Why Do Children Move into and out of Low Income: Changing Labour Market Conditions or Marriage and Divorce

Child poverty is high on the government's agenda. In order to reduce the rate of low-income among children, one has to either reduce the number of children flowing into low-income, or increase the number flowing out. But what is behind such movement? Most analysts would immediately think of job loss among the parents, but obviously divorce and remarriage can also play a role. In order to favourably alter the flows, one has to have some understanding of what is driving them. This paper asks to what extent this movement of children is determined by (1) changes in family status of the parents of children, or (2) changes in the parent's labour market conditions (i.e. job loss and gain, changes in hours of work or wages). We find that for an individual child, a divorce or marriage can have a tremendous influence on the likelihood of entering or exiting low-income. At the level of the individual, changes in family composition (when they occur) are more important than changes in jobs held by parents. However, changes in family status are relatively infrequent compared to labour market changes. Parents are much more likely to lose or find jobs, and experience changes in hours worked or wages, than they are to marry or divorce. When this is accounted for we find that, in the aggregate, flows of children into and out of low income are associated roughly equally with family compositional changes and changes in wages and hours worked.