS CYCLES AND ADMISSIONS TO SUBSTANCE ABUSE TREATMENT

We study the effect of business cycles on admissions to specialty substance abuse treatment using administrative data between 1992 and 2015. We proxy business cycles with the state unemployment rate and apply a panel fixed‐effects model. While previous economic research has shown that substance abuse is counter‐cyclical, we observe no change in the total number of admissions across the business cycle. However, focusing on average effects misses important heterogeneity. In substance‐specific regressions we find statistically significant evidence that heroin‐related admissions are counter‐cyclical while stimulant‐related admissions are procyclical. Our findings add to the literature on business cycles and health. (JEL I1, J2)     

TESTING POVERTY LINES

In theory, a poverty line can be defined as the cost of a common (inter‐personally comparable) utility level across a population. But how can one know if this holds in practice? For groups sharing common consumption needs but facing different prices, the theory of revealed preference can be used to derive testable implications of utility consistency knowing only the “poverty bundles” and their prices. Heterogeneity in needs calls for extra information. We argue that subjective welfare data offer a credible means of testing utility consistency across different needs groups. A case study of Russia's official poverty lines shows how revealed preference tests can be used in conjunction with qualitative information on needs heterogeneity. The results lead us to question the utility consistency of Russia's official poverty lines.