Measuring Chiid Poverty

CHILDPOVERTYMAWREVtEWA

EDITED BY

Jan Carter

Measuring Child Poverty

edited by Jan Carter

Brotherhood of St LaurenceMelbourne 1991

First published in 1991 by The Brotherhood of St Laurence 67 Brunswick Street Fitzrqy. Victoria 3065

O The Brotherhood of St Laurence 1991

Child Poverty Policy Review No. 6 ISSN 1033-4394

Australian Cataloguing-in-Publication Data

Measuring child poverty.

Bibliography.ISBN 0 947081 50 X.

1. Poverty. 2. Poor children - Australia. 1. Carter, Jan. H. Brotherhood of St. Laurence. (Series : Child poverty policy review: no. 6).

362.70860994

This book is copyright. Apart from fair dealingfor the purpose of private study, research, criticism.or review, as permitted under the Copyright Act. nopart may be reproduced by any process without writtenpermission. Enquiries should be addressed to the publisher.

Set and made up by Debbie Toy on XEROX VENTURA at the BSLCover design by Pauline McClenahanCover illustration by Jiri Hbor NovakPrinted by Currency Productions, Fitzroy, Victoria

Foreword

When Australia emerged from recession in 1983, it did so with the second highest levels of child poverty in the OECD. Conservative estimates suggested that one in five of the nation's children lived below the Henderson poverty line. Throughout the 1980s, welfare groups such as the Brotherhood of St Laurence and the Councils of Social Service throughout Australia drew repeated attention to the existence of poor children—particularly the children of sole parents and the unemployed—to the children and young people who were homeless and to the destitution of many Aboriginal children (Carter & Trethewey 1990).

In 1986 the Federal Government set up the Social Security Review which confirmed the existence bf child poverty. By 1987, it was willing not only to concede that child poverty was a problem, but that by "1990, no Australian child would be living in poverty".

In 1988, the Brotherhood of St Laurence launched its own review of child poverty—the Child Poverty Policy Review. This re­search and policy analysis attempted to examine the relationship between child poverty and inequality in contemporaiy Australia (Harris 1989), the relationship between child poverty, social Justice and services for children (Harris 1990), child poverty and budget policy (McClelland 1988) and child poverty and the Australia of the future (Crossley 1990). Specific groups of children in poverty were noted: Aboriginal children (Choo 1990), homeless young people (Taylor 1990) and the children of sole parents (McClelland 1988).

In 1989 the Brotherhood of St Laurence together With the Coun­cils of Social Service throughout Australia launched a national campaign, Promise the Children Action on Child poverty. This ad­vocacy attempted to raise the consciousness of Australians about the existence of child poverty: to persuade the Federal Government to reduce child poverty further and to educate Coalition parties on the need for policies which would reduce, not exacerbate poverty (Trethewey 1990).

In general, the welfare community was delighted to have Prime Minister Hawke's pledge of the eradication of child poverty by 1990. Even in its subsequently truncated form ("no child need live in poverty") it was the most specific welfare policy promise of the

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centuiy. Far from demonstrating cynicism, "the promise* provided a benchmark by which progress could be evaluated.

In 1987, the Federal Government introduced its anti poverty in­come security program tor families, Family Allowance Supplement (FAS). FAS now pays $26.50 per week for children under 13 and $38.65 per week for children over 13 to families in and out of the work force. FAS is an extra payment for those low income families in the labour force who apply to the Department of Social Security for the payment. For families reliant on government pensions and benefits the payments are automatically combined with their regular payments. FAS was indexed in 1989 and now supports 455 000 children whose parents earn less than $20 756 a year. (From $20 756 to $39 330 a year, part payments are possible.)

Correctly, FAS was hailed by the Federal Government as a his­toric reform. But did it reach the Government's own goal, the elimination of child poverty? This question is the starting point of this book.

First, surprising as it may seem, no one knew how many Australian families qualified for FAS, so no one could assess the take-up rates accurately. While the number of children receiving social security benefits via their parents was known, the number of poor children whose parents were in the labour force, in low paid jobs was unknown. National information on families on low wages is sketchy and not very reliable. So there is no simple way of as­sessing the Government's progress in child poverty reduction.

Second, a dispute began in 1989 about the best way to measure poverty. Several senior government ministers criticised the Hender­son poveriy line and in 1989 the then Minister for Social Security (Hon. B. Howe) suggested that poverty should henceforth be measured not by reference to the Henderson line, but by reference to the benchmarks set for children in the Family Allowance Sup­plement system and its aim of keeping pensions and benefits in relationship to average weekly earnings.

Third, while poverty measurement is usually discussed as a technical issue, the technical debates are abstruse and mask a range of human and political issues. The problem is that two dis­tinct groups of people are active in the poveriy debate: the technical discussants who mask political and human values with technical issues and the political lobbyists who talk of poveriy in common sense terms without reference to the technical problems.

These three issues, the incidence, measurement and nature of child poveriy are the themes of this book. In essence, the book ac­knowledges the drawbacks of the Henderson poverty line, but on balance can find no fairer method of measuring poveriy. In using

Measuring chiM poverty

iv

Foreword

the Henderson line as a base, the book provides a range of es­timates as to the number of Australian children in poverty in 1990.

This book is intended ibr students of poverty in Australia. Its contributors hope that it will contribute not only to a more rational debate about child poverty, but also to a greater commitment by Australians to achieving that splendid aspiration, that no Australian child should be living in poverty.

Jan Carter DirectorSocial Policy and Research Centre

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Contents

Foreword HI

Dedication xi

Acknowledgments xlii

Summaiy and recommendations 1

1 Poverty lines: measurement issues 5Carol Oxley. JBruce Prosser Anthony King

2 The incidence of child poverty since 1986 31Anthony King

3 The measurement of poverty: lessons from overseas 67 Michael Gourlay

Appendix 99

References 108

Measuring child pouerty

L IS T O F TA B LE S1 Estimated incidence o f child poverty among income units

with children, Australia, low-income populationassumption: high, September/October 1986 37

2 Estimated incidence o f child poverty among income units with children, Australia, low-mcome populationassumption: medium, September/October 1986 38

3 Estimated incidence o f child poverty among income units with children, Australia, low-income populationassumption: low, September/October 1986 39

4 Estimated number o f children by income (per cent o f poverty line) o f income unit, Australia, September/October1986 40

5 Estimated incidence o f child poverty among income unitswith children, low-income population assumption: high, September/October 1989 41

6 Estimated incidence o f child poverty among income units with children, Australia, low-income populationassumption: medium, September/October 1989 42

7 Estimated incidence o f child poverty among income units with children, Australia, low-income populationassumption: low, September/October 1989 43

8 Estimated number o f children by income (per cent o f poverty line) o f income unit, Australia, September/October1989 44

9 Components o f the increase in employment: Australia,August 1986 to August 1989 47

10 Estimated incidence o f child poverty among income units with children (poverty line updated by AW E ), Australia, low-income population assumption: medium,September/October 1986 51

11 Estimated incidence o f child poverty among income units with children (poverty line updated by AW E ), Australia, low-income population assumption: medium,September/October 1989 52

12 Estimated number o f children by income (per cent o f poverty line, updated by A W E ) o f income unit, Australia, low-income population assumption: medium,September/October 1986 and 1989 ('000) 53

13 Estimated incidence o f child poverty among income unitswith children in the absence o f recent government initiatives, Australia, low-income population assumption: medium, September/October 1989 54

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Contents

14 The change in the number o f children below the povertyline, contributory factors, late 1986 to late 1989 ('000, % change from 1986 in brackets) 55

15 Estimated incidence o f child poverty among income units with children by income security status, Australia, low-income population assumption: medium,September/October 1989 56

16 Rates o f pensions, benefits and other payments: late 1986,late 1989 and estimated late 1990 (current $ per week) 58

17 Before-housing poverty lines for selected types o f incomeunit: late 1986, late 1989 and late 1990 (current $ per week) 61

18 Income support entitlements (exc. Rent Assistance) for selected types o f income unit: late 1986, late 1989 and late1990 (current $ per week) 62

19 Income support entitlements as a percentage o f the poverty line: selected types o f income unit: late 1986, late 1989 andlate 1990 (% ) 64

20 Townsend's list o f resources 72

21 Components o f Tbwnsend's summary deprivation index 73

22 Ringen's consumption deprivation indicators 76

23 The public responses to Mack and Lansley's "necessities" 79

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Dedication

This book is dedicated to Professor Ronald Henderson whose work has reminded Australians that poverty diminishes us all. This pub­lication marks Ronald Henderson's retirement from the Brotherhood of St Laurence's Social Policy and Research Centre as Honorary Consultant.

