Using a sample of prime-aged men from the German Socio-Economic Panel
(GSOEP), this paper examines the effects of past poverty experience on
future poverty status, future employment status and household composition.
The empirical results suggest that even after controlling for observed and
unobserved characteristics, past poverty experience increases the poverty
risk of future periods. Moreover, there is evidence that experiencing
poverty leads to lower employment probabilities and higher probabilities of
living in a one-person-household in future periods, providing further causal
links of past and future poverty status. The existence of such feedback
effects is also interesting from an econometric viewpoint, as they represent
a violation of the strict exogeneity assumption which is usually invoked in
estimating dynamic qualitative response models with unobserved
heterogeneity.
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