Working Paper: CEPR ID: DP1830
Authors: Simon Burgess; Carol Propper
Abstract: The rise in inequality and poverty is one of the most important economic and social issues in recent times. But in contrast to the literature on individual earnings inequality, there has been little work modelling (as opposed to documenting) household income dynamics. This is largely because of the difficulties created by the fact that on top of the human capital issues that arise in personal earnings, individuals are continually forming, dissolving and reforming household units. This paper proposes a framework for modelling household income dynamics. It emphasizes the role of household formation and dissolution and labour market participation. It allows standard economic theory to address the issues of household, as distinct from individual, income and poverty dynamics. In this paper, we illustrate this framework with an application to poverty rates among young women in the United States. We use this model to analyse differences in poverty experiences, particularly between black and white women.
Keywords: poverty; analysis; household income dynamics
JEL Codes: D31; D33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| individual decisions regarding employment (J29) | household income dynamics (D19) |
| individual decisions regarding household formation (J12) | household income dynamics (D19) |
| marital status transitions (J12) | household income dynamics (D19) |
| household income dynamics (D19) | poverty status (I32) |
| rates of marriage (J12) | poverty rates (I32) |
| educational attainment (I21) | future poverty status (I32) |
| individual decisions regarding marriage (J12) | income flows into the household (G59) |
| individual decisions regarding labor market engagement (J29) | income flows into the household (G59) |
| income flows into the household (G59) | poverty outcomes (I32) |
| household income relative to poverty line (I32) | probability of being poor (I32) |