Seminar for Statistics New Zealand Bob Stephens Senior Research Associate, Institute of Policy Studies, School of Government New Zealand Poverty Measurement Project Member, Advisory Group, Solutions to Child Poverty, Office of the Children’s Commissioner

Lecture Overview Media: 20% children poor, but few 65+ Defining Poverty Why have a measure of poverty? NZPMP and benefit cuts Look at the concepts of poverty, data sources and analysis Alternative ways of measuring poverty/ hardship Use NZ data (NZPMP and MSD) and analysis to show results

Definitions, Quotes NZPMP ‘A lack of access to sufficient economic and social resources that would allow a minimum adequate standard of living’ Perry (MSD) ‘Exclusion from the minimal acceptable way of life in one’s own society because of inadequate resources’ Children living in poverty are those who experience deprivation of income and material resources to develop and thrive, leaving them unable to enjoy their rights, achieve their full potential and participate as full and equal members of New Zealand society. (EAG?) ‘Counting the poor is an exercise in the art of the possible. For deciding who is poor, prayers are more relevant than calculations because poverty, like beauty, lies in the eyes of the beholder’ (Orshansky 1958) The afflictions of poverty not addressed by moving over the threshold, and some under threshold are resilient

The Need for a Poverty Measure Social commitment to alleviate, provide long-term solution: Monitor/evaluate impact of policy changes on standards of living of poor New Right: poverty as an externality Provide basis for determining adequacy of benefits Determine relative incidence of poverty among social groups: -> targeting, tailoring Mix of cash and in-kind benefits, or adequate wages Determine causes of poverty to develop long term policies to reduce incidence, severity and persistence Calculate costs to government of policies to alleviate and eradicate poverty

New Zealand Poverty Measurement Project Charles Waldegrave, Paul Frater, Bob Stephens Impact of the 1991 Benefit Cuts, market rents for state housing on living standards 12% cut in average social security benefit, larger cut <25, unemployed, less for invalids and pensions Small local studies showing hardship, but ‘not statistically valid’. Growth of food banks, special benefits, No political monitoring of impact of benefit cuts, nor political response NZPMP for statistical measurement of income poverty, put poverty on political agenda Impact of doctors, teachers, housing on social outcomes But issue of how to establish a poverty threshold, what measures/indicators of poverty to use

Ways of Measuring Poverty Income-poverty: those families with an (equivalent) income below a threshold – NZPMP & MSD Standards of Living: families that ‘go without’ items of expenditure due to income constraints (outcome measure) – MSD. ELSI and MWI -link with HES Deprivation indices: census mesh-block areas with high incidence of sole parents, high unemployment, low incomes, rented property Statics, comparative statics, d Dynamic: persistence, inter-generational transmission Some NZ results Indicators/Additional Measures: health, education, housing, family circumstances A (Child) Poverty Act??: measuring, indicators, monitoring, accountability.

COUNTRY POPULATIONCHILDRENADULTS 65+ Circa %60%50%60%50%60% OECD/EU average New Zealand – RELATIVE CV (1993 base) Australia UK USA Canada Ireland Germany Sweden Netherlands Spain Italy Czech

2007 Data 60% Market Income Disposable Income Incidence Effectiveness Structure: Disposable Poverty Gap effectiveness All People All Children Child Couple Child Lone Pare All Adults Adults Adults WORKFORCE Beneficiary Some income + benefits Adult, no bene Adults, no bene Adults, no be

Living Standards (MSD) 2001 & 2004 Outcome measure, based on deprivation Go without due to income constraint, not choice Items range from necessities to luxuries Ownership restrictions, social participation, economising, financial, accommodation Same groups poor as Income measure, though 65+ better living standards (home ownership, assets) But only 50% overlap of individuals between measures: due to assets, health status, duration of low income, family break-up

Economising Total 2 Parents + Kids 1 Parent + Kids Maori Less/cheaper meats Older clothes Postponed doctor visit No glasses Not got prescription Kids share bedroom Financial Problems Borrowed money Can’t pay utilities Relied on charity Accommodation Problems Dampness Plumbing Roof

Sole-parent beneficiariesSole-parent market incomes Two-parent beneficiariesTwo-parent market incomes Family type and income source Population percentage

Concepts: Income Poverty 1. Absolute or Relative Issues: a) how to set initial threshold b) update threshold through time Absolute – unable to achieve a minimum standard of living, but set relative to country - update by CPI (constant value) - poor fall behind (reset every 5/10 years?) Relative: - maintain real value of threshold - update by median or average earnings. - using median in NZ gives ‘wrong’ results through time: poverty rises in booms, falls recessions

