Transitions

We start by examining how transitions in in-work poverty compare in terms of those for ‘total’ poverty amongst working-age adults. Our focus here is on simple movements in and out of in-work poverty (that is, on any movement above or below the poverty line).Footnote ¹

In Table 1 we present in-work poverty persistence profiles for pooled two-year periods based on total poverty (left-hand columns) and in-work poverty (right-hand columns). From this we can observe that the incidence of in-work poverty in any given year is about six per cent (this can be seen by adding those remaining in in-work poverty from one year to the next and either those exiting or entering). This estimate is marginally lower than that observed for the UK in a recent Eurofound (2017) report, which found that the UK had the 11^th highest in-work poverty rate of the EU-28, using the European definition (see discussion above). In Table 1, we observe that a smaller proportion of working-age adults experience in-work poverty than total poverty (indeed, the percentages are lower in each of the ‘remaining’, ‘exiting’ and ‘entering’ categories). This is inevitable because the definition of in-work poverty requires a dual condition – i.e. to be poor, but also in a working household. Thus, by design, people experiencing in-work poverty are a sub-set of the ‘total’ experiencing poverty.

TABLE 1.

Comparison of ‘total’ poverty and in-work poverty transitions, working-age respondents

Source: USoc waves 2–5, weighted

What is more significant, we argue, is the ratio of those who enter (or exit) in-work poverty to those who remain. In the case of ‘total’ poverty, the ratio is about 1:1 – in any given year, about half of working-age people in poverty exit, and as many people enter poverty. The ratios in terms of in-work poverty are somewhat different (around 1.5: 1): more people will enter and exit working poverty from one year to another than will remain (this difference is statistically significant). These results suggest that in-work poverty is more transitory than total poverty amongst working-age adults.

If we repeat the analysis, but use material deprivation as our measure of poverty (not shown here), we find that income poverty (for both total poverty and poverty amongst working households) is more transient than material deprivation. This is likely to be because changes in incomes can occur rapidly while material deprivation data contain both stock and flow measures and may reflect accrued deprivation over time (Layte et al., Reference Layte, Whelan, Maître and Nolan2001). But, importantly, our principal finding from the income-centric analysis also holds – i.e. in-work deprivation is more transient than total deprivation.

Who experiences in-work poverty transitions?

In Table 2, we present the equivalent transition probabilities for a range of population sub-groups, where the groups are defined in the second year of the two-year observation window. The group with the greatest experience of in-work poverty over a consecutive two-year period (i.e. those with any experience of in-work poverty) are households with only one worker, one-in-five of whom experienced working poverty at least once over a two-year period, more than double the average rate. This demonstrates the difficulty that one-earner families face in avoiding poverty in a society where two-earner households have increasingly become the norm. Other groups with a pronounced rate of in-work poverty over a two-year period were individuals working in low-skilled occupations, those living in Northern Ireland and, to a lesser extent, respondents living in rented accommodation, and younger people.

TABLE 2.

In-work poverty transition probabilities by sub-group

Source: USoc waves 2–5, weighted

If we then consider the relative probability of transitions (i.e. the ratio of the probability of entering and exiting vs that of remaining), it is noticeable that transitions in and out of working poverty were relatively more common for younger people. Older people, on the other hand, had a lower probability of experiencing in-work poverty but those who did experience it had a lower probability of exiting in the subsequent year. Other groups with low relative transition probabilities are households with one worker, people living alone and respondents living in Northern Ireland. These are the groups for whom, when in-work poverty occurs, it is more likely to be persistent.

Trajectories

We have noted, however, that exiting (or entering) in-work poverty is not as straightforward as in the study of poverty more broadly. This is because, as in-work poverty reflects a dual condition, exiting may be the result of leaving work or of leaving poverty. Some might argue that such complexity is not necessary, on the grounds that we are not interested in people who leave in-work poverty by exiting work. We believe, in contrast, that it is important that we understand the relative balance between these competing trajectories and that policy-makers take steps to maximise the positive trajectory (exiting poverty) and minimise the negative one (exiting work).

In Table 3 above, we create a four-way in-work poverty classification reflecting these potential trajectories. For people experiencing in-work poverty at time t-1, the probability that they would experience in-work poverty at time t is 0.4. However, more than half were still in-work but no longer poor at time t, with the remaining 4.5 per cent no longer living in a working household. People who experience in-work poverty are thus more likely, in the subsequent year, to exit than to remain, and the vast majority of households who exit in-work poverty remain in work.

TABLE 3.

