The New Zealand Initiative have released the first of their three reports on poverty in New Zealand. This first report is focussed on discussing measures of poverty but also touches on factors contributing to poverty as well as some interesting information about the evolution of poverty alleviation in New Zealand.
The report contains some good points about the unintended consequences of welfare and employment policies, such as how high marginal tax rates trap people in poverty. This happens when people earn money through a job and then have their benefit rapidly taken off them – leaving them no better off. However, most of the report is dedicated to making the case that relative income measures are a poor measure of poverty and material deprivation measures are much more robust. This argument is not new.
Our introductory articles on how to improve the lives of children in poverty, alongside pieces by others on child poverty over summer, led to a veritable blizzard of opinion pieces, including this one by Jamie Whyte. He argued there is no family poverty in Aotearoa New Zealand, and justified this by attacking the relative income measures used to define poverty levels.
The fact is, that no matter what the New Zealand Initiative or Jamie Whyte say (note that happily the New Zealand Initiative is not denying the existence of poverty in New Zealand unlike Whyte) there is no perfect measure of child poverty. Debates about the measure are just distraction from the real issue: whatever measure we use kids in Aotearoa New Zealand are still excluded from opportunities based on their family’s economic circumstances and we are still not providing the best solutions.
What is the measure in question?
The main measure under fire is the relative income measure of poverty. In brief this measure states how many children are in families that earn below 60% (or sometimes 50%) of the median income. So if the median income rises (not the mean as is often confused), but lower incomes don’t rise as fast (as we have seen in recent years), the numbers in poverty by this measure will rise.
This is a measure of the relative level of poverty rather than an absolute one (like $2 a day that is used for measuring poverty in the developing world). This relative income measure moves around every year and compares household incomes within the same year. However, to confuse the issue the relative income measure can be fixed to a specific years’ median income too – so we can compare median incomes (and 60% of that) now to median incomes in 2007 (adjusting for things like inflation) and see what is happening over time.
The 60% median income measure is one of many poverty measures
We actually agree, the 60% relative measure is far from a perfect measure of child poverty. It is more accurately described as a measure of inequality. The problem is that no single measure of poverty we currently have is perfect (not even the material deprivation ones that Bryce Wilkinson and Jenesa Jeram are so keen on). Nobody serious would suggest that income has to fall below $2 per day in order for a person in New Zealand to be regarded as impoverished, so clearly absolute measures are not great either.
What we ideally want is a measure of the opportunities that our children have, to ensure they have a fair start in life. In practice any measurement requires a judgment call about what poverty looks like. To Jamie Whyte for example poverty is what kids in Indonesia face – therefore he says “there is no poverty in New Zealand.”.
To overcome this judgment problem, researchers employ around twelve different measures of family poverty, including the 60% of median income complained about. Some are income-based measures, some are measures of material deprivation sometimes referred to as consumption (which both New Zealand Initiative and Jamie Whyte suggested should be used), some are relative and others are fixed measures (as we noted above), some include or exclude housing costs. No measure is perfect, all have their challenges, BUT all also have their uses especially when viewed together.
Why the material deprivation or consumption measures are not perfect either
Material deprivation measures tell us about the goods and services people have access to (not just their disposable income which as is rightly pointed out is not a great measure of poverty for everyone). It is claimed this gives us a better idea about how deprived a family actually is – what they don’t have as opposed to what they might be able to buy. But as a measure it isn’t perfect either. While assessing a family’s access to material goods can give an idea of their economic position, it alone doesn’t tell us whether the kids are being disadvantaged or not. Can a family keep their house warm in winter, afford meat and good quality food to eat, replace growing children’s clothing and shoes, afford a trip to the dentist for a painful tooth, and fix the car or washing machine if it breaks? These are all useful indicators. But again it is still just a proxy for knowing whether their kids get anywhere near similar opportunities to other kids.
If we are concerned about kids getting a fair start in life, what kids will need to succeed will change depending on where the children grow up and over time. For example, schools increasingly push the use of technology or school trips, which some kids can’t afford. So ideally material or consumption measures need to be constantly updated based on judgements about what constitutes fair opportunities and geography, and the line at which ‘deprivation’ kicks in needs to be redrawn. For example the EU material deprivation measure includes questions about basic needs such as a computer in the home, having a holiday away from home for a week. Material deprivation measures need constant updating over time to reflect changes in society. This makes it impossible to keep them consistent over time.
Getting the perfect measure of material deprivation is very difficult. What about things like a physical space in the house to do their homework? Oran adult who is available to assist and support during homework? These types of things also matter in terms of opportunities children have. They are not commonly thought of as defining poverty, but to the extent they deny children from a fair start in life, they constitute deprivation.
Of course the challenge is to define what “a fair start in life” means and this is why it’s recognised that neither income nor material deprivation nor consumption measures alone are perfect. We need to look across many of them. Sometimes we need to create combined measures (poverty severity is one of those – it combines income and deprivation measures)
So what do the different measures tell us about poverty?
While the overall numbers of children in poverty may change depending on the measure used, the trend is the same. Child poverty rose in the 1990s, fell in the early 2000s, and went up again during the Global Financial Crisis with a peak around 2010. Since then the trend isn’t clear depending on the measure used – we need more data to be certain.
Here are the trends using various income measures which are the focus of the NZ initiatives criticism (though it is unclear in their report how they feel about the fixed line or constant relative income measures):
Proportion of children below selected thresholds (AHC):
fixed line (CV) and moving line (REL) approaches compared
Source: Household Incomes in New Zealand, 2015.
And below are the trends for material hardship alone. No good news here either really. Since 2010 the numbers of moderately deprived have fallen, but the numbers for the most severely deprived are stable:
Material hardship trends for different thresholds (0-17yrs)
Source: NIMS Report 2015
Using a different material deprivation measure, one that is also used in the European Union, we see that the total numbers of children in severe material hardship have come down in the last few years but in our most recent year of collecting data are still higher than in 2007. For the slightly less deprived (but still deprived compared to most children) we are at the same total numbers as we were in 2007.
Material hardship rates (%) and numbers for children
|HES year||EU ‘standard’ threshold||EU ‘severe’ threshold|
|rate (%)||numbers||rate (%)||numbers|
Source: NIMS, 2015
When you look at income and material hardship together (what some researchers define as ‘severe poverty’) it is the same story, a bit of up and down, but the difference is a clear upward swing in the proportion of children in severe poverty over the last 7 years.
Trends in the proportion of those who are both income poor and materially deprived, 2007 to 2014
Source NIMS, 2015
However you look at it, we are not making progress for kids in poverty
The NZ Initiative is right; the 60% of median income is not a perfect measure of poverty. But that is why we have a bunch of other measures and they all say pretty much the same thing: at worst we are going backwards on child poverty, and at best we are at a standstill.
We could continue to argue about how we measure poverty, but that is a smokescreen. We are already doing a pretty comprehensive job of measuring multiple concepts of poverty; sure we could do more (wealth measures for one need more attention). However, what we know hasn’t changed. There is a static (and possibly growing) group of families and children who are excluded from our way or life, from opportunities to engage, succeed and be healthy, because of inadequate resources. It costs them and their families personally and it costs us at least $8 billon a year in health care, education, crime, loss of earnings etc.
Rather than quibbling over the measurements and numbers, rates of poverty and who is right, the serious discussion we want to have is what does the evidence tell us works to overcome the lack of opportunity NZ kids in poverty experience? How do we ensure kids in poverty get to fully participate in everything NZ offers and close the gap in their health, well-being, and educational outcomes? That is the real story to tell.