Comparison Constant Value and Relative Value Measures of Poverty, New Zealand,

2. Setting the Threshold Objective – set by ‘experts’, Arbitrary – 50% or 60% median income Subjective – based on knowledge of the population [but ‘experts’ set parameters] NZPMP: use of focus groups to negotiate a minimum adequate income level - But we set standard: adequate nutrition, able to afford doctor visit, one warm room: results now 20 years old Budget accepted as realistic = 60% median household equivalent disposable income

MAORI HOUSEHOLDS Minimum Adequate H’d Exp Fair Adeq Participation 2 Adults + 3C1 Adult +2C2 Adults + 3C $%$%$ % Food H’hold Op Housing Power Phone Transport Activities/Rec Insurance Life Insurance Exceptional Appliances Furniture Medical Clothing/Foot Education TOTAL

3. Measures of Income Poverty Incidence: proportion of population falling below threshold - Draws attention to issue - Also consider proportion of total poor in a category number of kids, work force status, ethnicity (Structure) Severity or poverty gap: extent to which households fall below the poverty threshold. could use number below 50%, or poor both living standards and income poverty Effectiveness of tax-benefit system in reducing market poverty Working for Families - small impact on incidence, but greater impact on severity

4. Adjusting for Household Size and Composition Equivalence Scales: arbitrary How much extra income does a household of 2 adults and 3 children require to achieve same standard of living as a couple Economies of scale of living together NZ – use Jensen scales = OECD Couple = 1.00, Single = 0.60: i.e. requires 60% of income to achieve same standard of living; Sole parent 1 child = 0.92; couple 3 kids = 1.77

Other Issues in Poverty Measurement Before and after housing costs BHC: resources available to household, AHC as housing costs independent of income Data source: Household Economic Survey, but small sample, problem of those declaring losses, Allows analysis by household type, ethnic status, number of children, housing tenure, work-force status, age of ‘head’ of household Ignores impact of GST, in-kind benefits Primary and secondary poverty

5. Poverty Dynamics Comparative statics: trend through time (slide 11) Persistence: length of time household is in poverty - One year (transient)may have little impact on outcomes - Some movement in/out of poverty: boundary hopping, or student into work, or retire. - Over 5 years, 65% remain bottom 20%, only 5% to top 40% income; - 71% remain in top 20%, 6% to bottom 40% income - But persistent, chronic and permanent - Data: !! SOFIE!!

Bryan Perry, March 2012OCC EAG Which trajectory?

Income Mobility: Carter, Imlach Gunasekara W+1 Q1Q2Q3Q4Q5Totals Q W1Q Q Q Q Totals

Number of waves in low income

Bryan Perry, March 2012OCC EAG Poverty persistence Australia – HILDA survey, 2001 to 2008 children aged under 12 in wave 1 (2001), 60% BHC … ~18% Years in poverty Total 68%21%8%5% With both parents in %18%4% With one parent in %26%21%9% UK – BHPS, 1991 to 2007 children aged under 17 in first wave of the 4 60% BHC …. ~ 22% % in poverty in at least 3 of the 4 years 19%17%14%10%

Inter-generational transference: Are children who grow up in poor families more likely to be poor themselves when adults? Limited NZ data: Dunedin and Christchurch cohort studies have poor income data Limited inter-generational mobility – about ½ children remain in same income bracket as parents Less mobility for parents with low education, teenage parenting, unemployment -> poorer child performance

Deprivation Indicators EU data, with NZ added (MSD) 9 item EU index (not by choice: lack phone, colour TV, washing machine, car, meal with meat, week holiday, pay mortgage/rent/utilities, cover unexpected costs $NZ1500) Enforced lack 3+ items Child deprivation exceeds aged 65+ and for total population NZ material hardship high for children, low for aged 65+ New EU countries have high rates of deprivation

Deprivation Rates: % 3+ enforced lacks, using 9 item EU index Source: B. Perry, MSD Children 0-17Aged 65+Total Population New Zealand18313 UK15510 Ireland14411 Germany137 Sweden736 Netherlands636 Spain911 Italy1814 Czech201720

Poverty Incidence – Before/After Housing Costs (%) PeopleAdults Adults 65+ Children Before Housing Costs After Housing Costs

Poverty before/after Housing Costs – tenure type Owned Mortgage Owned No mortgage Rent HNZC Rent Private Before Housing Costs After Housing Costs