Abstract
Conventional wisdom predicts that changes in the aggregate unemployment rate may significantly affect a country’s income distribution and, consequently, have a relevant impact on the evolution of its poverty rate. However, the relationship between labour macroeconomic indicators and poverty seems to have become weaker recently. Using panel data on unemployment and poverty for Spanish regions, we estimate a system GMM model to model this relationship using alternative measures of the unemployment rate. We also test the hypothesis of asymmetric effects of the business cycle on the share of poor individuals in the population. Our results show that unemployment has a positive impact on severe poverty, while inflation has a negative effect. We also highlight the extent to which results differ when alternative intra-household unemployment distribution-sensitive measures are considered. Regarding the existence of asymmetric business cycle effects on severe poverty, our results show that despite the fact that the Great Recession has had a strong and positive effect on severe poverty, the effects of expansions and recessions on poverty are not significantly different.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Aaron, H.: The foundations of the “War on Poverty” re-examined. Am. Econ. Rev. 57, 1229–1240 (1967)
Arellano, M.: Panel Data Econometrics Oxford. Oxford University Press (2003)
Arellano, M., Bond, S.: Some tests of specification for panel data: Monte carlo evidence and an application to employment equations. Rev. Econ. Stud. 58, 277–297 (1991)
Arellano, M., Bover, O.: Another look at the instrumental-variable estimation of error-components models. J. Econ. 68, 29–52 (1995)
Ayala, L., Martínez, R., Navarro, C., Sastre, M.: Desigualdad y pobreza en España: tendencias y factores de cambio, in Ayala, L. (dir.) Desigualdad pobreza y privación en España (director). Madrid: Fundación FOESSA (2009)
Ayala, L., Jurado, A., Pérez-Mayo, J.: Income poverty and multidimensional deprivation: Lessons from cross-regional analysis . Rev. Income Wealth 57, 40–60 (2011)
Baltagi, B.H.: Econometric Analysis of Panel Data. New Jersey. Wiley (2008)
Björklund, A.: Unemployment and income distribution: time-series evidence from Sweden. Scand. J. Econ. 93, 457–465 (1991)
Blank, R.: Economic change and the structure of opportunity for less-skilled workers. In: Cancian, M., Danziger, S. (eds.) Changing Poverty, Changing Policy. New York: Russell Sage Foundation (2009)
Blank, R.M., Blinder, A.S.: Macroeconomics, income distribution, and poverty. In: Danziger, S. (ed.) Fighting Poverty: What Works and What Does Not. Cambridge: Harvard University Press (1986)
Blank, R.M., Card, D.: Poverty, income distribution, and growth: Are they still connected? Brook. Pap. Econ. Act. 2, 285–339 (1993)
Blank, R., Kovak, B.: The growing problem of disconnected single mothers. National Poverty Center Working Paper 2007-28. University of Michigan, NPC, Ann Arbor (2008)
Blinder, A.S., Esaki, H.Y.: Macroeconomic activity and income distribution in the post war United States. Rev. Econ. Stat. 60, 604–609 (1978)
Blundell, R., Bond, S.: Initial conditions and moment restrictions in dynamic panel data models. J. Econ. 87, 115–143 (1998)
Blundell, R.W., Bond, S.R., Windmeijer, F.: Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator. In: Baltagi, B. (ed.) Nonstationary Panels, Panel Cointegration, and Dynamic Panels Advances in Econometrics Vol. 15. JAI Press, Elsevier Science, Amsterdam (2000)
Bond, S.: Dynamic panel data models: a guide to microdata methods and practice. Port. Econ. J. 1, 141–162 (2002)
Bond, S., Hoeffler, A., Temple, J.: GMM estimation of empirical growth models, Economics Papers 2001-W2 1 Economics Group. Nuffield College, University of Oxford (2001)
Bubbico, R.L., Dijkstra, L: The European regional Human Development and Human Poverty Indices. Regional Focus, n ∘ 02/2011 (2011)
Burgess, S., Gardiner, K., Propper, C.: Why rising tides don’t lift all boats? An explanation of the relationship between poverty and unemployment in Britain, CASE Papers 46, Centre for Analysis of Social Exclusion, LSE (2001)
Buse, A.: The cyclical behavior of the size distribution of income in Canada 1947–1978. Can. J. Econ. 15, 189–204 (1982)
Cantó O., Del Río, C., Gradín, C.: La evolución de la pobreza estática y dinámica en españa en el período 1985–1995. Hacienda Pública Española, 87–119 (2003)
Cutler, D.M., Katz, L.F.: Macroeconomic performance and the disadvantaged. Brook. Pap. Econ. Act. 2, 1–74 (1991)
Dorand, H.E., Schmidt, P.: GMM Estimator with improved finite sample properties using principal components of the weighting matrix, with an application to the dynamic panel data models. J. Econ. 133, 387–409 (2006)
Edelman, P.B., Holzer, H.J.: Connecting the disconnected: Improving education and employment outcomes among disadvantaged Youth. Institute for research on Poverty, Discussion Paper No. 1412-13. University of Wisconsin-Madison (2013)
Farré, L., Vella, F.: Macroeconomic conditions and the distribution of income in Spain. Labour 22, 383–410 (2008)
Freeman, R.: The rising tide lifts....?. In: Danziger, S., Haveman, R. (eds.) Understanding Poverty. Cambridge, MA: Harvard University Press (2001)
