New research from the Institute for Social and Economic Research (ISER), published in
the latest issue o f the Economic Journal, shows that being poor in one year in itself
increases the chances of remaining poor the next year, irrespective of household
circumstances and characteristics. Similarly, not being poor one year in itself lowers the
chances of falli ng into poverty the next year.
These findings challenge the conventional view that differences in household
circumstances and personal characteristics are the principal explanation for differences
in the rate of poverty persistence across individuals – that is, the probability of
remaining poor from one year to the next. The research finds that poverty persistence
rates among British adults of working age can differ substantially from the average rate,
which is almost 6 in 10 (59%). For example, for lone parents, the poverty persistence
rate is around 70%; among childless married couples, the rate is 53%; and it is lower
still for adults in households with more than one worker.
But these differences are not the full story. Almost 60% of the probability of remaining
poor from one year to the next can be ascribed to the scarring effect of poverty itself,
rather than to differences in household circumstances and characteristics.
Dr Lorenzo Cappellari, co-author of the study, comments:
‘The reasons why being poor has this scarring effect are likely to lie in the labour
market. Poverty among working age people is closely associated with low work
attachment. Employers hiring staff may use existing non-employment as a signal
of relatively low productivity and choose others in preference. Or being out of the
labour market - whether unemployed or as family carer - may lead to
depreciation of individuals’ skills and productivity, making them less likely to be
hired. Or being poor may simply reduce individuals’ motivation and change their
attitudes in such a way as to make them remain poor.’
Professor Stephen Jenkins, co-author of the study, comments
‘From a policy viewpoint, the results suggest that policies directed generally at
reducing low income rates and also keeping people from falling back into poverty
will have positive feedback effects. Anti-poverty programmes that are targeted at
specific groups of individuals – such as the New Deal – can indeed be beneficial
in terms of lowering poverty persistence and poverty entry rates, particularly the
latter, according to our results. But there is a limit to the effectiveness of this type
of policy since part of the poverty problem is the scarring effect of low income
itself.’
The study is based on data from British Household Panel Survey (BHPS) covering
1991-9, focusing on the experience of working-age adults (those aged 20-59 years).
Individuals were classified as being poor according to a definition similar to that used by
the official poverty statistics of the DWP (that is, being in a household with an income
that is below 60% of median national income in the given year). The findings are
derived from statistical models of the probability of remaining poor from one year to the
next and of the probability of falling into poverty.
ENDS
Note for Editors: ‘Who Stays Poor? Who Gets Poor? Evidence from the British
Household Panel Survey’ by Lorenzo Cappellari and Stephen Jenkins is published in
the March 2002 issue of the Economic Journal.
For Further Information: contact RES Media Consultant Romesh Vaitilingam on 0117-
983-9770 or 07768-661095 (email: romesh@compuserve.com).