Profiles and Transitions of Groups at Risk of Social Exclusion: Lone Parents

7. Dynamics of Low Income

7.1 Introduction

In order to assess how dynamic or fluid is the state of low income, we looked at entries into and exits from low income over the period 1993-98. We focused on those who were lone mothers in 1993. First we estimated entry and exit rates. Then we took a closer look at exits and entries to see what events are associated with them.

7.2 Entries into and Exits out of Low Income

Low income is a dynamic phenomenon. For example, 70% of those who were in low income at some point over the period 1993-97 exited from low income (although some may have re-entered later). In three-quarters of the cases the exit was accompanied by increase in income that was at least 20% of the respective after tax LICO.

Table 7.1 provides estimates of how many lone mothers changed their low income status over the period 1993-98. It shows that:

Of the 535,000 lone mothers in 1993, 162,000 entered low income at least once during the period 1993-98, while 219,000 exited low income at least once, over the same period.
The above numbers expressed as a percentage of those who could have entered into low income (i.e. were not in low income in all years from 1993 to 1997) or could have exited from low income (i.e. were not non-low income in all years from 1993 to 1997) are respectively: 36% (entry rate) and 70% (exit rate).

Using a more conservative measure of entries and exits, we still find that low income is a very dynamic phenomenon. For example, 56% of those who experienced low income during the period 1993-97 also had a significant exit from low income i.e. the exit was accompanied by a significant increase in income. Box B explains in more detail the calculation of exit and entry rates.

Box B: A Note on Exit and Entry Rates

1. Interpretation of difference between number of exits and entries
Table 7.1 shows that 219,446 lone mothers experienced at least one exit from low income over the period 1993-98, while 161,602 lone mothers experienced at least one entry into low income. The fact that there were more exits than entries over the period 1993-98 indicates that over that period the number of low income lone mothers declined, possibly due to an improvement in economic conditions following the 1991-92 recession, aging of the panel, or other factors.

2. Interpretation of exit and entry rates
When exits and entries are expressed as a percent of all lone mothers, the respective ratios are 41% and 30%. However, the difference in the two rates is even more pronounced in Table 7.1. The simple reason is that a different numerator was used in each case. Thus, exit rates were estimated by dividing exits by those who were in low income, while entry rates were estimated by dividing entries by those who were not in low income. The resulting rates are 79% and 37% respectively.

3. How exit and entry rates were calculated in Table 7.1
The exit rate was calculated by dividing the number of lone mothers who had at least one transition out of low income (e.g. in low income in 1995, but not in low income in 1996), by the number of lone mothers who were in low income in at least one year over the period 1993-97. Lone mothers who were in low income only in 1998 were excluded from the denominator. The reason is that we do not know in this case if they exited low income in the following year or not, since the survey period ends in 1998.

Similarly, entry rates were calculated by dividing the number of lone mothers who had at least one transition into low income, by the number of lone mothers who were not in low income in at least one year over the period 1993-97.

It should be pointed out that even if the same number of individuals entered and exited low income over a certain period, the exit rates (as calculated above) will still be greater than the entry rates, as long as the number of low income (denominator of the exit rates) is smaller than the number of non-low income (denominator of the entry rates).

4. Definition of significant transitions
Significant transitions were defined as follows: (a) first we defined a low income band equal to plus/minus 10% of the after tax LICO; and (b) then we assumed that a transition was significant if income moved from one side of the after tax LICO band to the other (in the case of an exit, for example, this will mean that income increased by at least 20%).