Four way in-work poverty transition matrix

Source: USoc waves 2–5, weighted analysis

But this ‘optimistic’ perspective should not blind us to two rather more concerning figures, both of which warrant attention. First, the working poor are three times more likely than non-poor workers to become poor and workless (3 per cent vs 1.1 per cent). Secondly, and perhaps even more troubling, of respondents living in poor workless households who find work, 25 per cent only go as far as to enter working poverty (that is, 5.6 per cent of those who are poor and not working transition to become working poor of the 22 per cent (5.6 + 16.1) who transition into work).

Thus, while exiting poverty is the dominant trajectory, there is also a link between in-work poverty and worklessness that requires consideration. Re-running the analysis using the deprivation measure (not shown here) leads to similar conclusions, though again we observe the greater persistence of material deprivation than income poverty. The consequence of this is that as many as 57 per cent of respondents in workless, deprived households who gain employment remain deprived in the subsequent observation period (which may be as much as two years later, as noted above).

Triggers that may help to explain in-work poverty entries and exits

In this section, we examine the triggers that may help to explain entries to and exits from in-work poverty. There are two methods that one can adopt to understand such trigger events. In the first method, proposed by Bane and Ellwood (Reference Bane and Ellwood1986), a mutually exclusive set of trigger events is identified. This adopts a hierarchical approach in which, first, events explained by a change in household head are identified. Of the remaining exits (or entries), these are classified as demographic when needs (i.e. the equivalence scale) changes by a greater proportion than income. The remaining cases, where income changes by a greater proportion than the equivalence scale, are identified as income events. This division of trigger events is subsequently used to identify which accounts for the largest share of poverty entries (or exits) (Jenkins, Reference Jenkins2011: 257).

The second approach, pioneered by Jenkins (e.g. Reference Jenkins2011), identifies a set of non-mutually exclusive events that explain poverty exits (or entries). Since the set of triggers are not mutually exclusive, they are measured independently of one another and the analysis thus overcomes the sequencing problems that can occur in the former method (where the ‘prior’ events can come to dominate the analysis arbitrarily). We adopt this second approach, applying it here to the analysis of in-work poverty entries (or exits) specifically.

While these triggers reflect the proximate events that co-occur with a poverty transition, this does not mean, of course, that they should be interpreted as causal effects. As Layte and Whelan (Reference Layte and Whelan2003: 181) note:

In Table 4, we examine the trigger events for in-work poverty exits. This table contains three important pieces of information. It details the prevalence of each event (i.e. the proportion of the working poor who experience the event), the risk or rate of exit conditional on the event, and the share of all in-work poverty exits accounted for by the event. The methods which underpin this analysis are straight-forward cross-tabulations and, thus, there is no attempt to adjust for confounding effects. Nonetheless, this approach has an important advantage over a regression-based approach, which is that these figures all have a more intuitive interpretation than effect sizes and R-squared statistics in the case of binary variable models.

TABLE 4.

Trigger events and in-work poverty exits

Note: Changes in hours is defined as being of 10 hours or more. Changes in earnings or social security income defined as 20% or more and at least £10 per week.

Source: USoc waves 2–5, weighted

It is important to distinguish between these pieces of information since an elevated risk of exit conditional on a particular event may or may not account for a large proportion of total exits, because the share statistic is driven by both the prevalence of the trigger and the conditional risk associated with this. There are, then, two ways that an event is categorised as an ‘important’ predictor of in-work poverty: a) it accounts for a large share of all entries or exits (what Jenkins calls ‘aggregate’ importance), or b) it substantially increases/decreases the probability of an individual entering or exiting poverty conditional on experiencing the trigger (which he labels ‘individual’ importance’; see Jenkins, Reference Jenkins2011: 244).

Given that in-work poverty exits can come in quite different forms, we disaggregate the analysis by type of exit. Panel 1 of Table 4 presents trajectories to the destination most of interest – namely, working families who are not in poverty. Panel 2 presents data for the lesser-examined destination – that is, poor families who are without work. Panel 3 presents the figures for all trajectories, including those to the fourth category, those neither in work nor poor, which is not presented separately here. Both increases and decreases in terms of the main triggers are considered. We classify changes in income of 20 per cent and at least £10/week as representing an income event and changes of 10 hours or more as representing an hours event.

We begin our discussion of the analysis in Table 4 by noting the variation in prevalence of the triggers amongst those who experience working poverty. Half of respondents experienced a rise in earned income of more than 20 per cent, and one-third experienced an equivalent increase in social security income. Indeed, the income events were more prevalent than the remaining labour market events such as gaining a worker or additional hours of work, which were, in turn, more prevalent than the household events. This is significant because the more prevalent events have a greater potential to lift greater numbers of people out of poverty, all else being equal.

