How Much Should we Care about Consecutive Spells of Poverty? Proposal of a New Index

Abstract

Is cross-sectional poverty a reflection of real economic and social disadvantage? Does total number of years spent in poverty provide sufficient information about poverty severity? Recent studies show that in some countries there are good reasons to believe that it is not (see, among others, Mendola et al., 2009). Traditional measures of poverty persistence, such as ‘poverty rate’ (i.e. the number of years spent in poverty upon total number of observations) or the ‘persistent-risk-ofpoverty rate’, do not devote enough attention to the sequence of poverty spells. In particular they are not good enough in underlining different effects associated to occasional single spells of poverty and consecutive years of poverty. We propose here a new index which measures severity of poverty taking into account the way poverty and non-poverty spells follow one the other along the individual life courses. The index is normalized and does not depend from the number of waves in the panel. It rises with the number of consecutive years in poverty along the sequence, and falls with the increasing of the distance between two years of poverty. All the years spent in poverty concur to the measurement of the persistency in poverty but with a decreasing contribute as long as the distance between two years of poverty become longer. It can be easily proved that, given the number of waves, the index does not depend on the total number of years spent in poverty, but it is affected by when they occur in the sequence, and mainly from their relative distance. These and others relevant properties of the index and in particular its validity are tested on a sample of European young adults participating in ECHP for seven waves. Ireland, Italy, Portugal and UK show worst performance.