Poverty persistence among the elderly in the transition from work to retirement

On the basis of matched Income Tax/Census data, the majority of the elderly poor in Belgium appear to be persistently poor. The question arises as to why this might be so. To the extent that individual characteristics such as abilities or tastes persist over time, these may also be the reason that individuals persist in poverty over time. In that case, one expects that once individual characteristics are controlled for, duration dependence in poverty becomes spurious. The alternative possibility is that the poverty experience itself has a causal impact on future poverty. This may be because of work disincentives, lack of investment in human capital and/or loss of motivation during the period of job search. The reasons for dependence in poverty are of interest for developing effective poverty-reducing policies. The estimation of a multiple-spell hazard model of transitions in and out of poverty, that allows for unobserved heterogeneity and a significant initial condition problem, supports the suggestion of true duration dependence in poverty. In Belgium the elderly unemployed are exempted from job search and lack any training or counselling from government agencies, while workers above 50 are given strong financial incentives to leave the labour market as soon as possible through different kinds of early retirement schemes.