Understanding the relationship between inequalities and poverty: a review of dynamic mechanisms

In this paper we examine the evidence on how dynamic mechanisms, which include earnings and income mobility, poverty dynamics, social mobility and the accumulation of risk and advantage over the lifecycle, may be a contributory factor behind the estimated positive correlation between income inequality and poverty. We find evidence that higher income inequality is related to greater income volatility, lower equalising mobility and lower social mobility. Research on poverty dynamics reveals evidence of poverty persistence, poverty traps and recurrent episodes of poverty. The evidence suggests that higher income inequality linked to lower income mobility, poverty persistence and churning is likely to lead to higher rates of poverty and, therefore, income and poverty dynamics are likely to be a contributory mechanisms behind the observed positive correlation in crosssectional measures of income inequality and poverty.