An Economic Model of Household Income Dynamics, with an Application to Poverty Dynamics among American Women

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An Economic Model of Household Income Dynamics,
with an Application to Poverty Dynamics among
American Women
Simon M Burgess
and
Carol Propper
CASEpaper Centre for Analysis of Social Exclusion
CASE/9 London School of Economics
July 1998 Houghton Street
London WC2A 2AE
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 Simon M Burgess
Carol Propper
All rights reserved. Short sections of text, not to exceed two
paragraphs, may be quoted without explicit permission
provided that full credit, including  notice, is given to the
source.
Editorial Note
Simon Burgess is a Reader and Carol Propper is a Professor in the
Department of Economics, University of Bristol, and both are associates
of CASE.
Acknowledgements
Funding was provided by the ESRC under grant R000235144. Excellent
research assistance was provided by Arnstein Aassve. We are grateful
for comments from Barbara Wolfe, Stephen Jenkins, and seminar
participants at the LSE, the University of Warwick, Bristol and Oxford.
All remaining errors are our own.
Abstract
The rise in inequality and poverty is one of the most important economic
and social issues in recent times. But in contrast to the literature on
individual earnings inequality, there has been little work modelling (as
opposed to documenting) household income dynamics. This is largely
because of the difficulties created by the fact that on top of the human
capital issues that arise in personal earnings, individuals are continually
forming, dissolving and reforming household units. This paper proposes
a framework for modelling household income dynamics. it emphasises
the role of household formation and dissolution, and labour market
participation. It allows standard economic theory to address the issues
of household, as distinct from individual, income and poverty dynamics.
We illustrate this framework with an application to poverty rates among
young women in the US. We use this model to analyse differences in
poverty experiences, particularly between black and white women.
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