Measuring poverty, hardship and living standards in New Zealand: a brief overview Bryan Perry

1. Measuring poverty, hardship and living standards in New Zealand: a brief overview Bryan Perry Ministry of Social Development, NZ 2nd Peter Townsend Memorial Conference Bristol, January 2011

2. Introduction • New Zealand does not have an official measure of poverty or material hardship … • the Ministry of Social Development reports on: • income distribution and income poverty using a range of measures • material hardship and deprivation using non-monetary indicators • Statistics New Zealand sends NZ income distribution and income poverty information to the OECD • involvement by state agencies is relatively recent • Brian Easton • NZ Poverty Measurement Project Bryan Perry, Jan 2011

3. Introduction (cont’d) • MSD also publishes an annual ‘Social Report’ • includes income distribution and poverty information … • but it has a wider scope - 10 domains, 43 indicators • some limited use of ‘social inclusion’ / ‘social exclusion’ discourse … some on ‘social cohesion’ … more about ‘social and economic wellbeing’ • some use of an ‘underclass’ notion by current PM • the major data gap in NZ is for the dynamics of poverty and hardship … social mobility Bryan Perry, Jan 2011

4. Outline • active promotion of a common language and understanding around poverty and hardship • using HH incomes • relative and fixed (anchored) poverty lines • an illustration of the limitations of the incomes approach (older NZers) • using non-monetary indicators to construct more direct measures of material wellbeing • the ELSI measure – its development, properties and value • addressing some of ELSI’s limitations • international comparisons • next steps? Bryan Perry, Jan 2011

5. Active promotion of the big ideas • idea of ‘poverty’ in richer nations • we use the EU’s high level conceptualisation • income poverty & deprivation – different constructs • poverty and hardship are multi-dimensional … even more so if ‘causes’ and ‘consequences’ are included … but we try to keep an uncluttered focus on the goods, services and opportunities that money can buy • cannot avoid judgment in setting thresholds … but some thresholds are much more plausible / defensible than others Bryan Perry, Jan 2011

6. Income and living standards Living standards HH income Bryan Perry, Jan 2011

7. Govt services & subsidies Access to other services & amenities Current income (eg last 12 months) + + + expected future income Previous income Living standards + Assets + _ Contributions to budget not picked up in ‘current income’ eg HH production, help from outside the HH Special demands on budget eg unexpected bill health/disability costs high housing costs support for others o/s HH Bryan Perry, Jan 2011

8. Govt services & subsidies Access to other services & amenities Current income (eg last 12 months) + + + expected future income Previous income Living standards + Assets + preferences & wants? _ Contributions to budget not picked up in ‘current income’ eg HH production, help from outside the HH Special demands on budget eg unexpected bill health/disability costs high housing costs support for others o/s HH Bryan Perry, Jan 2011

9. Trends in HH incomes and income poverty, 1982 to 2009 Bryan Perry, Jan 2011

10. Median HH income ($2009), 1982-2009, NZ Bryan Perry, Jan 2011

11. Income poverty rates, 1982 to 2009, NZ Bryan Perry, Jan 2011

12. Income poverty rates, 1982 to 2009, NZ Bryan Perry, Jan 2011

13. The limitations of relying on an incomes approach alone: the case older New Zealanders (65+) • NZ has a two-tier system of retirement income provision • NZ Superannuation - a universal pension, neither income nor asset tested • private provision by citizens • no earnings-related component • around half of older NZers have incomes of NZS plus less than $100 pw from other sources Bryan Perry, Jan 2011

14. Income poverty rates using different thresholds, by age group, 2008 Bryan Perry, Jan 2011

15. Using NMIs: our general approach • information from individual items is useful … but need multiple items working together for a robust picture • we don’t directly use the ‘socially defined necessities’ approach with, say, a 3+ lack defining ‘deprivation’ • we use the ‘enforced lack’ notion … … but are very conscious of the impact of ‘adaptive preferences’ • deprivation (and material living standards more generally) is conceptualised as a latent variable reflected in the pattern of association between a number of observable indicators Bryan Perry, Jan 2011

16. Using NMIs: our general approach (cont’d) • the indicators or survey items cover the ‘necessities’, ‘desirables’, and ‘(common) luxuries’ categories • development of a full range living stds index (low to high) • reality of consumption decisions within HHs – even the relatively poor have some ‘desirables’, even a few ‘luxuries’ • no explicit attempt to derive an income poverty line using NMIs … • but we use the steepening of the gradient of the core necessities vs income curves to provide credibility for the thresholds we do use Bryan Perry, Jan 2011

17. Can the ‘enforced lack’ NMI approach to measuring hardship be extended to cover a wider range of living standards, from low to high? Bryan Perry, Jan 2011

18. Extending the enforced lack NMI approach to cover a wider range of living standards? • the development goal • candidate items to use in the extension • the model and the model fit (CFA) • a user-friendly version (ELSI and ELSI levels) • validation • point in time findings using ELSI • a closer look at the underlying conceptualisation of living standards for ELSI • implications of this for measuring changes over time • next steps Bryan Perry, Jan 2011

19. Bryan Perry, Jan 2011

20. Bryan Perry, Jan 2011

21. Wider range of items • in addition to the usual ‘necessities’ and ‘near necessities’, we needed some items that generally reflected higher living standards • tried various consumer durables … such as a dishwasher (too much variation across groups ...) • overseas holiday once each 3 years (ie no EL) • economising items (‘not at all’) eg • cut back on local trips to visit friends and relatives • put off buying new clothes as long as possible • bought cheaper or less meat than wanted to • self-rated material standard of living Bryan Perry, Jan 2011

