Extreme Poverty: A New Study Highlights the Crucial Role of Unemployment, Inflation, and Rent Prices

The study, titled Extreme Poverty in Wealthy Nations: Evidence from France has just been released. Focusing on the issue of extreme poverty, it analyzes the contributing factors, the profile, and the life trajectories of French people who face difficulties obtaining adequate food and housing.

Extreme Poverty in France: A Transitory Phenomenon That Particularly Affects Unemployed Urban Youth

To begin with, the researchers note that France has one of the highest rates of homelessness (in the strict sense) among OECD countries, estimated at 0.5% of the population. Since Les Restos du Cœur serves a very large number of these homeless individuals, their data is therefore particularly relevant.

This extreme poverty is most prevalent in urban areas (where half of those affected live) and particularly affects children and adolescents. In fact, one-quarter of the homeless individuals identified in this study are under the age of ten. This is an important finding because, as Christian Hellwig, a professor at the Toulouse School of Economics, explains: “We know that the long-term effects of experiences at a very young age can be extremely significant and lasting, and can be reflected in individuals’ education and income levels decades later. ”

While the number of homeless people has increased by more than half since the COVID-19 pandemic, researchers note that 90% of those in shelters are without work—that is, either unemployed or outside the labor force (students, retirees, people with disabilities).

Another interesting finding from the study is that this food and housing insecurity is a temporary phenomenon. The average length of time spent at Restos du Cœur is 18 months, and the average duration of homelessness or housing insecurity is 17 months. Only 14% of individuals who use Restos du Cœur remain there for more than 3 years (and fewer than 4% stay long-term, beyond 10 years). Furthermore, once an individual has been out of extreme precariousness for at least one year, it is rare for them to return to it (only 10% of cases).

Unemployment, rent prices, public housing, and the local job market: 4 factors favorising the descent into extreme poverty

Based on the analyzed data, researchers identified four factors that contribute to the descent into extreme poverty:

• unemployment
• rent prices
• the number of available public housing units
• local economic vitality

Among the notable figures highlighted in the study, those concerning unemployment and rent prices are particularly striking. In fact, a 10% increase in the unemployment rate is correlated with a similar increase in the number of people who are homeless or food insecure. As for rent, a 10% increase leads to up to an 18% rise in housing insecurity.

Sufficient availability of public housing also appears to be a key factor, as a 10% increase in the per-capita stock of public housing has been observed to reduce homelessness by approximately 8%. Similarly, the more dynamic the local economy, the lower the number of people facing housing difficulties (a 10% increase in the number of businesses per capita in the catchment area reduces the incidence of housing insecurity by 20%).

The more time passes, the harder it becomes to get out of it

On the other hand, while unemployment or inflation increase the number of people entering precarious living conditions, local economic conditions have little impact on those who manage to escape them. As the researchers summarize: “recessions push households into extreme poverty at a much faster rate than the subsequent recovery helps them escape it.” Similarly, they highlight the crucial role of inflation, which accounts for more than 52% of the dramatic rise in housing insecurity observed since 2018.

Individual factors play a decisive role in the duration of episodes of housing insecurity and the chances of overcoming them. An individual’s age has a significant effect on “their chances of getting back on their feet,” and extreme poverty rates decline as people get older. However, as the researchers point out, the most important determinant of the exit rate is the length of time a household has already spent relying on food banks: “the longer an episode of severe precariousness lasts, the harder it becomes to escape it.”

One point on which the study in question sheds new light is that food insecurity and housing insecurity are, in most cases, temporary phenomena. The average length of stay at Restos du Cœur is 18 months (and the average duration of homelessness or housing insecurity is 17 months). Only 14% of individuals who use Restos du Cœur remain there for more than 3 years (and fewer than 4% stay for more than 10 years). Furthermore, it is rare (10% of cases) for individuals to return after having been out of the program for at least one year.

This groundbreaking study thus highlights the need to strengthen prevention policies in order to avoid situations of extreme precariousness and to ensure early, targeted support for the most vulnerable populations. Food for thought for the public debate in the run-up to the presidential election.

Useful Link

• Interactive Summary of the Study
• Full study :  Extreme Poverty in Wealthy Nations: Evidence from France 

Authors

• Christophe Bruneel-Zupanc, associate professor of economics at KU Leuven;
• Alexandre Gaillard, associate professor of economics at Brown University and associate member at the Toulouse School of Economics;
• Christian Hellwig, professor of economics at the Toulouse School of Economics;
• Philipp Wangner, associate professor of economics at the University of Mannheim;
• Nicolas Werquin, economist at the Federal Reserve Bank of Chicago and associate member at the Toulouse School of Economics.