Poverty and Labor Transitions in El Salvador 2018-2022 - Background Note - Poverty dynamics analysis

Jul 19, 2026

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Using panel data from the Multipurpose Household Survey (EHPM) for 2018–2022, this background note examines the dynamics of poverty and labor transitions in El Salvador. It builds transition matrices and estimates key factors associated with moving into, out of, or remaining in poverty, emphasizing labor transitions tied to the incorporation of new household members into the labor market. In a typical year, roughly one third of poor households exit poverty, and about half of extremely poor households exit extreme poverty. Initial income status is central because probabilities rise closer to the poverty line.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages29

Reading Time1 h 13 min

AccessFree to download

Introduction

Poverty stability and key questions

Dynamic analysis of poverty

Poverty trap and chronic poverty

Transitions: interrupters, drivers, maintainers

Methodological framing and drivers

Employment and non-labor income channels

Demographic structure effects

Need for panel data

Public Disclosure Authorized Public Disclosure Authorized Background Note 2 Poverty and Labor Transitionsin El Salvador 2018–2022 BACKGROUND NOTE 2 Poverty and Labor Transitionsin El Salvador 2018–20221 _ 1. This note was prepared by Gonzalo Aguilar and Hugo Ñopo. 1 ~~ ~~ Background Note 2 Poverty and Labor Transitions in El Salvador 2018–2022 Abstract Using panel data from the Multipurpose Household Survey (EHPM) for the period 2018-2022, this note analyzes the dynamics of poverty and labor transitions in El Salvador. We compute transition matrices and identify the key associated factors to these transitions. Labor transitions, more specifically the incorporation of new household members into the labor market, are key determinants of the dynamics of poverty. In a typical year in our sample, about one third of poor households leave poverty and about one half of extremely poor households leave extreme poverty. Initial income status is key to defining transitions since the probability of moving out of or into poverty increases the closer the income is to the poverty line. JEL Classification: I32, J01 Keywords: Poverty, Transition matrices, Income, Labor market ~~ ~~ 2 Background Note 2 Poverty and Labor Transitionsin El Salvador 2018–2022 I. Introduction The poverty rate in El Salvador has remained stable between 2018 (26 .3 percent) and 2022 (26 .6 percent) . It is remarkable that poverty did not change despite the impact of the COVID-19 pandemic. Nonetheless, some open questions about the dynamics within such apparent stability remain: How many households fell into poverty and how many escaped from it during this period? Have the characteristics of poor households remained the same or changed? These questions acquire special relevance for extreme poverty as its rate substantially increased from 5.7 percent to 8.6 percent in the same period. What explains this increase? What characterizes those households who fell into extreme poverty? In this report, we will explore those questions. An analysis of the dynamics of poverty allows an understanding that goes beyond its incidence, intensity, composition, and associated characteristics; it explores the processes that are central to its persistence and, of course, its elimination by focusing on how long families have been poor or when and how they became impoverished or escaped impoverishment.2 Poverty is essentially a dynamic phenomenon, not only because changes are observed (in one direction or another) in total magnitude overtime, but because it is made up of flows of households that move in opposite directions, some leaving poverty and others entering it. Furthermore, poverty dynamic analysis also allows the identification of households that do not move between one state and another, whether they remain in poverty.3 In this sense, the introduction of dynamic analysis moves from the ‘symptoms’ _ 2. Addison et al. (2009); Bhide and Mehta (2018); Cantó et al. (2012) 3. Ayllón (2013) 4. Jenkins (2011) 5. Banerjee and Duflo (2015) 6. Cantó et al. (2012) 7. Hulme et al. (2001); Jallan and Ravallion (2000) of poverty to the ‘processes’ that lead households to remain, enter, or exit poverty,4 which is a key element to the design of differentiated public policies. A useful concept to get into the dynamic analysis of poverty is the ‘poverty trap’: when income isnot enough to acquire the assets the household needs to generate additional income in the future, the household is in a ‘poverty trap’.5 Being in a poverty trap means remaining poor overtime, a phenomenon known as chronic poverty. Then, in practice chronic poverty can be defined with flexibility levels, characterized as chronic poor, in the extreme, those households that were‘always poor’, experiencing poverty in all the periods analyzed, and those that were ‘usually poor’, living in poverty in more periods than some predetermined threshold.6 If a household suffers pe

FAQs

How does the note study poverty dynamics in El Salvador between 2018 and 2022?

It uses EHPM panel data to analyze household movements across poverty states over time, including both entry and exit from poverty.

What role do labor transitions play in explaining poverty dynamics?

Labor transitions—especially new household members entering the labor market—are highlighted as key determinants of poverty dynamics.

Why is initial income status important for transitions in or out of poverty?

The probability of moving into or out of poverty increases as initial income gets closer to the poverty line.

Jul 19, 2026

Upload by Noah