22. The first model Ownership ELs Participation ELs Economising Material living standards Financial hardship Housing problems SR material LS SR income adequacy Bryan Perry, Jan 2011

23. The first model Ownership ELs Participation ELs Economising Material living standards Financial hardship Housing problems SR material LS SR income adequacy Bryan Perry, Jan 2011

24. The current model Ownership ELs Participation ELs Added to stretch the top end more Economising Material living standards SR material LS SR satisfaction with LS SR income adequacy Bryan Perry, Jan 2011

25. Extending the NMI deprivation approach …. • CFA analysis for a five factor model reflecting a single latent variable - model fit very good • reliability also very good (Cronbach of 0.79) • we created a user-friendly version of the scale, with scores ranging from 0 (low) to 60 (high living standards) • correlation of 0.98 with generic scale • ‘ELSI’ (the Economic Living Standards Index) • for presentation purposes, created 7 ‘levels’ from very low to very high living standards • Levels 1 and 2 – clear hardship zone • Level 3 – hardship? Bryan Perry, Jan 2011

26. Distribution of ELSI scores by ELSI level whole population, 2008 Bryan Perry, Jan 2011

27. Validity? • to what degree can we trust an instrument to be measuring what it claims it measures? • requires a careful marshalling of evidence from different sources – cumulative, never ‘final’ * * * * * * * * * • items … close examination - not covered today • internal structure - CFA and reliability  • relationship with other variables - next section • consequences in practice - later • re-examination of underlying construct - later Bryan Perry, Jan 2011

28. Non-ELSI items: negative association with ELSI Bryan Perry, Jan 2011

29. Non-ELSI items: negative association with ELSI Bryan Perry, Jan 2011

30. Non-ELSI items: positive association with ELSI Bryan Perry, Jan 2011

31. Non-ELSI items: positive association with ELSI Bryan Perry, Jan 2011

32. Using ELSI for point in time comparisons Bryan Perry, Jan 2011

33. ELSI levels by age group, 2008 Bryan Perry, Jan 2011

34. ELSI levels by family income source, 2008 Bryan Perry, Jan 2011

35. ELSI levels by family type (under 65), 2008 Bryan Perry, Jan 2011

36. ELSI levels by tenure, 2008 Bryan Perry, Jan 2011

37. Children’s items by family ELSI level, 2008 Bryan Perry, Jan 2011

38. Children’s items by family ELSI level, 2008 Bryan Perry, Jan 2011

39. Different worlds … Bryan Perry, Jan 2011

40. Children: cumulative disadvantage • ELs • friends to birthday party • waterproof coat • separate bed • separate bedrooms for children of opp sex (10+) • all school uniform required • Economising ‘a lot’ • continued with worn out clothes/shoes • postponed visit to doctor • did not pick up prescription • unable to pay for school trip • went without music, dance, kapa haka, art, swimming, etc • involvement in sport had to be limited Bryan Perry, Jan 2011

41. ELSI is very useful as is, but it is still a work in progress • Respondent burden • 40 items • have a ‘short-form’ of 25 items, but need to reduce further • Compression in upper half of the scale • need for more items for modest to high living standards • potential with some ‘quality’ items, two new economising items, and one about ‘no restrictions’ for making an ‘unplanned purchase’ of around GBP125 • would like to reduce reliance on global self-ratings • Underlying conceptualisation of living standards • what does ELSI actually measure? Bryan Perry, Jan 2011

42. What does ELSI actually measure? • ELSI scores reflect the degree of financial restriction (freedom) that respondents report about consumption relative to desired consumption from a list of basics and non-basics … • … that have been shown to reflect a common underlying or latent variable Bryan Perry, Jan 2011

43. Implications for monitoring changes in material living standards over time • ‘Our living standards are higher today than 20 years ago’ usually means that consumption is higher / more people have access to more of the goods and services considered out of reach 20 years ago. • ELSI is about changes in consumption relative to desired consumption, not changes in consumption per se • If expectations about consumption rise in step with rising living standards, then the average ELSI score is likely to show little or no change over time. Bryan Perry, Jan 2011

44. Implications for monitoring changes in material living standards over time (cont’d) • This is what we found from 2000 to 2004 to 2008 – no change in avg ELSI scores • The way people respond to global self-ratings of living standards is consistent with ELSI’s ‘relative to desired consumption’ conceptualisation • viz if a person’s living standards rise in rough step with those of their ‘reference group’ then their self-rating will remain much the same • The ELSI conceptualisation of living standards is internally consistent … but there is a marketing challenge ! Bryan Perry, Jan 2011

45. FRILS? • We have experimented with a ‘Fixed Reference Index of Living Standards’ (FRILS) • O and P items: have it / don’t have it • E items: economise a lot ≡ don’t have • SR items: omitted Bryan Perry, Jan 2011

46. ELSI and FRILS compared: point-in-time rankings • rankings for the usual population groups are much the same for ELSI and FRILS • main exception is for those aged 65+, esp singles … FRILS produces similar hardship rates but a much lower proportion with higher living standards • ‘adaptive preferences’ for the 65+, esp the singles? compared with younger adults they report fewer ELs for a given number of lacks, and also satisfaction with less: • to maintain dignity and/or sanity by saying they’re OK even when just getting by and ‘overstating’ self-ratings? or • having found that that is a ‘better’ way to live? Bryan Perry, Jan 2011

47. ELSI & FRILS compared: hardship rates Bryan Perry, Jan 2011

48. Avg ELSI & FRILS scores compared Bryan Perry, Jan 2011

49. ELSI & FRILS compared: ‘doing OK’ rates Bryan Perry, Jan 2011

50. ELSI & FRILS compared: ‘doing OK’ rates Bryan Perry, Jan 2011