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
Circa 2010
OECD/EU
average
New Zealand –
RELATIVE
-CV (1993 base)
Australia
UK
USA
Canada
Ireland
Germany
Sweden
Netherlands
Spain
Italy
Czech
POPULATION
50% 60%
CHILDREN
50% 60%
ADULTS 65+
50% 60%
11
16
12.3
20
15.1
18
11.0
18
12.2
20
23.5
36
14.6
11.3
17.3
11.4
9.8
8.9
8.4
7.2
13.7
11.4
5.4
8.2
20
17
24
20
15
16
13
11
20
18
9
14.0
13.2
21.6
14.8
11.0
8.3
7.0
9.6
17.2
15.3
8.8
12.9
22
21
29
25
19
15
13
15
24
24
13
39.2
12.2
22.2
4.9
13.4
10.3
9.9
1.7
20.6
8.9
3.6
3.9
45
22
17
15
18
8
25
20
7
2007 Data
60%
Market
Income
Disposable
Income
Incidence
Effectiveness
Structure:
Disposable
Poverty Gap
effectiveness
All People
25.9
18.8
27.4
100.0
79.0
All Children
29.6
22.1
25.3
27.8
71.9
Child Couple
22.4
15.2
32.1
11.3
67.8
Child Lone Pare
74.8
63.2
15.5
16.5
78.9
All 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
90.5
100.0
86.1
13.9
50.6
82.9
Some income +
benefits
67.8
25.0
63.1
12.0
87.3
1 Adult, no bene
26.5
18.3
30.9
21.3
48.7
2 Adults, no bene
5.1
4.2
17.6
8.6
32.0
3+ Adults, no be
5.4
6.5
-20.4
7.6
32.1
WORKFORCE
Beneficiary
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
Less/cheaper
meats
Older clothes
Total
1 Parent +
Kids
52
65+
23
2 Parents +
Kids
28
36
65+
Maori
62
10
11
30
12
30
9
18
8
21
6
3
11
7
10
2
24
10
8
17
-
-
13
27
1
7
12
36
2
11
6
21
0.5
6
20
11
13
19
12
9
-
-
Postponed
8
doctor visit
No glasses
5
Not
got
2
prescription
Kids
share
bedroom
Financial Problems
Borrowed
14
money
Can’t
pay
10
utilities
Relied
on
5
charity
Accommodation Problems
Dampness
Plumbing
Roof
19
11
12
35
33
32
31
30
28
26
25
24
Population percentage
25
21
19
20
17
17
16
17
15
15
15
11
10
9
10
7
6
6
6
5
5
2
2
1
0
0
0
Sole-parent beneficiaries Sole-parent market
incomes
Two-parent beneficiaries Two-parent market
incomes
Family type and income source
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
Incidence of Income-Poverty, Relative and
Constant-Value
25.0
Labour
National
Labour-led
Incidence %
20.0
15.0
10.0
5.0
0.0
1984 1986 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2001 2004 2007
50%
60%
Constant-value
Comparison Constant Value and Relative Value
Measures of Poverty, New Zealand, 1984-2007
Relative Value Poverty 60%
Constant Value Poverty, 1993
70
80
60
70
60
50
50
40
40
30
30
20
20
10
10
0
0
Children
Child Sole Parent
All children
Child Sole Parent
Child Couple
Adults 65+
Child Couple
Adults 65+
People
People
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 - 1993
Minimum Adequate H’d Exp
Fair Adeq
Participation 2 Adults + 3C
1 Adult +2C
2 Adults + 3C
$
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Food
100
H’hold Op
10
Housing
150
Power
30
Phone
11
Transport
40
Activities/Rec 15
Insurance
12
Life Insurance 20
Exceptional
10
Appliances
10
Furniture
9
Medical
15
Clothing/Foot 38
Education
6
TOTAL
475
%
$
%
$
21.0
2.1
31.6
6.3
2.4
8.4
3.2
2.4
4.2
2.1
2.1
2.0
3.2
7.9
1.2
100.0
70
10
150
20
11
30
10
12
15
10
4
4
5
20
4
374
18.7
2.7
40.1
5.3
3.0
8.0
2.7
3.1
4.0
2.7
1.0
1.0
1.3
5.3
1.1
100.0
150
25
150
30
11
58
38
13
20
25
19
19
15
48
12
634
%
23.7
3.9
23.7
4.7
1.6
9.1
6.0
2.1
3.2
4.0
3.0
3.0
2.3
7.6
1.8
100.0
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!!
Which trajectory?
100
on and off benefit
Population income percentile
benefit to low paid work
80
benefit to 'good job'
relationship breakdown, trauma, child-care
60
40
Poverty
line
20
0
0
1
2
3
4
Year
5
6
OCC EAG
7
8
Bryan Perry, March 2012
Income Mobility: Carter, Imlach Gunasekara
W+1
W1
Q1
Q2
Q3
Q4
Q5
Totals
Q1
0.653
0.226
0.066
0.034
0.021
21330
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
21325 21785 21920 21855 21840
108720
Totals
Number of waves in low income
60
Percentage
50
40
All
Age 0-17
30
20
10
0
0
1
2
3
4
5
Number of Waves in low income
6
7
Poverty persistence
•
•
Australia – HILDA survey, 2001 to 2008
children aged under 12 in wave 1 (2001), 60% BHC … ~18%
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%
•
•
•
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
91-94
96-99
00-03
04-07
19%
17%
14%
10%
OCC EAG
Bryan Perry, March 2012
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 0-17
Aged 65+
Total Population
New Zealand
18
3
13
UK
15
5
10
Ireland
14
4
11
Germany
13
7
13
Sweden
7
3
6
Netherlands
6
3
6
Spain
9
11
11
Italy
18
14
14
Czech
20
17
20
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 Owned No
Mortgage 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