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Persistent poverty in the Netherlands, Germany and the UK

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  • Fouarge, Didier
  • Muffels, Ruud

Abstract

Using panel data for the Netherlands, Germany and the UK for seven years in the late 1980s and early 1990s the paper examines the comparative evidence on longitudinal income and persistent poverty for the three countries. Elaborating on the existing methodological literature of income dynamics, a panel regression model has been estimated to arrive at population wide estimates of the population in persitent and transitory poverty in a comparative perspective. What the model actually pursues is to disentangle income over time in a permanent and transitory part. The idea behind the approach is that what really matters for people’s welfare in the long run is their permanentincome. The basic assumption is that people have a kind of latent long-term income-toneeds level from which occasional departures are possible due to temporary income shortfalls or income surpluses associated with the occurrence of events such as(un)employment, disability or illness, overtime work or working time reductions. According to this framework, poverty can be seen as a state in which permanent income falls below a predefined threshold being the long-term poverty line. The approach can therefore be helpful in estimating the size of the population in persistent poverty. When appropriate variables are added to the empirical model, it is possible to monitor the effect of socio-economic events on the permanent income-to-needs level. Following Esping-Andersen’s seminal work on welfare-state regimes, one might perceive the UK as a liberal welfare state although in a less prototypical sense as it exists in the US. Germany should clearly be considered to belong to the corporatist prototype and the Netherlands to the social-democratic type. Then, presumably, the UK has the lowest permanent income-to-needs level, the highest persistent poverty incidence and the highest income mobility. The findings confirm the presumption that permanent income is lower in a liberal welfare state as the UK although not very much lower than in the other countries. Hence, the transitory part of income is slightly larger in this liberal type of welfare state. The results also show that permanent income is more unequally distributed in the UK than in the Netherlands and Germany and that income inequalities have a less permanent character in the Netherlands. Besides, transitory shocks in income have a less permanent effect in the Netherlands than in the two other countries. The inclusion of household composition or labour market variables does not alter the main results. Viewing the effect of labour market status variables, like living in a household with a not working head, it is shown that members of these households are more likely persistent poor, particularly when the head is female. The effects of household structure on persistent poverty appear quite large. Especially, lone-parents households seem prone to persistent poverty in all three welfare regimes but single elderly particularly in the UK.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13297.

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Date of creation: 2000
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Handle: RePEc:pra:mprapa:13297

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Related research

Keywords: Persistent poverty; income dynamics; inequality; panel data; error component models; BHPS-SEP-SOEP data models;

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References

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  1. Joseph G. Altonji & Lewis M. Segal, 1994. "Small Sample Bias in GMM Estimation of Covariance Structures," NBER Technical Working Papers 0156, National Bureau of Economic Research, Inc.
  2. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
  3. Bruce Headey & Robert Goodin & Ruud Muffels & Henk-Jan Dirven, 2000. "Is There a Trade-Off Between Economic Efficiency and a Generous Welfare State? A Comparison of Best Cases of `The Three Worlds of Welfare Capitalism’," Social Indicators Research, Springer, vol. 50(2), pages 115-157, May.
  4. John M. Abowd & David Card, 1986. "On the Covariance Structure of Earnings and Hours Changes," NBER Working Papers 1832, National Bureau of Economic Research, Inc.
  5. Muffels, Ruud & Fouarge, Didier & Dekker, Ronald, 2000. "Longitudinal Poverty and Income Inequality A Comparative Panel Study for The Netherlands, Germany and the UK," MPRA Paper 13298, University Library of Munich, Germany.
  6. Mary Jo Bane & David T. Ellwood, 1986. "Slipping into and out of Poverty: The Dynamics of Spells," Journal of Human Resources, University of Wisconsin Press, vol. 21(1), pages 1-23.
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Cited by:
  1. Luis Ayala & Antonio Jurado & Jesús Pérez-Mayo, 2009. "Income Poverty and Multidimensional Deprivation: Lessons from Cross-Regional Analysis," Working Papers 106, ECINEQ, Society for the Study of Economic Inequality.
  2. Martin Biewen, 2005. "The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality," German Economic Review, Verein für Socialpolitik, vol. 6(4), pages 445-469, November.

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