An Analysis of Poverty

A Suggested Methodology

by John McCall

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A description of two models of the incidence, persistence, and control of poverty. The first is basically probabilistic and uses the theory of Markov processes to describe movements into and out of poverty. The second is normative and evaluates alternative policies for alleviating poverty. The descriptive model permits several important hypotheses about poverty to be investigated: (1) the adequacy of a Markovian model in describing income mobility; (2) the differences in transition rates between men and women of the same age and between Negroes and Caucasians of the same age; (3) the effect of the business cycle on income mobility and its differential effect on Negroes and Caucasians. The objective of the normative model is to choose a combination of control variables that yields the most desirable transition matrix. Two policy variables are considered: expenditures on training and on income maintenance. With a fixed budget for poverty alleviation, the objective is to allocate funds between the two variables so as to minimize the number of people in poverty. Several other criteria are also investigated, and methods for achieving optimal allocations are outlined. (See also RM-5741-OEO.)

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