Table 7.1 Entries into and exits out of low income, 1993-98, among lone mothers with children under 18 yrs of age in 1993
	All lone mothers	No marital change/ always had kid <18/ always major recipient	Rest of lone mothers
*1. Low income entry and exit rates, 1998*
- entered into low income	***	***	***
- exited from low income	48,181	***	***
- continued in low income	137,804	74,754	63,050
- continued out of low income	335,818	115,120	220,698
- all lone mothers	534,988	219,289	315,699
*2. At least one low income entry in 1993-98*
*All transitions*
Could have entered into low income	454,303	162,640	291,663
Entered into low income	161,602	54,221	107,380
Entry rate	36%	33%	37%
*Significant transitions ¹*
Could have entered into low income	420,504	138,463	282,041
Entered into low income	102,271	30,701	71,570
Entry rate	24%	22%	25%
*3. At least one low income exit in 1993-98*
*All transitions*
Could have exited from low income	315,697	133,268	182,429
Exited from low income	219,446	74,668	144,777
Exit rate	70%	56%	79%
*Significant transitions ¹*
Could have exited from low income	294,310	130,531	163,779
Exited from low income	165,738	48,621	117,116
Exit rate	56%	37%	72%
(1) Transitions are defined as significant if family income crossed a low income band, defined as between below 10% and above 10% of the low income line. *** Less than 30 observations.

Table 7.1 also confirms that a change in the family situation of a lone mother (e.g. they changed their marital status; their youngest child reached age 18; or another member of the family became the main income recipient) has a positive effect on low income dynamics: those who experienced at least one type of family change had twice as high a significant exit rate from low income as the rest of lone mothers (72% versus 37%).

All the evidence presented so far confirms the view that low income is a dynamic, rather than a static phenomenon. While a majority of lone mothers (60%) experienced low income over the six-year period 1993-98, only a fifth of the low income remained in low income for all six years. Moreover, of those who experienced low income, 70% also had an exit from low income and 56% had a significant exit from low income (meaning that they experienced at least a 20% increase in family income).

7.3 Events Associated with Significant Exits from Low Income

Two events are most commonly associated with significant exits from low income:
(a) an increase in own hours of work (82%); and
(b) a change in family status, by forming a union and/or someone else becoming the main income recipient (48%).

In this section we explore the factors that are associated with exits from low income of lone mothers. Each exit was treated as a separate observation, which means that lone mothers with more than one exit during the period 1993-98 appeared more than once in the analysis. Analysis of entries into low income is not reported because of sample limitations.

Table 7.2 shows that by far the most common events associated with exits from low income are entering the work place (22%) and increasing the hours of work by at least 10% (about 56%). The rates are somewhat higher among significant exits.

Another common event is changes in family status. Table 7.2 shows that 38% of all exits and almost half of significant exits were associated with the formation of a union or the lone mother not being the main income recipient any longer (the latter often related to forming a union).

Table 7.2 Changes associated with exits from low income lone mothers, 1993-98
	All exits		Significant exits
	Number	Incidence	Number	Incidence
*Total number of exits from low income, experienced by lone mothers over the period 1993-98*	343,004	100.0%	244,233	100.0%
*Number of exits associated with changes that took place between the year before the exit and the year of the exit:*
Changes in family status between the two years:
- formed a union	63,814	18.6%	59,985	24.6%
- their youngest child reached age 18 or moved out	***	***	***	***
- stopped being the major income recipient	107,478	31.3%	97,925	40.1%
- experienced any of the above changes	131,201	38.3%	117,046	47.9%
Changes in student status between the two years:
- were a student in the year before the exit, but not in the year of the exit	47,437	13.8%	35,823	14.7%
Changes in labour force status between the two years:
- did not work in year before exit; worked in year of exit	76,728	22.4%	52,744	21.6%
- worked in both years; working hours went up by 10%+	190,636	55.6%	146,748	60.1%
- worked in both years; hourly earnings went up by 10%+	71,659	20.9%	61,137	25.0%
Changes in other sources of income between the two years:
- total income from other non-government sources (earnings of other members; plus investment income; plus alimony income) went up by 10%+	86,816	25.3%	69,731	28.6%
***Less than 30 observations

Profiles and Transitions of Groups at Risk of Social Exclusion: Lone Parents - November 2002

7. Dynamics of Low Income

7.1 Introduction

7.2 Entries into and Exits out of Low Income

7.3 Events Associated with Significant Exits from Low Income