Poverty in Times of Crisis

We evaluate the impact of a large macroeconomic shock on poverty dynamics. In particular, we use longitudinal data from the European Survey on Income and Living Conditions (EU-SILC) comprising almost 2 million individuals from 29 European countries to quantify changes in poverty transition patterns induced by the 2007 global financial crisis. Because the crisis was largely unforeseeable, it provides an appealing natural experiment allowing us to isolate the causal effect of a substantial macroeconomic shock on poverty. Employing semiparametric mixed discrete time survival analysis, we find that the crisis reduced poverty exit hazards by roughly 40%. Since entry hazards decreased by 23.6% as well, we conclude that—although the likelihood of experiencing poverty decreased—poverty became much more persistent due to the crisis. Exploring determinants of poverty transitions, we find that age, education, employment, occupation, and marital status are the strongest predictors of poverty entries and exits.