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Acknowledgments

The editor and authors would like to thank the following for their assistance with aspects of this project:

* Patricia Harris

* Daiyl Dixon

* Ian Manning

* members of the Promise the Children Action on Child Poverty Advisory Committee

* members of the BSL Social Issues Group.

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Summary and recommendations

The first chapter discusses the history of the Henderson poverty line in Australia and its significance to policy debates. The authors, Oxley. Prosser & King, enumerate the limitations of the Henderson line. First, factors external to Income (with the exception of hous­ing) are ignored and, second, the poverty line is described as relative and sensitive to movements in the standard of living for the community as a whole. (A relative poverty line measures poverty against a standard which is not fixed, but moves in line with general living standards. The relative poverty line thus retains a link with the standards of the community as a whole. As the com­munity becomes better off, so must the least well off. so as to ensure that their relative position gets no worse.) The authors recommend that the Federal Government invest in a research pro­gram aimed at reaching a consensus on what are reliable and valid measures of poverty for Australia and that it devote resources to such tasks as equivalence scale setting and income distribution re­search.

King's analysis in Chapter Two describes the changing incidence of child poverty in Australia between 1986 and 1989. Using an es­timation technique and the Henderson poverty line, King shows the change in the number of children in poverty between 1986 and 1989 and the incidence of child poverty among particular groups of social security recipients. He assesses .the factors working for and against poverty reduction over the period, demonstrating that one important determinant was the growth of employment. This analysis notes that there was a reduction in the extent of child poverty from 1986 to 1989. The actual number of children below the poverty line is estimated to have declined by around 10-15 per cent in this period. (The "best case" estimate shows 420 000 children below the after-housing poverty line in late 1989.) For children below the poverty line, the average "poverty gap" was es­timated to show some decrease between 1986 and 1989, although the size of the gap differed according to the classification of pen- sion/bene&t and the size of the family.

These improvements fall far short of the Federal Government's pledge to remove child poverty by 1990. They are also weak when compared to predictions made shortly after the introduction of FAS

1

Measuring cMdpouerig

about its potential (Brownlee & King 1988). But given that the Government's benchmarks (against which it assesses its income support payments) are belorn the Henderson poverty line and that household disposable income (to which the poverty line is indexed) rose rapidly between 1986 and 1989, this is not surprising. Never­theless, when income security entitlements are compared with the poverty line between 1986 and 1989, King shows improved* relativities. In other words, the major benefit of the Government's family package is not that it raised incomes above the poverty line, but that for incomes which remained below the poverty line, it was critical in helping families keep up with costs.

King's analysis also shows the impact of job growth between 1986 and 1989 on child poverty. There were changes in participa­tion rates in the labour force from 1986 to 1989 with the major increase in participation being by married women. Because this meant that many one-income families became two-income families, it is unlikely that much of the job growth affected families in pover­ty. Thus in this case, more jobs did not mean less poverty; the "trickle down" effect did not provide the poor with jobs. It is clear from King's analysis that the key factor is the way employment is distributed: the creation of new jobs and their distribution will reduce child poverty, job creation by itself is not enough.

King's analysis updates the Government's package to the end of 1990 to include the changes expected in that year. (These 1990 changes include indexation of pension and benefit rates [April and September 1990] and ad hoc increases to pensions, indexation of family allowance, indexation of Mother's/Guardian's Allowance and increases to rent assistance.) King demonstrates that by late 1990, the levels of entitlements for all income units with children make these income units better off in relative terms than they were in 1986. The greatest increase in relativities went to couples with fewer children, indicating that improvements to base rate pensions in 1990 through indexation and ad hoc increases were the major factor. A similar degree of improvement in the relativities for sole parents was achieved by late 1990, although the relativities for sole parents still remain notably lower than those for couples on pen­sions.

What impact did the Government's package have on child pover­ty? King looks at what would have happened had the government not introduced the FAS package. He concludes that the proportion of Australian children in poverty and the extent of the poverty would have worsened between 1986 and 1989.

How then, can the Hawke Government's policies on income poverty be assessed? Certainly, the objective that "by 1990 no child

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Summon/ and recommendations

will be living in poverty" has not been achieved. Nor has the Prime Minister's revised goal, "no child need live in poverty" been reached. The Government has not introduced comprehensive policies for children living in poverty outside families (see, for in­stance. the plight of homeless children). Notwithstanding these problems, for particular groups of low-income Australians, the Government's policies have been a qualified success. Couples on pensions with a range of children at different ages and sole parents outside the labour force have improved their relative status. But parents on Unemployment Benefit and sole parents seeking part- time work have a major shortfall in entitlements. Part-time work for single parents may be feasible in lifting this group's income over the poverty line, but the concern for 1991 and onwards is that of the unemployed couple whose income-support entitlements as a proportion of the poverty line are about 10 per cent lower than those of a married couple pensioner with the same number and age of children. This group is now handicapped in three ways: by their relative lack of entitlements; by the provisional nature of un­employment benefits; and by their poor chances of finding a Job due to the rapid increase in unemployment in 1991.

In the final chapter of this book. Michael Gourlay examines the overseas literature for its implications for Australian poverty re­search. In particular he examines the work of four different authors to the measurement of poverty. First, the eminent British social scientist, Professor Peter Townsend, in defining poverty as relative deprivation demands an analysis based on income poverty but calculated by including overall resources (such as capital as­sets and public community services) and style of living indicators (such as household amenities, for example, possession of a refrigerator). Second. Gourlay looks at the work of the Swedish re­searcher. Ringen, who defines poverty as a low standard of living, meaning deprivation in a way of life because of insufficient resour­ces. Ringen is not interested in a poverty line—households are in poverty if they live on a low income and lack a range of necessities, as defined by poverty experts. Third. UK researchers Mack and Lansley use social survey "consensus" methods to provide a com­munity-based list of minimum necessities such as heating in the house, an indoor toilet, and beds for everyone. Fourth, there is dis­cussion of the recent "budget standards" approach, which takes a list of community-based necessities and develops a poverty line based on costings of these necessities. This chapter also discusses the development of the US poverty line—based on the subsistence no­tion of adequate diet and the proportion of household expenditure spent on food.

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Two distinct measures of poverty in Australia—an income pover­ty iine and a "participation* poverty measure—are required, based on overcoming the lack of a set number of necessities. These would require independent measures. For example, some persons in in­come poverty may not be deprived of other socially defined basic necessities, due to help from family and friends. On the other hand, those deprived of access to key services or facilities (as are some families in areas designated by the Federal Government as locationally disadvantaged) may not be in income poverty.

Gourlay's paper reinforces a theme of the Brotherhood of St Laurence's Child Poverty Policy Review: that reducing poverty is not necessarily the same thing as reducing inequality (Harris 1989). It is possible to reduce income poverty without reducing ine­quality, but inequality cannot be tackled without reducing the structural impacts of unequal power resulting from disparities in income, from the power accorded to gendered models of economic and political organisation and from discrimination against racial minorities. In Australia, the inequalities suffered by children as a result of their disadvantaged location or place of residence must be added to this list (Harris 1990).

This book addresses the goal of the reduction of child poverty, a goal about which the Brotherhood of St Laurence has been confi­dent of obtaining national agreement. The implications can be summarised in the following recommendations:

* that the Federal Government provide the resources to investigate a poverty line for Which there is broad community consensus;

* that income poverty be regarded as the first index of such a poverty line and that a second index be developed to measure access to and participation in fundamental social amenities;

* that all political parties commit themselves to maintaining the gains achieved by the FAS package between 1987 and 1990;

* that all political parties commit themselves to the further reduction of poverty in groups furthest below the poverty line;

* that all political parties commit themselves to the further reduction of child poverty for those groups excluded from the Family Al­lowance Supplement package, that is, homeless children and young people;

* that the Federal Government recommit itself to the elimination of child poverty in Australia.

