Understanding the drivers of low income transitions in Luxembourg

We analyse the determinants of poverty transitions, defined as movements across a low income threshold, in Luxembourg. Data used are those from the Luxembourg socioeconomic panel ?Liewen zu Lëtzebuerg? (PSELL3) running from 2003 to 2009. Using an endogenous switching first-order Markov model, we control for potential endogeneity to low income transitions due to both initial condition and non random attrition. We find that employment protects from both remaining poor and entering poverty. In addition, attrition and initial low income are found to be endogenous processes with respect to low income transitions. Finally, genuine state dependence accounts for a substantial level of aggregate state dependence.