Turning to the exit rates conditional on the trigger (the column ‘rate’ in Panel 1), we find that, of those experiencing in-work poverty, 55 per cent will exit and become non-poor in the following year, as we have noted above. Increasing the number of workers, the number of hours worked, or experiencing an increase in labour earnings or social security income is associated with a rise in the exit rate of between 15 and 25 percentage points. These labour market events lead to a very substantial increase in the probability of exiting in-work poverty.

Changes in social security income also raise the probability of a family exiting towards becoming a non-poor working family, though the exit rate, while elevated, is lower than for the labour market events. Changes in total household size, or in the number of adults in the household, do not in most cases dramatically alter the exit rate from the average because changes in household composition are ‘ambiguous’ – that is, households that gain an additional adult may either gain a worker or a dependent. These quite different scenarios are likely to have opposite effects on the poverty exit risk and will, on aggregate, partially cancel out. As we might expect, the equivalent ‘negative’ labour market triggers are associated with below-average exit rates – which falls to as low as just over one in four when households lose a worker.

Turning to the share statistics, we can see that three-quarters of those exiting working poverty, towards being a working non-poor family, experience a positive labour income event; while more than four in ten exits co-occur with an increase in social security income. These figures are both substantial and point to the importance of focussing on changes in both the labour market and the welfare state in seeking to understand working poverty exits.

As we have noted, these triggers are not mutually exclusive, so we can also consider the extent to which income events co-occur with other labour market events. About 45 per cent of exits to working non-poor households (Table 4: Panel 1) are associated with changes in the number of workers while the remaining 55 per cent are accounted for by cases where the number of workers does not change. Of the latter group, 60 per cent of exits are accounted for by ‘pure’ earnings increases (i.e. when the number of workers or hours of work does not change), while the remaining 40 per cent experience changes in the number of hours worked in the household.

So far, we have focused on households who escape poverty but remain attached to the labour market. A less examined but nonetheless important perspective is provided in Panel 2 of Table 4, which focusses on respondents who exit working poverty by leaving work, but remain poor. Here, we find that a substantial minority of those who live in working poor households that experience a negative labour market shock will transition to the non-working group (one-third in the case of those that lose workers; 18 per cent of those whose hours in work reduce). Losing an adult or gaining a child is also associated with increasing the probability of becoming a poor workless household, though the exit rates deviate less from the average in these cases. This nonetheless suggests that relationship breakdown and the arrival of a child accounts for a minority of exits towards the workless group, though again we see that the labour market events are more significant predictors than household events.

Finally, Panel 3 of Table 4 contains the relevant information for all destinations. Here, we can observe elevated exit rates for both the positive and negative trajectories and this tells us something of importance about in-work poverty itself – namely, the families in working poverty are vulnerable to negative shocks as well as positive ones. The triggers thus help to explain working poverty exits in both directions – e.g. gaining a worker, or extra hours or earnings, increases the probability of becoming working non-poor families, but the equivalent ‘negative’ triggers are also more likely to prompt working poverty transitions – but towards being workless households. It thus appears that the labour market triggers result in a U-shaped exit risk, which increases from the average either when the positive or the negative trigger is experienced. This makes sense if we think of the working poor as a better-off subset of people who experience poverty (see also Hick and Lanau, Reference Hick and Lanau2017). It is also important in policy terms as it reminds us of the significance of supporting positive transitions while seeking to minimise negative ones.

In Table 5, we present three panels relating to working poverty entries but, this time, we include prevalence statistics in each panel, since here the groups are defined by their distinct origins and thus the base sample that can experience the trigger amongst each group varies. The first panel relates to those who enter in-work poverty from being non-poor workers. Panel 2 refers to those who were previously workless families living in poverty who enter working poverty, while Panel 3 relates to all entries.

TABLE 5.

Trigger events and in-work poverty entries

Note: Changes in hours is defined as being of 10 hours or more. Changes in earnings or social security income defined as 20% or more and at least £10 per week.

Source: USoc waves 2–5, weighted

For all people, the average entry rate is 4.1 per cent (Table 5: Panel 3). This figure does not vary substantially depending on the origin of the entry: 4.3 per cent for those working and not poor, 5.6 per cent for those who are poor and not working. In terms of the prevalence of the triggers, no event is widespread – the most common is a reduction in social security income, experienced by about 20 per cent of those not in in-work poverty. All other events are experienced by fewer than 20 per cent of the non in-work poor, most by fewer than 10 per cent of this group.

