Measuring Vulnerability to Poverty with Latent Transition Analysis

In last years, the debate about social and economic development considered with increasing interest the exposure to the risk of poverty rather than poverty itself. The risk for an individual or a household to become or remain poor in an immediate future is defined as vulnerability to poverty. According to the recent literature, poverty is a complex phenomenon requiring an operationalisation that takes into account its multidimensionality, encompassing both objective and subjective elements. Due to the latent nature of poverty, it is possible to study this construct by analysing a set of manifest indicators. Focusing on vulnerability to poverty, a forward-looking perspective has also to be considered for depicting the dynamicity of the analysed phenomenon. For these reasons, here we propose to use latent transition analysis (LTA) to study vulnerability to poverty. This approach allows identifying unobservable (latent) classes within a population based on the responses to multiple observed variables. Moreover, it allows evaluating the movement between different classes over time, in terms of probability of transition. This probability can be used to estimate vulnerability to poverty. The usefulness of LTA in this context is showed by presenting a case study concerning Italian households over 2008–2012.