Mectsurtng child pouerh/

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O N E

Poverty lines: measurement issues

Carol Oxley Bruce Prosser Anthony King

CONTENTS

* Introduction: the significance of the povertymeasurement issue in policy debates 7

* What are poverty lines? 9

* How are poverty lines constructed? 10

* Estimating the extent of poverty usingpoverty lines 14

* The Henderson poverty line 15

* Strengths and weaknesses of the Hendersonpoverty line 18

* Where do we go from here? 24

INTRODUCTION: THE SIGNIFICANCE OF THE POVERTY MEASUREMENT !SSUE IN POUCY DEBATESThe conflict which emerged in 1989 between the welfare sector and the Federal Government over the use o f the Henderson poverty line to assess progress in the Prime Minister's 1987 pledge to eliminate child poverty represented the beginning of a critical phase far the future of poverty measurement in this country.

While one specific point of contention was the use of the Hender­son poverty line as a benchmark of adequacy for the Federal Government's historic reforms to family income support, the con­flict deepened when Government Ministers began to attack the concept of relative poverty upon which the Henderson poverty line is based (see Walsh 1989).

Twenty-five years after Professor Henderson submitted his Main Report of the Commission of Inquiry into Poverty to Prime Minister Whitlam, a principal tenet of the Inquiry's findings was under question. That tenet combined a belief in the fundamental importance of income to a person's "security, well-being, and independence" (Commission of Inquiry into Poverty 1975) with a belief that the adequacy of that income should, be assessed in relation to a moving community standard (at the time of the Inquiry, the basic wage). The Henderson poverty line subsequently formed a widely- accepted standard for assessing the adequacy of Australian incomes.

The most recent criticisms of the Henderson poverty line have focussed on two issues:

* the point that only income is taken into account while, with the exception of housing, other factors that can have an important bearing on well-being are ignored; and

* the way in which it is related to the changing circumstances of the Australian population as a whole.

With regard to the criticism that poverty should be thought of as a matter of more than just an inadequate Income, the detractors of the Henderson poverty line shared some common ground with its supporters. The Poverty Inquiry stressed the fundamental impor­tance of income in providing choice and opportunity, but it also described the poverty of access denied to basic community resources and services, such as education, health, and employ­ment: (Commission of Inquiry into Poverty 1975, p.88)

Money is a pervasive resource which can influence the extent to which people are able to use community services. Better income policies and income security services, however, will not be able to correct completely the inequalities brought about by inadequate health services, educational services, legal services and others. Similarly, the provision of community

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services does little to solve income problems. Income services and other services are nevertheless interrelated as people are often badly off in a number of ways. To ensure personal and family well-being, action needs to be taken on many fronts, not just in relation to income, or employment, or housing, or welfare, or any one of the services areas.

To see poverty as having dimensions other than income was thus in keeping with the Inquiiy's own themes.

However, the second criticism—the rejection of the relative na­ture of poverty in favour of some absolute measure of deprivation—was a serious challenge to the view of poverty taken by the Inquiry.

In the wake of this debate, the manner in which poverty should be measured in a developed, affluent economy like Australia's remains to be resolved, and it can be argued that the progress we make as a nation in the 1990s towards an equitable solution to our economic problems will be measured in large part by the progress we make in eliminating poverty. Moreover, unless a consensus can be restored over how poverty should be measured, we risk being distracted by a prolonged argument about the method of measure­ment rather than being able to concentrate oh the substance of the problem, which is to increase the ability of all Australian citizens to exercise at least basic choices and realise opportunities as they arise.

This chapter provides an overview of the debate about the use of the Henderson poverty line as the principal instrument of poverty measurement in Australia. It describes how income poverty is es­timated using poverty lines, and how the Henderson poverty line was initially constructed for this purpose. Criticisms of the use of the Henderson poverty line are reviewed, and some future direc­tions for addressing these criticisms are suggested.

What should be made clear at the outset of this discussion is that behind many of the technical arguments surrounding poverty measurement are conceptual issues which people working to al­leviate poverty should be concerned about.

For example, what constitutes an adequate standard of living, what are the costs of children to low-income families, are these costs different for sole-parent families, and how does asset owner­ship affect poverty?

Discussion about these questions will have a critical impact on future policy development and on the way the community views poverty. The welfare sector cannot afford to stay outside these debates.

Measuring child poueriy

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Pouerty tines; measurement issues

WHAT ARE POVERTY L!NES?Poverty tines define or describe poverty in quantitative terms. They are intended as a simplification of the experience of deprivation, and are expressed in the form of a statement of the amount of money, or of goods and services, below which people are said to be living in poverty. Some of the uses to which poverty lines can be put are to:

* assess the relative incidence of poverty among different social groups in order that assistance may be directed towards those groups who need it most;

* assess the impact of government policy on the alleviation or in­crease of poverty;

* provide a reference point for setting social security payments and a benchmark for the calibration df nfeans tests (Manning 1982);

* analyse the causes of poverty; and

* measure the changes in the incidence of poverty over time.As Director of the Federal Government's Social Security Review, Professor Bettina Cass noted at the launch of the 1989 Victorian Promise the Children Action on Child Poverty campaign that the consistent use of the Henderson poverty line since 1966 has enabled the identification of the shift in poverty over time from older people to families with children. It has also allowed the high incidence of poverty among female-headed families to be identified.

It is clear that if poverty lines are to be useful from an ad­ministrative and policy point of view, then they must be easily understood, easily calculated and easily revised on a yearly basis. A number of writers have warned, however, that in reducing such a complex concept as poverty to a simple measure we run the risk of obscuring the social complexity of poverty. For instance, Tulloch (1980) writes:

Polity needs quantifiable, concrete criteria— the qualitative nature of deprivation cannot appear in official statistics.

Richardson & Travers (1987) have also noted how the nature of one's concern with poverty shapes the way in which poverty is measured:

A concern solely with material deprivation at a moment of time produces a definition of poverty which focuses on immediate material circumstances. A concern with entrapment in a culture of poverty would broaden the enquiry to embrace circumstances over the whole of a lifetime and even across generations. It may incorporate aspects other than the strictly material, such as social resources and health.

This highlights the fact that poverty lines should not be used as a substitute for studies which examine the nature and causes of

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poverty and provide a sociological analysis of inequality. Nor should they be the only type of data we rely on for demonstrating the nature and extent of poveriy in the community. We will return to this issue later.

For those concerned about the use of approximate measures to reflect a complex concept like poverty, it should be noted that other disciplines (such as economics) also make use of such simplifica­tions. For instance, unemployment is typically measured by reference to the unemployment rate yet we recognise that this measure is only a crude summary indicator of the experience of unemployment. Frequently, we need to look further to address aspects such as the duration of unemployment, hidden unemploy­ment, etc. Nevertheless, it is widely accepted that the broad summary measure has its uses.

HOW ARE POVERTY LINES CONSTRUCTED?The construction of a poverty line includes a number of elements, including:

* the unit of measurement;

* the unit of analysis;

* the level of the poverty line;

* the relativities of the poverty line for different types of "family"; and

* the method of updating the poverty line.For each of these elements, a range of alternative approaches can be taken, with the choice of approach partly dependent on one's conception of poverty. The result is that the nature of poverty lines can vary substantially, ranging for example from:

* "subsistence" approaches, which emphasise the level of resources required to meet basic physical needs (for example, the income required to maintain the minimum nutritional diet), with the poverty line updated in an "absolute" manner (for example, by CPI indexation); to

* societal approaches, which see poverty in terms not only of physical well-being but also of participation in society (for example, the income required to achieve a standard of living regarded as satis­factory by the community), with the poverty line updated in a "relative" manner as community standards change.

The alternative approaches to each of the elements which go towards construction of a poverty line are outlined below.

Measuring child pouertg

Pouerty Knes: measurement issues

Unit of measurement: income definitions of povertyPoverty lines are generally based on an income definition of pover­ty. In these terms, poverty is seen as deprivation which arises from a shortage of income—that is, from not being able to buy goods or services which are required to meet needs.

