An Economic Model of Household Income Dynamics,with an Application to Poverty Dynamics amongAmerican Women

The rise in inequality and poverty is one of the most important economicand social issues in recent times. But in contrast to the literature onindividual earnings inequality, there has been little work modelling (asopposed to documenting) household income dynamics. This is largelybecause of the difficulties created by the fact that on top of the humancapital issues that arise in personal earnings, individuals are continuallyforming, dissolving and reforming household units. This paper proposesa framework for modelling household income dynamics. it emphasisesthe role of household formation and dissolution, and labour marketparticipation. It allows standard economic theory to address the issuesof household, as distinct from individual, income and poverty dynamics.We illustrate this framework with an application to poverty rates amongyoung women in the US. We use this model to analyse differences inpoverty experiences, particularly between black and white women.[...]