Poverty entry and exit during old age: comparative evidence from the ECHP Mattia Makovec Università Bocconi (Milan) and European Centre for Social Welfare Policy and Research (Vienna) EPUnet Conference, May 8 th -9 th, 2006 Universitat Pompeu Fabra, Barcelona

Background Poverty rates of the elderly (65+) have increased in a number of old EU member states in the second half of the 1990s Reforms in the pension systems: parametric + structural (from DB to NDC), increase in the variability of income during old age Tightening in the conditions of early retirement and reduction in the generosity of UB for elderly workers (generally used as alternative to early retirement benefits) Understanding the dynamics of poverty during old age under the current systems may help forecast future developments under the new regimes

Object of the paper Study the determinants of poverty entry/exit 11 old EU member states: BEL, FR, GER, GR, ES, IT, IE, UK, PT, NL, DK Cross-country comparison, ECHP ( ), individuals aged 55+ Focus on household features; age; role of income from work; health status; Control for unobserved heterogeneity

Methodology Piecewise-constant discrete time duration model of poverty entry/exit: cloglog[h(j,X|v)] = f(j)+X´ß+u [h(j,X|v)]: hazard rate f(j) = a 1 D 1 +a 2 D 2 +…a j D j (non-parametric duration dependence) X´ß: observables characteristics u~log(v): v= Gamma unobserved heterogeneity

Poverty entry/exit Relevant controls: - gender - age - education - Household type /change - Employment status of other household members - Health status - Benefits received - Duration dependence

Poverty entry: main results (I) * p<0.10, ** p<0.05, *** p<0.01 Selected explanatory factors:

Poverty entry: main results (II) * p<0.10, ** p<0.05, *** p<0.01 Duration dependence:

Poverty entry probability in old age by age groups: 55-64, 65-74, 75+

Poverty entry probability in old age by age groups: 55-64, 65-74, 75+ (cont.)

Poverty exit: main results (I) Selected explanatory factors: * p<0.10, ** p<0.05, *** p<0.01

Poverty exit: main results (II) * p<0.10, ** p<0.05, *** p<0.01 Duration dependence:

Poverty exit probability in old age by age groups: 55-64, 65-74, 75+

Poverty exit probability in old age by age groups: 55-64, 65-74, 75+ (cont.)

A taxonomy: Age group High poverty entry Low poverty entry Low poverty exit UK, PT, ES, IE, DK IT, FR, BEL High poverty exit GR, NL, GER

Old-age benefits expenditure and poverty entry Pooled estimation

Further research Link poverty entry and exit Consider sequence of spells: role of time spent receiving benefits, interaction with early retirement and health status Assessing the effect of selected reforms on poverty entry/exit