Modelling State Dependence and Feedback Effects between Poverty, Employment and Parental Home Emancipation Among European Youth

Abstract

Youth is one of the phases in the life-cycle when some of the most decisive life transitions take place. Entering the labour market or leaving parental home are events with important consequences for the economic well-being of young adults. In this paper, the interrelationship between employment, residential emancipation and poverty dynamics is studied for eight European countries by means of an econometric model with feedback effects. Results show that youth poverty genuine state dependence is positive and highly significant. Evidence proves there is a strong causal effect between poverty and leaving home in Scandinavian countries, however, time in economic hardship does not last long. In Southern Europe, instead, youth tend to leave their parental home much later in order to avoid falling into a poverty state that is more persistent. Past poverty has negative consequences on the likelihood of employment.Keywords: youth poverty dynamics, trivariate multinomial probit, state dependence, feedback effects, unobserved heterogeneity JEL classification: I32, J13, C33 * Correspondence to: Departament d'Economia i Empresa, Universitat Pompeu Fabra, C/ Ramon Trias Fargas 25-27, 08005 Barcelona, Spain. Phone number: +3493 542 1664. Fax: +3493 542 1746. E-mail: sara.ayllon@upf.edu † The author would like to thank Martin Biewen, Olga Cantó, Kari Hämäläinen, Alicia Rambaldi, Xavi Ramos and Philippe Van Kerm for comments on an earlier version of this paper. I also like to thank Arnstein Aassve for introducing me to programming with aML. Furthermore, I am grateful for the comments I received at the Workshop on 'Inequality and Poverty in the Global

Labor market flexibility and poverty dynamics

“…Among women, those percentages range between 12 and 20% in the case of women who were poor two years ago and between 12 and 17% for their counterparts who where poor three years ago. Finally, it is worth noting that these high poverty state dependence rates are also in line with those found by Ayllón (2009a) using ECHP data for a variety of European countries. She reports a significant positive poverty state dependence in most European countries.…”

Youth Labour Market Performance in Spain and its Determinants

“…The latter finding suggests that Spanish youth predominantly leave the parental home when they are offered a permanent job, while youth in other countries may decide to leave the parental home before. This confirms recent evidence by Ayllón (2009) who shows that in Southern European countries, like Spain, employment rates are typically larger than emancipation rates. As a result of the severe employment cuts during the crisis, currently Spain has become the country with the lowest employment rates for young adults who have left the parental home.…”

Why Are Child Poverty Rates So Persistently High in Spain?*

“…Finally, in order to measure the importance of specifying individual-specific effects to measure poverty persistence, and even if a standard pooled probit model is no longer the specification to choose if the panel-level variance 11 Empirical exercises of this methodology in the analysis of poverty dynamics can be found in Devicienti and Poggi (2007), Andriopoulou and Tsakloglou (2008) and Ayllón (2009). component is significant, we will also estimate this simple model that ignores individual-specific effects in order to provide a useful reference point. 12…”

“…11 11 Empirical exercises of this methodology in the analysis of poverty dynamics can be found in Devicienti and Poggi (2007), Andriopoulou and Tsakloglou (2008) and Ayllón (2009). …”