Measuring Child Poverty

Bob StephensSenior 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

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

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)

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

EAG Suite of Poverty Measures1. 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 income2. 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 & MWIb. Poverty gap: distance moving line and median income of poor4. Persistent poverty: poor for 3 of 4 years, using both moving

line income measure and MWISupplementary measures: inter-generational transmission, life-

cycle & geographic areas

Income PovertyIssues: 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 recessionsb) Equivalence Scales: adjust for household size – Couple 3 children need

more income than couple to achieve same standard of livingc) Before/after housing costs: housing costs independent of income: 65+

low income, mortgage free, cf. family 3 children, rentingd) Primary/secondary poverty: ‘free’ school mealse) Severity: how far below poverty line, using poverty gapf) Effectiveness of tax/transfer system in reducing market income poverty

2007 Data 60% Moving

Market Income

DisposableIncome

Incidence Effectiveness

Structure: Disposable

Poverty Gap $ H’hold Effect

All People 25.9 18.8 27.4 100.0 $21 79.0All Children 29.6 22.1 25.3 27.8 71.9 Child Couple 22.4 15.2 32.1 11.3 $65 67.8Child Lone Pare 74.8 63.2 15.5 16.5 $80 78.9All Adults 24.9 18.8 28.9 72.2 82.5 Adults 15-64 16.1 13.6 15.5 46.8 55.0 Adults 65+ 72.7 40.7 44.0 25.4 $80 90.5WORKFORCE

Beneficiary/NZS 100.0 86.1 13.9 50.6 $96 82.9Some income + benefits

67.8 25.0 63.1 12.0 $48 87.3

1 Adult, no bene 26.5 18.3 30.9 21.3 $23 48.72 Adults, no bene 5.1 4.2 17.6 8.6 $20 32.03+ Adults, no be 5.4 6.5 -20.4 7.6 $15 32.1

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

Economising Total  2 Parents + Kids

 1 Parent + Kids

65+ 65+ Maori

Less/cheaper meats

23 28 52 36 62

Older clothes 10 11 30 12 30

Postponed doctor visit

8 9 18 8 21

No glasses 5 6 11 10 24

Not got prescription

2 3 7 2 10

Kids share bedroom

- 8 17 - -

Financial Problems        

Borrowed money

14 13 27 1 7

Can’t pay utilities

10 12 36 2 11

Relied on charity

5 6 21 0.5 6

Accommodation Problems        

Dampness 19 20 19 - -

Plumbing 11 11 12 - -

Roof 12 13 9 - -

32

6

31

5

25

16

33

6

15

24

9

17 17 17

19

10

21

6

28

2 2

26

01

0

7

11

15

0

5

10

15

20

25

30

35

Sole-parent beneficiaries Sole-parent marketincomes

Two-parent beneficiaries Two-parent marketincomes

Family type and income source

Popu

latio

n pe

rcen

tage

MWI: Children in Low cf. High Income Households, 2008. Adapted from Perry (2012)

Low Income Middle Income High Income All children

Help from charity

20% 3% 1% 8(>once)

Dampness, mould

32% 13% 9% 17%

Lack of Heating in main rooms

18% 8% 9% 9%

Postponed child doctor visits

7% 2% 0% 2%

Lack Computer 30% 10% 4% 8%

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!!

Income Mobility: Carter, Imlach Gunasekara 2012

W+1

Q1 Q2 Q3 Q4 Q5 Totals

Q1 0.653 0.226 0.066 0.034 0.021 21330

W1 Q2 0.198 0.524 0.202 0.053 0.024 21800

Q3 0.069 0.165 0.504 0.207 0.053 21905

Q4 0.040 0.058 0.176 0.538 0.187 21855

Q5 0.031 0.030 0.055 0.169 0.715 21830

Totals 21325 21785 21920 21855 21840 108720

Number of waves in low incomeCarter, Imlach Gunasekara 2012

0 1 2 3 4 5 6 70

10

20

30

40

50

60

AllAge 0-17

Number of Waves in low income

Perc

enta

ge

Bryan Perry, March 2012

Poverty persistence

Years in poverty 0 1-2 3-4 5-8

Total 68% 21% 8% 5%

With both parents in 2001 73% 18% 4% 4%

With one parent in 2001 44% 26% 21% 9%

OCC 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%

91-94 96-99 00-03 04-07

% 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

Bryan Perry, March 2012OCC EAG

Which trajectory?