At the same time, British researcher Peter Townsend warns that care should be taken that such a definition does not lead us to see the solution to poverty as simply increasing people's incomes. He argues (1979) that the abolition of poverty requires "comprehensive structural change in not one but several institutional systems". As Manning (1982) notes, the implication of this caution is that the statistics generated by a poverty line:

... are likely to be relatively accurate according to their admittedly limited definition, and also appropriate provided they are only used in arguments about economic pouerh/ and not some more inclusive meaning of the term, (italics added)

Manning also notes that money income is very important in a society which places so much emphasis upon consumption. In ad­dition, a poverty line defined in terms of cash income is particularly appropriate when assessing the adequacy of cash so­cial security payments, since these do not pretend to make up for deprivations other than deprivation of income.

At a time when the welfare sector is attempting to open a wider debate about child poverty—emphasising that a strategic response is required across various portfolios, levels of government and dif­ferent sectors of the community—it is important to keep in mind how poverty line data relates to this debate. And to be aware that other data may be required to complement the wider debate.

Units of anaiysisMost poverty line studies take the family or the "income unit" as their basic unit of analysis, on the grounds that this is the unit in which income is pooled amongst members. The income unit is a narrow definition of the family, being restricted to a single adult or a married couple and their dependent children, if any.

Alternatively, poverty can be looked at in terms of the household—a broader concept, which covers individuals who are sharing accommodation and which can consist of non-related members. However, this definition of a group of individuals is not generally used because, although in most cases income may be pooled to cover costs (for example, rent and food), in households consisting of a number of families there does not tend to be a general pooling of income for the purpose of promoting the well­being of all members of the household.

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It has sometimes been argued that the unit of analysis for measuring poverty should be neither the family nor the household but the individual. It is pointed out that in some families, or in­come units, income will not be pooled, and although a family may not be in poverty on the basis of its total income, it is possible that sqme individuals in the unit may be experiencing poverty. Using the individual as the unit for analysis would therefore lead to a higher count of people in poverty.

The significance of this issue for the future design of poverty lines is discussed by Gourlay in the final chapter.The poverty ttne: subsistence and societai definitions of povertyIf a subsistence definition of poverty is being used, setting the poverty line will require an indicator of the minimum resources re­quired if basic physical needs are to be met. This minimum may be expressed in income terms, as the minimum budget required to cover items of basic need (for example, food, fuel, shelter, clothing). The actual amounts required as the minimum may be established through "expert" opinion of what families need or through surveys of people's views about what they need (discussed by Gourlay in the final chapter).

Alternatively, if poverty is defined in terms of the ability to achieve a minimum acceptable community standard of living, some measure of community living standards will be required. This may be set in a number of ways:

* by reference to the median or average income enjoyed by the community or some other standard (for example, minimum wages);

* through surveys of people's views about what constitutes an ade­quate standard of living;

* by reference to the level of government income support payments (in the United Kingdom, the poverty line is set in relation to the level of Supplementary Benefit); or

* by a study of standards of living in the community (for example, Townsend's 1979 study assessed standards of living against a series of quality of life indicators).

In each case, the notion of standard of living is most often equated with a given level of family income.

Most people working in the area of poverty research now recog­nise that even the so-called "subsistence" definitions of poverty involve some notion of relativity to contemporary society. Even in defining a minimally adequate diet, reference is made to normal consumption standards within the community rather than tiying to establish a diet just above starvation level.

Measuring child poucrh/

Pou^rty lines; measurement issues

Establishing poverty tines for famiiies other than the standard famiiyOnce a poverty line has been set for some "standard" income unit, a method for setting related poverty lines for other income units of different sizes and compositions must be established.

This can be done through the use of equivalence scales, which are meant to reflect the different levels of income at which families of different sizes and composition will achieve the same standard of living.

If the equivalence level for a couple with two children is equal to 1 and that for a couple with three children is equal to 1.2, what the equivalence scale tells us is that the family with three children will need an income 20 per cent higher than that of the couple with two children if it is to maintain a similar standard of living. Or looked at in a slightly different way, if the couple with two children adds another child to its family, then its income will need to increase by 20 per cent if it is to maintain its standard of living.

Equivalence scales can be derived in various ways; for instance, from studies of household expenditure, or from budget studies basgd on what experts expect families of different sizes to consume (Saunders & Whiteford 1989). While these techniques can be based on fairly complex statistical analysis, the final judgment as to the validity of an equivalence scale often falls to whether or not it makes intuitive sense. For example, one scale derived in Australia in the mid 1960s suggested that a family with six children required an income which was only 19 per cent higher than that of a family with two children to maintain a similar standard of living (Kakwani 1977). We should ask whether, from our experience, this is a reasonable finding.

Adjusting the poverty tine overtim eA poverty line established with the above elements applies to a par­ticular point in time. A method then has to be established for updating the line, and what method is selected will depend largely on how the line was originally defined.

For example, lines set using the minimum budget approach can be updated by recalculating the cost of the basket of goods re­quired by the standard family or by applying the changes in the relevant components of the Consumer Price Index. Lines set in relation to a measure of community income will normally be up­dated by changes in that measure—for example, changes in median income, in household disposable income per head, or average weekly earnings.

Poverty lines for which the quantity of goods and services im­plicit in the setting of the line does not change over time are

13

termed "absolute" poverty lines. On the other hand, those for which the implicit quantity of goods and services can change over time with community standards are termed "relative" poverty.lines.

ESTIMATING THE EXTENT OF POVERTY USING POVERTY LINES

Measuring the incidence of income povertyAs noted earlier, one of the uses of poverty lines is to establish the incidence of poverty in the community as a whole and in different social groups. To be able to make such calculations requires infor­mation not only on the respective poverty lines for different family types but also on the distribution of incomes in the community, cross-classified by family size and composition (and. where ap­plicable. by asset ownership).

Such social surveys are carried out periodically in Australia by the Australian Bureau of Statistics (ABS). The most recent survey, the Income Distribution Survey, was carried out in 1986. The sur­vey results were made available to researchers in computer-readable form, which provided unit record information for each person interviewed for the study (strict confidentiality of information is maintained and no Individual can be identified from the tapes).

These tapes allow researchers to calculate their own estimates of the number of families and individuals in poverty. However, many researchers have noted that the ABS material suffers from a num­ber of restrictions, which means it is not an ideal instrument for measuring poverty. For instance, the information collected on the incomes of self-employed people has been criticised for not presenting a true reflection of their living standards. In the 1986 unit record tape, the ABS also prevented the separation of public from private tenants, for confidentiality reasons.

A further measure is required to measure the depth or severity of poverty. This is the "poverty gap", which takes account of the distance between the actual incomes of the poor and the relevant poverty lines. Poverty gaps can be summed across all groups of the poor to give an aggregate poverty gap (for a discussion of poverty gap measurement, see Saunders & Whiteford 1989).

Resources other than IncomeConsiderable debate has occurred both in Australia and overseas over how to measure a family's resources. It has been argued that in Australia a more inclusive definition than that provided by the ABS in its income distribution surveys is required. In particular, it has been suggested that income in kind (for instance, the value of home-grown vegetables) and the cashed-out value of government services should be included as resources.

Measuring child pouertg

14

Pouerh/ tines; measurement issues

However, what we chose to include as family resources will depend in part on how the poverty line was originally framed. For instance, it* will depend on the definition of income used to frame the poverty line, and what this definition assumes individuals should purchase from their incomes. Poverty lines often take as a given that some level of social wage will be provided to families and that some goods and sendees will not have to be purchased from disposable income. The cashed-out benefits of government services should thus not necessarily be measured as part of a family's resources for comparison with the poverty line.

THE HENDERSON POVERTY UNEThe first detailed survey of poverty in Australia, "the Poverty In- quiiy", was undertaken by the Institute of Applied Economic and Social Research at the University of Melbourne in 1966 (see Heriderson, Harcourt & Harper 1970). This formed the basis for the later work carried out by the Commission of Inquiry into Poverty (1975).

To be able to understand some of the criticisms that have been made of the Henderson poverty line it is important to understand how it was constructed.

Definition of povertyPoverty was defined by Henderson in terms of ability to achieve a minimum standard of living—with this minimum being set by the basic wage established by the Conciliation and Arbitration Com­mission, plus the value of child endowment payments.

