1. Measuring Child Poverty Bob Stephens Senior Research Associate, Institute of Governance and Policy Studies, New Zealand Poverty Measurement Project (NZPMP) Member, Expert Advisory Group, Solutions to Child Poverty, Office of the Children’s Commissioner 19 September 2012

2. Lecture Overview Media: 20% children poor, but few 65+:  but how did we get to these figures Defining Poverty Why have a measure of poverty? Alternative ways of measuring poverty/ hardship Use NZ data (NZPMP and MSD) and analysis to show results

3. Definitions, Quotes 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,OCC) ‘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 are not addressed by moving over the threshold, and some people under the poverty threshold are resilient and escape the problems of poverty ‘Societies that are more unequal generally have worse social outcomes’ (Wilkinson and Pickert) ‘He who has the gold gets to rule; he who rules gets the gold’, (Machiavelli)

4. 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 Another organization will measure Provide basis for determining adequacy of benefits, including family assistance Determine relative incidence, severity and persistent of poverty among social groups 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, especially when children become adults Calculate costs to government of policies to alleviate and eradicate poverty

5. EAG Suite of Poverty Measures 1. Income-poverty: those families with an (equivalent) income below a threshold of 60% median equivalised household disposable income: a.Constant value (adjusted for inflation), before (BHC) and after adjusting threshold for housing costs (AHC) b.Moving line: BHC & AHC adjusted by median income 2.Material Deprivation. Families that ‘go without’ items due to income constraints. Poor if MWI score in levels 1 or 2 (out of 7) 3.Severe poverty: a.Poor if fall below both 60% moving line threshold & MWI b.Poverty gap: distance moving line and median income of poor 4.Persistent poverty: poor for 3 of 4 years, using both moving line income measure and MWI Supplementary measures: inter-generational transmission, life-cycle & geographic areas

6. Income Poverty Issues: a) Poverty Threshold: *How to set initial income threshold: arbitrary; focus groups on ‘minimum adequate income’, e.g. adequate nutrition, warm house. - result: 60% median equivalent household disposable income * How to update threshold through time: i.by CPI (constant value), but poor fall behind (reset every 5/10 years?) ii.by median earnings (moving line): maintain real value of threshold, but in NZ gives ‘wrong’ results: poverty rises in booms, falls recessions b)Equivalence Scales: adjust for household size – Couple 3 children need more income than couple to achieve same standard of living c)Before/after housing costs: housing costs independent of income: 65+ low income, mortgage free, cf. family 3 children, renting d)Primary/secondary poverty: ‘free’ school meals e)Severity: how far below poverty line, using poverty gap f)Effectiveness of tax/transfer system in reducing market income poverty

7. 2007 Data 60% Moving Market Income Disposable Income Incidence Effectiveness Structure: Disposable Poverty Gap $ H’hold Effect All People25.918.827.4100.0$21 79.0 All Children 29.622.125.327.8 71.9 Child Couple 22.415.232.111.3$65 67.8 Child Lone Pare 74.863.215.516.5$80 78.9 All Adults 24.918.828.972.2 82.5 Adults 15-64 16.113.615.546.8 55.0 Adults 65+ 72.740.744.025.4$80 90.5 WORKFORCE Beneficiary/NZS 100.086.113.950.6$96 82.9 Some income + benefits 67.825.063.112.0$48 87.3 1 Adult, no bene 26.518.330.921.3$23 48.7 2 Adults, no bene 5.14.217.68.6$20 32.0 3+ Adults, no be 5.46.5-20.47.6$15 32.1

9. Living Standards (MSD) 2001 & 2004 Only 50% overlap of individuals between income and MWI, though same groups poor: due to assets, health status, duration of low income, family break- up 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 Problems in aggregating separate items to total 7 groupings, most restrictions poorest

10. Economising Total 2 Parents + Kids 1 Parent + Kids 65+65+ Maori Less/cheaper meats 2328523662 Older clothes1011301230 Postponed doctor visit 8918821 No glasses56111024 Not got prescription 237210 Kids share bedroom -817-- Financial Problems Borrowed money 14132717 Can’t pay utilities 101236211 Relied on charity 56210.56 Accommodation Problems Dampness192019-- Plumbing11 12-- Roof12139--

11. 32 6 31 5 25 16 33 6 15 24 9 17 19 10 21 6 28 22 26 0 1 0 7 11 15 0 5 10 15 20 25 30 35 Sole-parent beneficiariesSole-parent market incomes Two-parent beneficiariesTwo-parent market incomes Family type and income source Population percentage

12. MWI: Children in Low cf. High Income Households, 2008. Adapted from Perry (2012) Low IncomeMiddle IncomeHigh IncomeAll children Help from charity 20%3%1%8(>once) Dampness, mould 32%13%9%17% Lack of Heating in main rooms 18%8%9% Postponed child doctor visits 7%2%0%2% Lack Computer30%10%4%8%

13. 5. Poverty Dynamics 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 distribution; -71% remain in top 20%, 6% to bottom 40% income -But persistent, chronic and permanent -Data: !! SOFIE!!

