The Interrelationships between the Europe 2020 Poverty and Social Exclusion Indicators

The aim of this paper is to analyse dynamically the three indicators of poverty and social exclusion covered by the EU2020 poverty target, while focusing on state dependence and feedback effects. We are interested in learning the extent to which the fact of being at risk of poverty, severe material deprivation or low work intensity in a given year is related to having the same status one year on, and whether being at risk in one domain in one year is a predictor of being at risk in one of the other domains in subsequent years. Our results are based on data from the EU-SILC for eight countries and indicate that the three social indicators of the EU2020 strategy capture different aspects of economic hardship in the majority of European countries analysed. We show that the three phenomena are affected by a considerable degree of genuine state dependence, but there is weak evidence for one-year lagged feedback effects—apart from in Hungary and Poland, where feedback loops between the three segments are to be found. Mostly, interrelationships occur at the same point in time via current effects, initial conditions and correlated unobserved heterogeneity. In terms of policy implications, our results suggest that the three phenomena should be addressed by different interventions while it is expected that spill-over effects across time will be marginal.