Why rising tides don’t lift all boats: an explanation of the relationship between poverty and unemployment in Britain

This paper is motivated by the lack of any obvious relationship between aggregate poverty and unemployment in Great Britain. We derive a framework based on individuals’ risks of unemployment and poverty, and how these vary over the economic cycle. Analysing the British Household Panel Survey for 1991-96, we are able to square the micro evidence that unemployment matters for poverty with the macro picture that there’s no strong link. We then go on to identify which household and individual characteristics are associated with whether an individual’s poverty risk is vulnerable to the economic cycle. JEL classification: D31; E24; E32; I32