Labour market transitions and social exclusion

This article considers the dynamic effects that the labour market has on poverty and social exclusion.(1) It shows how the analysis of labour markets can help our understanding of social exclusion and reviews some of the evidence from Europe and the United States. The evidence is that there is considerable movement into and out of poverty. However, there is a significant group who stay in poverty for a number of years and a group that experience repeated poverty spells. The data also show that labour market transitions are an import ant cause of movements into and out of poverty, although demographic factors are about equally important. There are interesting similarities between the pattern of movements into and out of unemployment and those for poverty: many people leave unemployment quickly, but there are also important groups who are unemployed for several years or who become unemployed repeatedly. It is not only easily observable personal characteristics that are relevant to determining an individual's Employment patterns: repeated periods of unemployment appear to result from 'unobserved heterogeneity', rather than any damaging effect from earlier unemployment spells. This finding raises the interesting possibility that the observed repented spells of poverty are also due to unmeasured personal characteristics