Focusing now on respondents in working non-poor households who enter in-work poverty (Panel 1), the most common events are a decrease in the number of hours worked and in social security income (both 21 per cent): changes in the number of workers and changes in household composition are far less common. The conditional entry rate varies to a greater extent from the average than in the previous analysis – 16 per cent of all those who experience a reduction in earnings will enter working poverty (almost four times the average entry rate for this group). This accounts for six in ten entries amongst non-poor working families. Around two-thirds of those have experienced a reduction in the number of hours worked, half of them a reduction in the number of workers. Reductions in social security income account for one-third of working poverty entries for this group.

While, in the analysis of poverty exits, household events had little impact in terms of varying the average exit rate, when we turn to in-work poverty entries, we find that households events do alter the probability of a working household entering in-work poverty. Family change – whether gaining or losing an adult or losing a child – elevates the entry rate to about twice the average.

Turning to Panel 2 of Table 5, those entering from initially being workless and poor, we observe that one-in-five respondents live in families that will gain a worker from one year to the next, and one-quarter of these will become working poor families. Thus, the step into employment fails to lift a sizeable minority of people from poverty. However, this figure, while worrying, is lower than previous estimates from other European nations (ONS, 2015) or for the UK from previous studies (Grzegorzewska and Thévenot, Reference Grzegorzewska and Thévenot2014), though these studies have been based on smaller sample sizes. While our own sample size means we cannot be confident about the differences between the composition of this group and the broader population, a simple descriptive analysis suggests that lone parents are disproportionately represented, and households with three or more children are somewhat over-represented amongst this group (not shown here). This suggests that the balance between work and family life (or family needs) helps to explain why families struggle to rise above the poverty line when they enter work.

When we re-run the analysis using the in-work deprivation measure (see online supplementary material Appendix 1 and 2), we observe that deprivation is ‘stickier’ than low income, as we have noted above. This means that, in the entry model, transitions to becoming working non-deprived are not the majority circumstance, but still remain very common (47 per cent). The deviations from the average exit (and entry) rate for households with labour market or household events are considerably smaller than in the income model. In terms of the model for entries, of those who gain work from being workless households, more than one-half of those who gain a worker will become working deprived households (see online supplementary material Appendix). Thus, a substantial proportion of workless, deprived families who gain work do not exit material deprivation – more than twice the rate of the income model.

Modelling determinants of working poverty transitions

In this final sub-section, we construct a Markov model of the determinants of transitioning in and out of working poverty to analyse the structural factors that shape in-work poverty dynamics (Alcock, Reference Alcock2004). The advantage of regression-based models is that they enable one to control for confounding effects between the independent variables. The Markov model is distinct among such models in that it restricts analysis to those who experienced working poverty in the previous year (who, then, may or may not exit in the subsequent year) and, for the entry model, focuses only on workers not in poverty in the previous year and models the probability of entry. Having focussed on some of the less common trajectories in the previous section, in this section we focus only on movements in and out of working poverty for those who remain in employment (i.e. for working families who enter or exit poverty). In the model relating to entries, negative values reflect variables that reduce the probability of entering in-work poverty for those who are non-poor workers. In the model relating to exits, positive values indicate circumstances that increase the probability of in-work poor respondents exiting poverty while remaining in work.

The first thing one should observe from Table 6 is that having two, or three or more, workers in the household very significantly reduces the risk of entering, and increases the risk of exiting, in-work poverty. Being employed in a lower-skilled occupation raises the likelihood of entering working poverty and reduces the probability of exit, relative to their higher-skilled counterparts. Relative to single-person households, larger households are significantly more likely to enter working poverty, and single parent households and couples with children are more likely to exit in-work poverty. Larger families are more likely to enter in-work poverty, though the large family ‘penalty’ is less visible in terms of exits.

TABLE 6.

Markov model of determinants of working poverty entries and exits

Source: USoc waves 2–5, weighted

Similarly, having lower educational qualifications than a primary degree increases the probability of entering but does not change the probability of exiting working poverty. Renters are more likely both to enter and to exit working poverty, which may partially be capturing an age effect, while respondents in Northern Ireland are also more likely to enter working poverty and less likely to exit, suggesting that Northern Ireland has a somewhat distinctive dynamic of working poverty. Age has a U-shaped effect where, relative to respondents aged 45–59, both younger and older respondents are less likely to enter working poverty, while there is no relationship between age and the likelihood of exiting working poverty. While many of the coefficients fall in the expected direction, the relationship between the number of workers in the household and the probability of in-work poverty transitions occuring is very strong, even after adjusting for confounding variables.