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In Belgium, the
majority of people aged over 50 who are poor remain poor for a long time –
they are persistently poor. There are a number of explanations for the persistence
of poverty.
On the one hand, poor people
may have characteristics that make them particularly prone to poverty. These
characteristics might be ones observed by researchers (e.g. low educational
qualifications) or unobserved in a particular data set or be intrinsically observable
(e.g. ‘ability’ of various kinds).
On the other hand, it may
be that poor individuals remain poor because the experience of poverty itself
lowers the chance of escaping from poverty. People may become trapped in poverty
because of e.g. a loss of motivation, or because employers use their poverty
status as a signal of poor skills. Ascertaining the importance of these different
explanations for poverty persistence is relevant for the development of anti-poverty
programmes. If differences in characteristics play the major role, it suggests
that measures should focus on improving skills and other personal characteristics.
But if poverty itself plays a separate and independent role, there is a role
for general policies aimed at improving structural features of the economy,
e.g. removing adverse work incentives in the benefit system, or developing measures
that reduce the ‘scarring’ effects of being poor.
This paper investigates
the lengths of spells of poverty among Belgian people aged over 50 using statistical
models that examine the determinants of the chances of leaving poverty among
those who begin a poverty spell, and the chances of poverty re-entry among those
who end a poverty spell. These models account for differences in personal characteristics
(observed and unobserved). They also allow for the possibility that the chances
of leaving poverty in any given year vary with how many years the person has
already been poor. The existence of such ‘duration dependence’ provides
prima facie evidence that poverty itself plays a role in determining persistent
poverty.
The estimates of the statistical
model lend support for the hypothesis that there is duration dependence in poverty
in Belgium. This evidence is consistent with what is known about the Belgian
economy. In particular, in Belgium, elderly unemployed people are not required
to search for a job. This raises the chances that their skills will depreciate
and that employers would be reluctant to invest in providing new skills or updating
new ones for this group. In addition, both employers and the government provide
pathways to retirement giving elderly people strong incentives to leave the
labour market as soon as possible.
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