Notes: Welfare aggregate is consumption per capita including health, durables and rent. Thresholds used are 5 and 10 USD/PPP 2005 <u>per day.</u>

|**Table 2.1: Mobility matrix**|**, 2002-2011, u**<br>**Origin**|**pper bo**|**und**<br>**Percentage**|**moving to 2011**||
|---|---|---|---|---|---|
||**(In 2002)**|**Poor**|**Vulnerable**|**Middle Class**|**Total**|
|**Poor**|43|40|40|20|100|
|**Vulnerable**|37|17|42|40|100|
|**Middle class**|20|6|26|68|100|
|**Total**|100|22|38|40|100|

Source: Authors’ calculations based on ECAPOV data.

Notes: transition matrix is based on a synthetic panel for 2002-2011. Welfare aggregate is consumption per capita including health, durables and rent. Sample: heads of household 25-55 years of age. Detailed results of the regression predicting consumption per capita are presented in table A.2 in the annex. Methodological details are presented in Annex A2.

15. **Strong upward mobility is observed in urban areas, while chances of falling into poverty are much higher for rural residents.** Tables A.3ab in the annex show upper bound mobility matrixes for urban and rural areas. The poor in urban areas have non-negligible chances to move to the middle class and low chances to fall back to poverty: 25 percent of the poor in 2002 moved to middle class and only 5 percent moved back to poverty in 2011 in urban areas. In contrast, the rural poor have lower chances to move up to the middle class and higher chances to fall back to poverty. Namely, 14 percent of poor rural residents in 2002 moved to the middle class in 2011 and 16 percent of the middle class shifted back to poverty in 2011. This is not counterintuitive taking into account the nature of income generating activities in rural areas with agricultural playing an important role.

16. **Age, education and labor force status seem to be important predictors for economic classes.** Table A.5 contains the shares of poor, vulnerable and the middle class in population with different individual characteristics. As have been already said, urban residents have much higher chances to be in the middle class than rural residents. Individuals with tertiary education have the highest chances to be in the middle class. Children of age 5-15 have highest chances to be in poverty, while the retired population, especially those between 50-65 years has the highest chances to join the middle class. As will be further shown pensions (both increase in size and coverage) played a very important role for welfare improvement of all groups in the population.

17. **Consistent welfare improvement is also observed for the bottom 40 percent of the population.** As shown in table 2.2, there was a churning in the bottom 40 percent of the population in Turkey during 2002-2011.<sup>6</sup> Between 14 and 42 percent (depending on upper or lower bound of estimate) of the population in the bottom 40 percent in 2002 moved to the top 60 percent in 2011, while 9 to 28 percent of the population in top 60 percent moved to the bottom 40 percent. However, in spite of all churning, overall mobility was positive. Figure 2.2 helps to unpack the shared prosperity growth into two components: (i) the average consumption of those households staying in the bottom 40 percent during two

> 6 Box 1 explains potential scenarios for churning of the bottom 40 percent of the population.

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