The Dynamics and Persistence of Income Poverty in Australia

This project is being conducted as part of a larger research program titled, The Dynamics of Economic and Social Change: An Analysis of the Household, Income and Labour Dynamics in Australia Survey.

Its main objective is to analyse the dynamics and persistence of income poverty in Australia using longitudinal data from the HILDA Survey. Even during periods of prosperity, disadvantage can persist in segments of the population in industrialised countries. However, it is often assumed that it is the same households who remain in this situation, though they are more than likely to be experiencing transitory poverty as a result of changes in such dimensions as employment status, family structure and health. In order to distinguish between these two phenomena of persistence and dynamics longitudinal household data is necessary. Using such a data set for Australian households (HILDA), we investigate in this paper the determinants of poverty transitions employing a first-order Markov approach proposed by Cappellari and Jenkins (JAE 2004), which also controls for initial conditions and non-random attrition. The estimates indicate that only a few characteristics have an impact on poverty persistence, while a range of household head and household traits increase the likelihood of entering poverty. Many of these variables along with exclusion restrictions are also important determinants of initial poverty and retention in the sample. Policymakers need to take these issues into account in order to fully understand poverty dynamics and the drivers of material deprivation

This project is joint with Sher Verick at Economic and Social Policy Division of the United Nations Economic Commission for Africa. The Melbourne Institute contact for this project is Dr Hielke Buddelmeyer.