The rationale for adopting the basic wage as the benchmark for the poverty line was given in Henderson, Harcourt & Harper (1970) as:

... its relevance to Australian concepts of living standards— the basic wage being the lowest wage which can be paid to an unskilled labourer on the basis of, in the famous phrase of Mr Justice Higgins, 'the normal needs of an average employee regarded as a-hum an being living in a civilised community'. This poverty line also has international relevance since, in its relationship to average incomes and to basic social service rates, it is comparable to the poverty lines that have been adopted in some surveys carried out overseas, particularly in the United Kingdom, the United States of America and Denmark.

At the time, Henderson described the line chosen as being so austere as to make it unchallengeable ("no one can seriously argue that those we define as being poor are not so").

It needs to be emphasised that the Henderson poverty line was not based on a study, of the actual heeds and costs of Australian families. This has sometimes been misunderstood. The original survey work described in Henderson, Harcourt & Harper was used

15

to estimate the number of families in poverty according to the criteria for poverty described above, not to establish these criteria.

A second poverty line was also established by the Poverty In­quiry—this line measuring poverty after housing costs had been met. This line calculated how much income a family requires to meet its needs after housing has been paid for. The after-housing poverty line is thus designed for comparison with the disposable income people have after paying for their housing.

The amount by which the poverty line is reduced to allow for housing costs is set using equivalence scale data (described below) which includes an estimated housing cost component.Poverty lines for the standard familyThe benchmark against which the poverty line for the standard family was originally set was the basic wage, plus Child Endow­ment payments. In 1966 this amounted to a rounded poverty line of $33 per week for a "standard" family—man in work, wife at home and two children.

In developing the poverty line the "income unit" was taken as the unit of analysis. Thus, for example, in a household consisting of a married couple, two dependent children, an older independent child, and an aged relative, three income units would be defined: one including the couple and dependent children; one including the independent child; and one including the aged relative. Using this "income unit" definition, it is assumed that incomes are shared within but not between each unit.Determination of equivalence sca lesThe Henderson poverty line does not exist as a single figure but as a set of lines, with separate lines for different types of income unit. The equivalence scales used to calculate this set of lines were derived from estfmates of the relative costs of living in New York in 1954 for a wide range of family types. These estimates, as quoted in Social Welfare Policy Secretariat (1981, p.13), were:

... based on scientific knowledge of average requirements ior good nutrition and health, insofar as purely physical needs have been determined, and to social standards that had been revealed by studies of actual family pur­chases.

The equivalences developed in the New York study were extremely detailed—with distinctions according to family status, work force status, whether accommodation is shared, and age and sex of family members.

A set of simplified equivalence scales, which omitted age and sex of family members, was calculated by Henderson and used in the main reports of the Commission. Both the original New York scales

Measuring child poverty

16

Poverty lines; measurement issues

and the simplified version used by Henderson make the important distinction of work force status, which allows for the extra costs (e.g. transport) of being in employment or searching for employ­ment.

Henderson recognised the problems of using equivalence scales developed in America for conditions which existed in the 1950s, and recommended that work be carried out to develop a scale ap­propriate to Australian conditions.

Adjusting the Henderson poverty line over timeWhen the poverty line was initially set at $33 per week in 1966, it represented 56.5 per cent of seasonally adjusted average weekly earnings per. employed male unit. Up until 1983, the poverty line was indexed so that it maintained this relativity to average weekly earnings (AWE), originally for Victoria but later for Australia as a whole.

Since 1983, the Henderson poverty line has been indexed ac­cording to changes in seasonally adjusted household disposable income per capita, as measured in the quarterly national accounts. The change was in line with Henderson's own view that an after­tax figure of average incomes was more appropriate, although this had not been available at the time of his original work. Both the National Institute of Economic and Industry Research and the In­stitute of Applied Economic and Social Research at Melbourne University release regular quarterly updates of the Henderson poverty line.Estimating the Incidence of poverty in AustraiiaTo enable estimation of the number of income units in poverty, the Australian Bureau of Statistics carried out a National Survey of In­comes for the Poverty Inquiry in August 1973.

In calculating the number of units in poverty, detailed equivalence scales were used to establish poverty lines for the dif­ferent types of income units. Income units were defined as poor if their weekly income averaged over the previous year fell below the poverty line. Income was defined to include earnings, pensions and benefits, superannuation, rent, scholarships, dividends, business income and child endowment, after a deduction for effective income tax paid (net of refunds). People aged under 21 and self-employed people were excluded from the analysis on the grounds that both juveniles and the self-employed could draw upon resources which were not reflected in their stated incomes.

In establishing the incidence of poverty in Australia, Henderson warned against seeing poverty lines as setting a simple cut-off point below which people are considered to be in poverty and above

17

Measuring child pouerty3

which they are not. Rather, he argued that poverty shouid be seen as occurring over a range of incomes. For this reason, he described those who had incomes below the poverty line as the "very poor", while those whose incomes were less than 20 per cent above it iwere described as "rather poor" (the two groups together were )described as "poor").

Poverty after housing co stsFor comparison with after-housing cost poverty lines, actual hous­ing costs were deducted from income. This was done by removing rental costs from the income of renters; removing mortgage repay­ments, land, water and sewerage rates from the income of house ;buyers; and removing land, water and sewerage rates from home :owners. ^

As Manning (1982) notes, this measure of poverty can give a bet­ter assessment of relative poverty when families pay different amounts in rent, mortgages etc. for essentially similar housing. For instance, a family paying a high proportion of its income in rent is shown to have fewer resources left to meet its other needs than does a similar family which has low housing costs because of home ownership.

Measures of the incidence of poverty using a before-housing and an after-housing poverty line may yield different estimates of the number of people in poverty. They will almost certainly measure <the composition of the population in poverty differently. For ex- {ample, many elderly people with incomes below the poverty line !may have very low housing costs, due to outright home-ownership, tso they will not be below the after-housing poverty line.

STRENGTHS AND WEAKNESSES OF THE HENDERSON POVERTY L!NEAlthough the Henderson poverty line has been widely used by the welfare sector and social researchers, its use has usually been 'qualified by an acknowledgment of its limitations. Senator Mar­garet Guilfoyle, as Minister for Social Security, summarised some *of these problems when she stated to the Federal Parliament in 1979 (as quoted in Social Welfare Policy Secretariat 1981, p.3) that: !

I have some reservations about the Henderson poverty line, mainly because )it is not less a rb itra l than anyone else's judgement might be of what an }adequate social security line in this country ought to be.

She also questioned the validity of the poverty line (p.2): }... because of its origin and the fact that it is based on relativities between !expenditures of different families in New York in 1954. j

These and other criticisms have been echoed in the comments of {present government ministers. The following sections examine some of them in detail.

18

Pouerh/ lines.* measurement issues

Usa of the baste wage concept tn the definition of povertyA number of criticisms have been made of the choice of the basic wage for setting the Henderson poverty line. These criticisms are that:

* the "needs" concept of the basic wage, as outlined in the Harvester decision of 1907, had not been a major determinant of the basic wage since at least the early 1930s. Hie major factor affecting the level of the basic wage had been the "capacity of the economy to pay" (Stanton 1973);

* it is not clear what size of family the basic wage was meant to cover (Henderson assumed it was to cover a family of four). When the Commission Introduced a minimum wage (set at $5.75 per week above the basic wage) in July 1966 it was made clear that this was intended as a wage for adult males rather than a family wage;

* by using the basic wage, the working poor were defined out of existence. Only those with particular disadvantages—e.g. part-time workers, large families or sole parents—could fall below this poverty line (Howe 1972); and

* the basic wage was too stringent a measure to use (Howe 1972):While the Institute claimed to regard poverty as a relative concept, it undertook in the study to measure an absolute, subsistence poverty (p.5) ... the Institute's poverty line was so low that it tended to measure paupery and destitution rather than relative deprivation (p.8).

The stringency of the original poverty line drawn up in the 1966 survey was partly an attempt to provide unchallengeable objec­tivity. There was a suggestion in the methodology that politics could be transcended by producing an absolute and value-free definition of poverty.