0

20

40

60

80

100

0 1 2 3 4 5 6 7 8Year

Po

pu

lati

on

inco

me

per

cen

tile

on and off benefit

benefit to low paid work

benefit to 'good job'

relationship breakdown, trauma, child-care

Poverty line

Incidence of Income-Poverty, Relative and Constant-Value

0.0

5.0

10.0

15.0

20.0

25.0

1984 1986 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2001 2004 2007

Inci

denc

e %

50% 60% Constant-value

Labour National Labour-led

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

19841986

19881989

19901991

19921993

19941995

19961997

19982001

20042007

0

10

20

30

40

50

60

70

Constant Value Poverty, 1993

Children Child Sole Parent Child CoupleAdults 65+ People

19841986

19881989

19901991

19921993

19941995

19961997

19982001

20042007

0

10

20

30

40

50

60

70

80

Relative Value Poverty 60%

All children Child Sole Parent Child CoupleAdults 65+ People

COUNTRY POPULATION CHILDREN ADULTS 65+Circa 2010 50% 60% 50% 60% 50% 60%OECD/EU average

11 16 12.3 20 15.1 18

New Zealand – Moving Line

11.0 18 12.2 20 23.5 36

-CV (1993 base) 8.2 12.9 3.9Australia 14.6 20 14.0 22 39.2 45UK 11.3 17 13.2 21 12.2 22USA 17.3 24 21.6 29 22.2Canada 11.4 20 14.8 25 4.9Ireland 9.8 15 11.0 19 13.4 17Germany 8.9 16 8.3 15 10.3 15Sweden 8.4 13 7.0 13 9.9 18Netherlands 7.2 11 9.6 15 1.7 8Spain 13.7 20 17.2 24 20.6 25Italy 11.4 18 15.3 24 8.9 20Czech 5.4 9 8.8 13 3.6 7

MAORI HOUSEHOLDS - 1993Minimum Adequate H’d Exp Fair Adeq

Participation 2 Adults + 3C 1 Adult +2C 2 Adults + 3C$ % $ % $ %

• Food 100 21.0 70 18.7 150 23.7 • H’hold Op 10 2.1 10 2.7 25 3.9• Housing 150 31.6 150 40.1 150 23.7• Power 30 6.3 20 5.3 30 4.7• Phone 11 2.4 11 3.0 11 1.6• Transport 40 8.4 30 8.0 58 9.1• Activities/Rec 15 3.2 10 2.7 38 6.0• Insurance 12 2.4 12 3.1 13 2.1• Life Insurance 20 4.2 15 4.0 20 3.2• Exceptional 10 2.1 10 2.7 25 4.0• Appliances 10 2.1 4 1.0 19 3.0• Furniture 9 2.0 4 1.0 19 3.0• Medical 15 3.2 5 1.3 15 2.3• Clothing/Foot 38 7.9 20 5.3 48 7.6• Education 6 1.2 4 1.1 12 1.8

TOTAL 475 100.0 374 100.0 634 100.0

Trends in Inequality• NZ largest increase inequality 1984-2000, then flat, fall with full

employment, Working for Families• Measures: Gini Co-efficient, P80/P20CAUSES• 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

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

0

10

20

30

40

50

60

70

1980 1985 1990 1995 2000 2005 2010HES Year

Eq

uiv

HH

dis

p in

com

e in

$20

10 (

000s

)

P10

P30

P20

P80

P70

P60

P50

P40

P90

Trends in InequalityBy Household Type

0

10

20

30

40

50

60

1980 1985 1990 1995 2000 2005 2010

HES year

Equi

valis

ed H

H inc

ome i

n $2

010 (

000s

)

Couple <65

Single <65

TOTAL

2P + deps

SP+ deps

By Ethnicity

0

10

20

30

40

1986 88 90 92 94 96 98 00 02 04 06 08 10 2012

HES Year

Equi

valis

ed H

H in

com

e in

$201

0 (00

0's)

European

Overall

Maori

Pacific

Other

Trends in Inequality

Gini Co-efficient

20

24

28

32

36

40

44

1980 85 90 95 00 05 2010

HES year

Gin

i coe

ffici

ent x

100

AHC

BHC

P80/P20 Ratio

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

1980 85 90 95 00 05 2010

HES Year

Rat

ioAHC

BHC

Poverty Incidence – Before/After Housing Costs (%)

People Adults 16-64

Adults 65+

Children

Before Housing Costs

19.7 15.0 40.2 22.4

After Housing Costs

21.3 18.8 25.3 26.2

Poverty before/after Housing Costs – tenure type

Owned Mortgage

Owned No mortgage

Rent HNZC

Rent Private

Before Housing Costs

9.2 23.8 58.1 25.1

After Housing Costs

14.2 15.2 54.6 33.8

Trends in Household Income Distribution

2004-2007Household income distribution (BHC): 2004 and 2007

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Equivalised disposable household income ($2004)

dens

ity

2004

2007

+-

2007 median in $2004

1984-2004Household income distribution (BHC): 1984 and 2004

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Equivalised disposable household income ($2004)

dens

ity

1984

2004

+-