Local Labour Markets and Individual Transitions into and out of Poverty: Evidence from the British Household Panel Study Waves 1 to 8

Using data from the British Household Panel Study 1991 to 1998 and the Annual Employment Survey this paper examines the impact of changes in local-labour market conditions on individual poverty exits and entrances. Transitions out of poverty and transitions into poverty are estimated by using discrete duration models that control for individual and family-level characteristics, duration effects, and local labour-market variables. After controlling for individual and family-level characteristics, probabilities of exiting poverty were found to be higher and probabilities of entering poverty were found to be lower for those individuals living in labour markets which experienced increases in the proportion of the population in employment. The relative contribution of labour market variables is substantially smaller than individual and family characteristics in determining transitions out of and into poverty. Whether changes in employment in the local labour-market were biased towards manufacturing or services did not have a systematic influence on poverty exits and entrances. The link between employment conditions in the local labour market and poverty suggests that the poor did share in the gains from economic growth in the 1990s. This finding gives support to the idea that expansionary demand policies at the local level could help to mitigate the economic position of the economically disadvantaged.