In defence of the choice of the basic wage, Manning (1982) argued that this measure is likely to reveal which groups in the com­munity are notably behind the rest. Notwithstanding Stanton's comment, it should also be noted that the bulk of criticism which has been directed at the use of the basic wage in the definition of poverty concerned its conservatism; that is. its tendency to under­state the incidence of poverty in Australia. Saunders & Whiteford (1989), in their review of poverty measurement issues, argued that the Henderson line remains a genuinely low-income standard, (ir­respective of the change in the method of updating since 1981, discussed below in "Method of updating").Accounting for housing co sts In poverty measurementThe after-housing measure of poverty can be seen to be a more ap­propriate Indicator of relative well-being of families because it takes account of the actual housing costs of low-income families. How-

19

ever, the housing component used in the Henderson poverty line (derived from the New York equivalence scale) has been criticised as being inappropriate to conditions in Australia today.

For example, in the table of standard costs used by the Poverty Inquiry to calculate equivalence scales, housing costs represented 23 per cent of a standard family's costs. A sole parent with two children was assumed to have housing costs equivalent to 27 per cent of expenditure. In comparison, the 1988/89 Household Ex­penditure Survey revealed that. 15 years after the Poverty Inquiry, married couples with two children were devoting on average 16 per cent of their weekly expenditure to housing: sole parents with children were devoting approximately 20 per cent.

The debate about rotative and absotute povertyIn 1989, two senior Ministers of the Federal Labor Government criticised the Henderson poverty line for being based on a relative concept of poverty which, it was argued, the Australian community is not ready to accept.

Giving an address to the National Press Club, the Minister for Finance, Senator Peter Walsh (1989), argued that:

... the Henderson report is not, never was, and was never claimed by its authors or its (regrettably rare) rigorous interpreters, to be an indicator of absolute poverty.... growth in employment, which if anything should reduce the level of poverty, may by its contribution to higher per capita household disposable income (according to which the Henderson poverty line is updated] mean that some people previously just above the poverty line will fall below it. This happens even though neither their absolute standard of living has changed, nor has their relative standard—reasonably defined.

At a Brotherhood of St Laurence conference on Child Poverty. Ine­quality, and Social Justice, the Minister for Social Security, Mr Brian Howe, stated (Howe 1989a) that:

... a second reason not to use the Henderson poverty line to define income security entitlements is its purely relative nature. The adjustment of the poverty line by reference to average movements in household disposable income ensures a measure responsive to community standards. However, if such a measure were used to define entitlements it would quickly lose public acceptance.

The fact that the Henderson poverty line is updated according to movements in a measure of per capita household disposable in­come (HDI) means that it will change in .line with movements in general household living standards. As a consequence, when per capita HDI is increasing faster than the consumer price index or average weekly earnings, the poverty line is also moving upwards at a faster rate than these other indicators.

This may or may not be seen as a good thing. Walsh strongly criticised this characteristic of the Henderson poverty line, as im-

Measuring chiid pouerig

Poverty lines: measurement issues

plying that reductions in poverty can only be achieved by income redistribution rather than by economic growth. He described as perverse the fact that poverty will be seen to increase if average weekly earnings rise at a slower rate then per capita HDI (Walsh 1989).

However, the claim that poverty defined in relative terms can only be reduced by income redistribution is grossly misleading. It implies a false dichotomy between the two approaches. Economic growth may reduce or increase poverty, depending on the nature of that growth.

It is the distribution of economic growth—the manner in which the growth in the national "cake" is apportioned between social groups—which determines whether the poverty line will rise or fall as a result. Edwards & Whitefbrd (1988, p.4) expressed this link between poverty alleviation and the distribution of economic growth when they noted that:

Real increases in the poverty line are consistent with the view that povertyis a relative phenomenon, and that the poor should share in the benefitsof economic growth.

Certainly this is in keeping with the Brotherhood's view of poverty, and of the importance of economic growth to its alleviation.

Choice of income unitThe income unit is the unit of analysis generally used with the Henderson poverty line. Thus it is being assumed that this is the group among which the pooling of income takes place.

As discussed in Chapter 3 below, a criticism here is that in some cases this is demonstrably untrue, as shown in an early piece of work by Edwards (1982), which examined family finances. How­ever, this criticism should perhaps be seen more as a qualification than a rejection of the income unit as the unit of analysis, since it is not clear that any other unit chosen would be more accurate in its implicit assumption about the degree of income sharing which takes place.

It should also be noted that the definition of income unit used by Henderson follows the Department of Social Security's definition of income unit very closely, and is thus appropriate for examining the adequacy of social security payments.

Retevanca of equivalence sca lesAs reflected in Walsh's comments cited above, the equivalence scales used by Henderson are often claimed to be inappropriate to present-day Australia and indeed, when these scales are examined, they do seem to be based on a number of questionable assump­tions.

21

For instance. Cass (1985) notes that the scales imply that women incur lower costs than men (i.e. that they have lower needs) and that the costs of adults decrease with age. The costs of teenage girls are assumed to be less than those of teenage boys. The equivalences implied ibr sole parents are also lower than we might intuitively expect to find.

In defence of the scales used by Henderson, Manning (1982) ar­gues that other studies have come up with similar figures to those established in New York in the 1950s. Saunders (1980) has also pointed out that the scales used by the Henderson poverty line are quite close to those produced for the United Kingdom by McClements and those produced by Townsend's relative depriva­tion approach. Gallagher (1985) has noted that the detailed equivalence scales used by Henderson are particularly sensitive to the needs of children, including an allowance for die increased costs for older children. This is an important feature which is recognised in the restructuring of family assistance payments to include an age-related variation.

The difficulty of establishing acceptable equivalence scales is il­lustrated by the fact that recent work carried out on equivalence scales in Australia has not been able to offer scales which have proved more acceptable than those incorporated in the Henderson poverty line.

In 1979, Senator Guilfoyle requested the then Social Welfare Policy Secretariat to carry out an investigation into poverty meas­urement, with a special focus on establishing equivalence' scales which could be used in the establishment of poverty lines in Australia. Despite the extensive work done subsequently by the Secretariat, no equivalence scales were endorsed as an alternative to the scales in the Henderson poverty line.

The importance of being able to establish acceptable and valid equivalence scales has been highlighted in a paper by Edwards & Whiteford (1988). They note that if the adequacy of present Government social security payments for families with children were to be measured in relation to the Henderson poverty line, a crucial factor in this assessment would be the relationship between the costs of children, as reflected in the equivalence scales, and the relativities in the Government social security benchmarks (for determining the level of Family Allowance Supplement payments for children).

Edwards & Whiteford point out that, at present, basic rates of pension and benefit for couples without children are above the Henderson poverty line (assuming family head not working and before housing costs). Therefore, the estimates of the number of

Measuring child pouertg

Pouertr/ Mnes; measurement issues

children In poverty will crucially depend on the degree of diver­gence between the costs of children reflected in the equivalence scales used by Henderson and the costs as reflected in the benchmarks for children in the social security system.

The present Family Allowance Supplement benchmarks are below the costs of children assumed in the Henderson poverty line equivalence scales.Method of updatingThe criticisms of the original updating method used by Henderson (i.e. updating by average weekly earnings) were:

* average weekly earnings includes overtime earnings, bonus pay­ments, etc. and so is not a good indicator of average incomes in the community;

* the method of updating bears no relationship to the original basis for the Henderson poverty line. A more relevant way of updating would be in relation to minimum wages plus family allowance;

* while the poverty lines refer to income after personal income tax has been paid, average weekly earnings include tax—thus, by updating in this way, the poverty line is not maintained as a constant proportion of after-tax income; and

* by using average weekly earnings, changes in the relative fortunes of the self employed or of social security recipients, or in their overall proportions in the population, would not be reflected in the poverty line updates.

These problems led to the adoption of per capita household dis­posable income (HD1) as the measure for updating the Henderson poverty line in 1981.

However, the use of per capita HDI is not without its own problems. Besides conceptual questions regarding some of the components included in the National Accounts definition of household disposable income (such as imputed rent from owner- occupied dwellings), there are also practical problems arising from the fact that HDI data is subject to revisions by the ABS over time. These revisions can be significant, and can be in an upwards or downwards direction.

