adult equivalent (2015 GEL).<sup>16</sup> The definition of the vulnerable population follows as an immediate corollary: if low probability of falling back into poverty is what situates a household in the middle, those with higher risk of falling into poverty belong to the vulnerable group. We apply this approach with a slight modification and identifying the threshold for households in 2011 that do not fall back into poverty either in 2013 or 2015. This implies a stricter definition of vulnerability. Results from the logit model estimation used for identifying the probabilities are available in Annex 5.

Consistent with the evidence of churning around the poverty line, the results presented in Figure 1 above show that vulnerable households represent the largest category in the country; on average, close to 50 percent of the population is in the vulnerable category. On the other hand, the middle class has increased from 12 percent in 2009 to 30 percent in 2015, almost mirroring the overall decrease in poverty. This result contrasts with previous estimations based on an international middle-class line of $10/day (2005 PPP), in which middle class is smaller and increases only marginally from 4 percent in 2010 to 7 percent in 2015. The results presented in this study, however, have the advantage of relying on a vulnerability framework for defining the middle class.

# Moving out or left behind?

The results so far suggest a high degree of transitory poverty and a nascent but growing middle class. In the next stage of the analysis, we zoom in further to analyze the chronic poor, or those who may have been completely left behind in the growth process during this period. Considering the overall decline in poverty observed in the country, we define chronic poor as those households who were poor in 2015 and also poor in at least two of the three previous rounds (2009, 2011 and 2013). The intuition behind this so-called “spells approach” is that we want to incorporate the duration of being in poverty into the definition and rule out transitory and exits in the short run.

In Figure 2, we show the composition of the poor and non-poor group for 2015. Almost 60 percent of those who were poor in 2015 were chronically poor. This implies that roughly one-in-eight Georgians were in chronic poverty in 2015. To understand the challenges faced by this group, we create a comparison group of households that were poor in 2009 by who had escaped poverty by 2015. In order to minimize the possibility that we may be including households that may have been classified as poor in 2009 due to measurement errors, we further restrict this group to include those who escape poverty after being poor in 2009 and also in 2011. In Figure 2, we see that this group represented 9 percent of the population. Roughly 40 percent of the population were never poor in all four periods while a remaining close to 30 percent were in other residual transition groups. These groups include mostly households that are out of poverty in 2015, but

> 16 We do not use an upper threshold for the middle class as there is no clear guidance in the literature for how to estimate it and because using a value proportional to the $50/day line used in Lopez-Calva and Ortiz-Juarez (2014) (1,286 GEL/month, 2015 GEL) that preserves the same scale between the $10/day line and the line used here results in very low estimates of “elites” (less than 1 percent).

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