Galloway, L.: The foundations of the “War on Poverty”. Am. Econ. Rev. 55, 122–131 (1965)
Gregg, P., Wadsworth, J.: More work in fewer households?. In: Hills, J. (ed.) New Inequalities Cambridge: Cambridge University Press, 181-207 (1996)
Gregg, P., Scutella, R., Wadsworth, J.: Reconciling workless measures at the individual and household level. J. Popul. Econ. 23, 139–167 (2010)
Gorja Bartsch, G., Scirankova, D.: Large differences in regional labour markets show asymmetric impact of the economic crisis. Eurostat, Statistics in focus 54(2012) (2012)
Gundersen, C., Ziliak, J.: Poverty and macroeconomic performance across space, race, and family structure. Demography 41, 61–86 (2004)
Haveman, R., Schwabish, J.: Has macroeconomic performance regained its antipoverty bite? Contemp. Econ. Policy 18, 415–27 (2000)
Hines, J.R., Hoynes, H., Krueger, A.: Another Look at Whether a Rising Tide Lifts All Boats. In: Krueger, A., Solow, R. (eds.) The Roaring Nineties: Can Full Employment Be Sustained? New York: Russell Sage Foundation (2001)
Hsiao, C.: Analysis of panel data. Cambridge University Press (2002)
Iceland, J.: Why Poverty Remains 1igh: The Role of Income Growth, Economic Inequality, and Changes in Family Structure, 1949-1999. Demography 40, 499–519 (2003)
Im, K.S., Pesaran, M.H., Shin, Y.: Testing for unit roots in heterogeneous panels. J. Econ. 115, 53–74 (2003)
Isaacs, J.: Child poverty during the great recession: Predicting state child poverty rates for 2010. Institute for Research on Poverty DP, 1389–11 (2011)
Jäntti, M.: A more efficient estimate of the effects of macroeconomic activity on the distribution of income. Rev. Econ. Stat. 76, 372–378 (1994)
Jäntti, M., Jenkins, S.P: The impact of macroeconomic conditions on income inequality. J. Econ. Inequal. 8, 221–240 (2010)
Krueger, A.: Convergence and disparities in regional Gross Domestic Product. Eurostat, Statistics in focus 46(2011) (2012)
Levin, A., Lin, C.F., Chu, C.: Unit root test in panel data: asymptotic and finite sample properties. J. Econ. 108, 1–24 (2002)
Malinen, T.: Inequality, savings and consumption: a reassessment of the relationship in cointegrated panels. Appl. Econ. Q. 59, 235–251 (2013a)
Malinen, T.: Inequality and growth: another look with a new measure and method. J. Int. Dev. 25, 122–138 (2013b)
Metcalf, C.E.: The size distribution of personal income during the business cycle. Am. Econ. Rev. 59, 657–668 (1969)
Meyer, B.D., Sullivan, J.X.: Consumption and income poverty over the business cycle. NBER Working Paper, 16751 (2011)
Mirer, T.W.: The effects of macroeconomic fluctuation on the distribution of income. Rev. Income Wealth 19, 385–405 (1973)
Mocan, H.N.: Structural unemployment, cyclical unemployment, and income inequality. Rev. Econ. Stat. 81, 122–134 (1999)
Monea, E., Sawhill, I.: Simulating the effect of the “Great Recession” on poverty. Washington DC: Brookings Institution, Center on Children and Families (2009)
Nolan, B.: Income Distribution and the Macroeconomy. Cambridge University Press, Cambridge (1987)
OECD: OECD Employment Outlook Paris: OECD (2001)
Parker, S.C.: Opening a can of worms: the pitfalls of time-series regression analyses of income inequality. Appl. Econ. 32, 221–230 (2000)
Pedroni, P.: Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Economet. Theor. 20, 597–625 (2004)
Pesaran, H.: A simple panel unit root test in the presence of cross section dependence. J. Appl. Econ. 22, 265–315 (2007)
Roodman, D.: How to do xtabond2: An introduction to difference and system GMM in Stata. Stata J. 9, 86–136 (2009a)
Roodman, D.: A note on the theme of too many instruments. Oxf. Bull. Econ. Stat. 71, 135–158 (2009b)
Ruud, P.A.: Classical Econometrics. Oxford University Press, New York (2000)
Smeeding, T., Thompson, J.P., Levanon, A., Burak, E.: Income, inequality, and poverty over the early stages of the Great Recession. In: Grusky, D., Western, B., Wimer, C. (eds.) The Great Recession, New York: Russell Sage Foundation (2011)
Thurow, L.C.: Analyzing the American income distribution. Am. Econ. Rev. 60, 261–269 (1970)
Turner, L., Danziger, S., Seefeldt, K.S.: Failing the transition from welfare to work: Women disconnected from work, welfare, and other sources of economic support. Soc. Sci. Q. 87, 227–249 (2006)
Westerlund, J.: Testing for error correction in panel data. Oxf. Bull. Econ. Stat. 69, 709–748 (2007)
White, H., Granger, C.W.J.: Consideration of trends in time series. Journal of Time Series Econometrics 3, 1–38 (2010)
Windmeijer, F.: A finite sample correction for the variance of linear efficient two-step GMM estimators. J. Econ. 126, 25–51 (2005)
Author information
Authors and Affiliations
Corresponding author
Electronic supplementary material
Below is the link to the electronic supplementary material.
Rights and permissions
About this article
Cite this article
Ayala, L., Cantó, O. & Rodríguez, J.G. Poverty and the business cycle: A regional panel data analysis for Spain using alternative measures of unemployment. J Econ Inequal 15, 47–73 (2017). https://doi.org/10.1007/s10888-016-9343-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10888-016-9343-5