IZA DP No. 1138: Measuring State Dependence in Individual Poverty Status: Are There Feedback Effects to Employment Decisions and Household Composition?
revised version published in: Journal of Applied Econometrics, 2009, 24 (7) 1095-1116
Using a sample of prime-aged men from the German Socio-Economic Panel (GSOEP), this
paper examines the effects of past poverty experience on future poverty status, future
employment status and household composition. The empirical results suggest that even after
controlling for observed and unobserved characteristics, past poverty experience increases
the poverty risk of future periods. Moreover, there is evidence that experiencing poverty has
a negative effect on future employment behaviour and on household cohesion. Apart from its
economic significance, the existence of such feedback effects is interesting from an
econometric point of view, as they represent a violation of the strict exogeneity assumption,
which is usually invoked in estimating dynamic qualitative response models with unobserved
heterogeneity.
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