Availability of income distribution dataOne recurring difficulty in measuring the incidence of poverty at regular intervals is that the income distribution surveys which are used for this purpose are carried .out relatively infrequently. For ex­ample, the latest income distribution survey was conducted in 1986. It is therefore of limited use in estimating the incidence of

23

One method of dealing with this problem has been to develop techniques which allow for the "ageing" of the data base. Thus trends in various areas, such as population growth, movements in the labour and housing markets, and changes in the social security and taxation systems (e.g. the introduction of the Child Support Scheme), are applied to the original data set. Such techni­ques are used by King to make the estimates given in Chapter 2 of the incidence of child poverty in Australia at the end of 1989.

Other problems with the ABS studies of income distribution have been touched on above. Probably the most significant of these is that the data provided on young people and the self employed is unlikely to present an accurate picture of their financial well-being. This prevents any assessment of how many people in these groups are living in poverty.

Furthermore, no information is provided about the in­stitutionalised population. Finally, as noted above, a specific but important shortcoming ih the most recent income distribution data tapes released by the ABS is the failure to distinguish between public and private tenants.

WHERE DO WE GO FROM HERE?This concern with the difficulties of developing a poverty line, along with the concern about the value judgments involved in such a process, begs the question of whether we need a line at all. Is it worth the trouble?

Testimony to the continuing need for a poverty line is provided by the many uses to which the Henderson poverty line has been put over the twenty-odd years since it was introduced. It has been used consistently by a wide range of researchers to show how the incidence and level of poverty have changed; to assess the ade­quacy of incomes; and to show how wider economic and social change is having an impact on poor families.

The Henderson poverty line has subsequently been used widely by the Councils of Social Service and other groups in the welfare sector for advocacy purposes, and especially for arguing for more adequate income-support payments.

At the political level it has also been recognised that there is a need to develop poverty measures. While calling for a revision to the way poverty is measured. Senator Guilfoyle nevertheless reaf­firmed the need for such an instrument for policy analysis when she stated (as quoted in Social Welfare Policy Secretariat 1981, p. 4) that:

Measuring chiid pouerty

child poverty today, gtven the nuniber of significant demographicand economic changes which have occurred since 1986.

24

Pouertt/ tines; measurement issues

... it seems to me that there ought to be some contemporary measurement of what would be an appropriate poverty line below which no person in this country should be allowed to fall.

The ability to identify poverty and present a clear picture of the people experiencing it has adso been a factor in bringing about political and social action. As Richardson & Travers (1987) note, the identification of poverty carries with it a moral imperative that something should be done to alleviate it—it provides a sense of rights denied. The measurement of poverty has therefore become vety closely linked to the political process. We may wish to specu­late, for instance, as to whether Prime Minister Hawke's child poverty pledge in 1987 would have been made had it not been pos­sible to document the large (and growing) number of children in poverty.

The ability to measure poverty may in fact become more impor­tant in the hiture as governments subject their social programs to more thorough evaluation. We can expect that more sophisticated debates will be carried out publicly on the effectiveness of current programs and policies.

If we are to ensure that programs which are designed to assist people living in poverty are effective, we will have to be able to iden­tify these groups and establish the nature and extent of their needs. As the welfare sector tries to take debates about poverty into the wider community, including the business sector, it is also clear that, to be influential in these debates, more specific informa­tion and a greater consensus about the size and character of the problem of poverty will be needed.!s there a viable alternative to the Henderson poverty line?If we agree that there is a need for a poverty line measure, and also accept for the moment the argument that the Henderson poverty line is no longer a useful tool, we must ask what alternative ways of measuring poverty do we have?

The Federal Government appears to be suggesting that we should measure poverty by reference to the benchmarks it has set for children in the Family Allowance Supplement system, and its aim of keeping pensions and benefits in some relationship to average weekly earnings.

Such a proposal should be given the same careful examination that has been given to the Henderson poverty line. As it stands, it is far too simple a measure of poverty. The equivalences implicit in the line make no allowance for the variation in housing costs ex­perienced by families, or for the labour force status of parents, etc. Poverty ends up being measured in relation to the level of govem-

25

ment benefits, which leads to a circular argument in which the adequacy of benefits is assessed in terms of their own value.

Together with its widespread public acceptance, the failure or in­ability of critics of the Henderson poverty line to present a more credible alternative is a key reason why the line continues to be used by poverty analysts.

Saunders & Whiteford (1989, p.34) stressed the dearth of alter­native ideas in their report to EPAC:

An enormous effort by researchers and policy analysts has been put into debating the strengths and weaknesses of the Henderson poverty line ... What is surprising in Australia, given the widespread criticism of the Henderson poverty line voiced in the last decade, is the almost total lack of effort put into developing an alternative. This criticism has general relevance, but is particularly directed at those who continue to argue that poverty is absolute, yet have not produced an absolute poverty line that can itself be open to evaluation and criticism.

Even if an alternative way of measuring poverty is not being of­fered. should we keep using the Henderson poverty line?

In favour of the line, Manning (1982) concluded that it has be­come a useful and practical device whose bona Jtdes has been established as much by public debate after its promulgation as by the logic of its original setting. Saunders & Whiteford (1989, p.2) also concluded in their review of poverty measurement that:

... while there are major limitations on its use as a measure of the adequacy of social security payments, ... if used with caution and a clear under­standing of these limitations, it remains of value as an indicator of longer-term changes in the position of disadvantaged groups in the Australian community ... Adoption of poverty standards other than the Henderson poverty line requires clear justification. The onus is on those who reject the Henderson poverty line to provide an alternative poverty standard if their criticisms are to be taken seriously.

Empirical work by the Brotherhood of St Laurence has clearly documented the reality of life on poverty-level incomes (Trethewey 1989). However, the defects in the line must be acknowledged and the specific criticisms addressed if the Henderson poverty line is to perform even the more circumscribed role suggested by Saunders & Whiteford.

The research effort needed to address crtttcisms of the Henderson poverty lineThe criticisms of the Henderson poverty line reviewed above can be grouped into two types.

1 Firstly, there are criticisms of particular aspects of the Henderson poverty line, such as the equivalence scales, the benchmark, the updating method and the treatment of housing costs. The objec­tive of such criticisms is to amend the Henderson poverty line.

Measuring child pouerty

26

Pouerty lines; measurement issues

2 Secondly, there is the criticism that poverty and people's well­being is much more than a question of income alone. This criticism has been very much in the limelight recently and it is being frequently portrayed as a new discovery. It is, of course, a rediscovery and one only needs to look at the content of the reports which emanated from the Poverty Inquiry to see this. In reality, this criticism is not so much a rejection of the Henderson poverty line as a criticism of the use of the Henderson poverty line to the exclusion of indicators of other facets of poverty.

Notwithstanding Saunders & Whiteford's observation about the dearth of research into alternative methods of poverty measure­ment by its critics, investigations are currently underway into various aspects of the Henderson poverty line, such as equivalence scales: indices of income distribution: and very different ap­proaches to the measurement of poverty along the lines of the Townsend "indices of deprivation" or Swedish "levels of living" ap­proaches (discussed in the final chapter of this book).

The recently heightened questioning of the Henderson poverty line seems set to lead to more research activity in this area. How­ever. one must ask whether this research effort is likely to yield an alternative measure. The answer would appear to be no. The grounds for this view are two:

* the fact that there can be no definitive measure of poverty; and

* the fragmented nature of the current research effort.The requirement that a particular measure of poverty has broad public acceptance will reduce the chances of any separate research line proving conclusive. Moreover, while the pursuit of different lines of research provides the basis for constructive criticism of al­ternative approaches, the separate research agendas and the "investment" in particular lines of research also provide a basis for defensive criticism.

The research which has already been undertaken, both here and overseas, does provide adequate material with which to assess al­ternative approaches. Further research along independent lines may add to this stock of material but it will not necessarily bring us any closer to devising a satisfactory reformulation of poverty measures.

At present, much of the energy in the campaign against poverty in Australia is spent on debate or dispute over how poverty is measured. This has been a problem for several years but now there is an added urgency to the need for a reformulation of poverty measures: there is the danger that as the credibility of the

27

Measuring cMd pouerty

Henderson poverty line is weakened (whether justifiably or not) there will be no suitable alternative measure to take its place.