14. Income Mobility: Carter, Imlach Gunasekara 2012 W+1 Q1Q2Q3Q4Q5Totals Q1 0.6530.2260.0660.0340.02121330 W1Q2 0.1980.5240.2020.0530.02421800 Q3 0.0690.1650.5040.2070.05321905 Q4 0.0400.0580.1760.5380.18721855 Q5 0.0310.0300.0550.1690.71521830 Totals 2132521785219202185521840108720

15. Number of waves in low income Carter, Imlach Gunasekara 2012

16. Poverty persistence Years in poverty 01-23-45-8 Total 68%21%8%5% With both parents in 2001 73%18%4% With one parent in 2001 44%26%21%9% Bryan Perry, March 2012OCC EAG Australia – HILDA survey, 2001 to 2008 children aged under 12 in wave 1 (2001), 60% BHC … ~18% UK – BHPS, 1991 to 2007 children aged under 17 in first wave of the 4 60% BHC …. ~ 22% 91-9496-9900-0304-07 % in poverty in at least 3 of the 4 years 19%17%14%10%

17. 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

18. Bryan Perry, March 2012OCC EAG Which trajectory?

20. Comparison Constant Value and Relative Value Measures of Poverty, New Zealand, 1984-2007

21. COUNTRY POPULATIONCHILDRENADULTS 65+ Circa 201050%60%50%60%50%60% OECD/EU average 111612.32015.118 New Zealand – Moving Line 11.01812.22023.536 -CV (1993 base)8.212.93.9 Australia14.62014.02239.245 UK11.31713.22112.222 USA17.32421.62922.2 Canada11.42014.8254.9 Ireland9.81511.01913.417 Germany8.9168.31510.315 Sweden8.4137.0139.918 Netherlands7.2119.6151.78 Spain13.72017.22420.625 Italy11.41815.3248.920 Czech5.498.8133.67

22. MAORI HOUSEHOLDS - 1993 Minimum Adequate H’d Exp Fair Adeq Participation 2 Adults + 3C1 Adult +2C2 Adults + 3C $%$%$ % Food10021.07018.715023.7 H’hold Op 10 2.110 2.7 25 3.9 Housing15031.6 15040.115023.7 Power 30 6.320 5.330 4.7 Phone 11 2.411 3.011 1.6 Transport 40 8.430 8.058 9.1 Activities/Rec 15 3.210 2.7 38 6.0 Insurance 12 2.412 3.113 2.1 Life Insurance 20 4.215 4.0 20 3.2 Exceptional 10 2.110 2.7 25 4.0 Appliances 10 2.1 4 1.019 3.0 Furniture 9 2.0 4 1.019 3.0 Medical 15 3.2 5 1.315 2.3 Clothing/Foot 38 7.920 5.348 7.6 Education 6 1.2 4 1.112 1.8 TOTAL475100.0374100.0 634100.0

23. Trends in Inequality NZ largest increase inequality 1984-2000, then flat, fall with full employment, Working for Families Measures: Gini Co-efficient, P80/P20 CAUSES Tax cuts: 1986 [66%->48% then 33%], but base broadening, GST; 2000 39%, 2009 33% Rise in proportion dual income households Benefit cuts 1991 – 5% IB, 15+% UB Post 1991, fall benefit level [CPI] cf. average earnings: Employment trends: benefit numbers increase 1984-1997; fall to 2008; post 2008 rise Increasing wage inequality, esp. at top Working for Families: FTC, back to 1986 level, IWTC Globalisation, market liberalisation, change views on ethics

24. Real household income trends (BHC), 1982 to 2011 ($2011)

25. Trends in Inequality By Household Type By Ethnicity

26. Trends in Inequality Gini Co-efficientP80/P20 Ratio

27. Poverty Incidence – Before/After Housing Costs (%) PeopleAdults 16-64 Adults 65+ Children Before Housing Costs 19.715.040.222.4 After Housing Costs 21.318.825.326.2

28. Poverty before/after Housing Costs – tenure type Owned Mortgage Owned No mortgage Rent HNZC Rent Private Before Housing Costs 9.223.858.125.1 After Housing Costs 14.215.254.633.8

29. Trends in Household Income Distribution 2004-2007 1984-2004