As argued above, the nature of the current research effort is un­likely to provide a satisfactory and broadly acceptable alternative. It is particularly unlikely to do so in the very near future.

What is now required is a concerted effort by those with an in­terest in resolving the debate to replace the objective of pursuing independent lines of inquiry with the more fundamental goal of providing a broadly acceptable method of poverty measurement for use in practical policy analysis in Australia.

Towards a new con sen su s on poverty measurementGiven the will to resolve the poverty measurement debate, this ef­fort would require the various parties to agree on what approach to take, and then to co-operate in support o f any research and development work required to implement the agreed approach. This does not mean that there will be no room for continued re­search into different approaches, but that the current priority should be to resolve the debate in practical terms.

The immediate goals must be to clarify the conceptual and methodological issues in contention and to identify the options available for achieving greater consensus. This process of issues- clarlflcation and option-testing should include further Work to:

1 articulate the arguments for why we need to measure poverty or. more generally, levels of well-being:

2 state the desirable features of a method of poverty measurement. These would probably include:* relevance to reality,* usefulness for policy analysis,* relative simplicity,* feasibility (with regard to data),* broad community acceptability; and

3 describe possible approaches for achieving these desirable fea­tures. These could include, among others:* abandonment of the measurement of poverty,* retention of the Henderson poverty line in its current usage,* modification of the Henderson poverty line,* a deprivation index approach,* a levels of living approach.

Clearly, the first option is implicitly rejected here. However, it is useful to consider, since its rejection demands a clear statement of what is meant by "poverty", why we need to measure poverty and,

28

if we do, what characteristics the means of measuring poverty should have.

Whatever measure of poverty is subsequently developed will need to be tested for credibility with the wider community, and especially with those who are on low incomes. Tulloch (1980) has noted that the community will not accept as valid a poverty line that simply reflects the value judgements of the individual re­searcher or body establishing the measure.

But a further issue will be whether a poverty line by itself is enough for the purposes of policy development and review. As noted earlier, given the quite distinct uses to which poverty lines are put. it is unlikely that any one measure will satisfy everyone with an interest in anti-poverty policies.

Since the measurement of poverty can be used to provide a political imperative for action, another concern here is that a definition of poverty which focuses on material deprivation may be­come a driving force for policies that emphasise income-support measures but exclude or reduce the importance of policy develop­ment in other areas.

If a monetary poverty line alone is used to evaluate the Government's success in reducing poverty, there is also a danger that government policies in other areas (health, education, regional development, etc.) and policies with a longer term focus will not be given due credit. Hie end result may thus be that the Government will have a greater incentive to adopt short-term solutions to what is, after all, a much larger problem of structural inequality.

What we would argue is that Australia needs to retain a poverty line (of the Henderson type), to allow the recognition of material deprivation, but that it should be supplemented by other indicators of poverty. Such measures must also be complemented by qualita­tive studies—studies which are able to show what it actually means to live on low incomes and studies which are able to take a longitudinal approach and identify the mechanisms by which people move in and out of poverty. The Brotherhood o f St Laurence has moved to address this need by establishing a longitudinal study of the life chances of children bom in inner-city Melbourne.

Resourcing a resolution of the debateThe process of achieving consensus on poverty measurement will inevitably require the devotion of additional resources to such tasks as equivalence scale setting, and income distribution re­search. We suggest that the Federal Government should make a major contribution to this process. Like everyone else, its efforts to alleviate poverty are seriously weakened by the unresolved debate

Pouerty lines; measurement issues

29

about how to measure poverty. Once this issue is resolved, it will be possible to make more constructive policy analysis and to con­centrate more on implementing changes; as a result, the Government's objectives in this area should be able to be much better met than they are at present.

The welfare sector also has an important role to play in assisting policy makers to establish valid and agreed indicators of poverty.

As Richardson & Travers (1987) state so clearly in their recent article, we must get the measures of poverty right. The costs of not doing so will be that some of the truly poor will remain unidentified and inadequately catered for.

Measuring child pouerty

30

T W O

Th e incidence o f child poverty since 1986

Anthony King

CONTENTS

* Introduction 33

* Outline of the estimation technique 35

* The incidence of child poverty in late 1986 36

* The incidence of child poverty in late 1989 39

- Change in the incidence of child poverty:1986 to 1989 41

* Removing the effects of employment growthfrom the poverty line 49

* The situation in the absence of income-supportinitiatives 50

* Summaiy 1986-1989 52

* Government cash benefits in relation to thepoverty line: late 1986, late 1989 and late 1990 57

!NTRODUCT!ONGrowing concern about the increasing incidence of poverty among families with children has led to the Government making a number of income-support initiatives in recent years. In this chapter, an at­tempt is maqfe to assess the success o f these initiatives, the specific measure being the change in the incidence of child poverty in Australia between 1986 and 1989.

The way in which the estimates were derived is described in the following section, with further detail being given in an Appendix at the end of the book. It will be noted that the measure of poverty used here is the Henderson poverty line. For a discussion of the characteristics of this measure, and of the other ways in which the concept of poverty can be defined, the reader is referred to Chap­ters 1 and 3 of this study.

The work was carried out by the National Institute of Economic and Industry Research (NIEIR) in October 1989, and the results are presented in the subsequent two sections, showing respectively the incidence of poverty in late 1986, and its incidence in late 1989.

The fifth section contains a comparison of the two sets of es­timates. The results show that an important determinant of the change in the incidence of poverty was the growth in employment. For this reason, there is also an analysis of the sources of the ob­served growth in employment over the period: population growth, participation rates and the rate of unemployment, as a basis for determining the nature and extent of the effect of employment growth on the incidence of poverty among children.

In the following two sections, two approaches to isolating the im­pact of the Government's income-support initiatives are examined: the first constrains the increase in the poverty line over the period by removing the effect of employment growth; and the second es­timates what poverty would have been had there been no such income-support initiatives.

The findings are summarised in the eighth section, in which the main factors working for and against the alleviation of child pover­ty over the 1986 to 1989 period are discussed. Summaiy tables show the sources of the change in the number of children in pover­ty between 1986 and 1989 and the incidence of child poverty among six categories of social security recipients in 1989.

In the final section, the incidence of child poverty in late 1989 is compared with an estimate of what it would be in late 1990, on the assumption that income-support policies remain unchanged over the 12-month period.

33

l

!

§

The treatment of !ow-income income unitsIt ts important to note that in this chapter three different assump­tions about the size of the low-income population have been made, because of doubts about the quality of the income survey data on low-income income units not in receipt of government pensions and benefits. The assumptions are specified in terms of the take- up rate of Family Allowance Supplement (FAS); that is, the proportion of those eligible for FAS who actually receive the pay­ment. The actual FAS take-up rate is not known. The effect of the assumptions is to remove a varying number of low-income income units 6*om the analysis, on the basis that their incomes are only apparently low. The three assumptions, referred to as "high","medium" and "low", are defined as follows.

* "High": it is assumed that the FAS take-up rate is 50 per cent, so that a further 50 per cent is included in the analysis from the pool of those apparently eligible for but not in receipt of FAS. This had the effect that none of the income units in this pool was omittedfrom the analysis. j

* "Medium": it is assumed that the FAS take-up rate is 75 per cent. 'The remaining 25 per cent is then taken from the "apparently !eligible" pool, the remainder being dropped from the analysis on the grounds that they were only apparently eligible for FAS. This assumption had the effect that 70 000 income units were dropped jfrom the analysis. j

i* "Low": it is assumed that the FAS take-up rate is 100 per cent. Thus ,

none of the apparently eligible pool were added to the existing 'recipients, which had the effect that a further 70 000 income unitswere dropped from the analysis.

tnterpretfng the resuftsBefore the results can be properly interpreted, the particular tech­niques used in their estimation need to be allowed for. In *particular, the results are sensitive to:

* the nature of the income distribution data that provided the basis {for the estimates, which, for 1986, was the 1986 Income Distribu- [tion Survey (IDS) of the ABS and, for 1989, was an income distribution obtained by updating the 1986 IDS data; and

* the way in which poverty is measured. Here, it is assessed from a !comparison of incomes with the detailed Henderson poverty line, updated from its 1973 base by household disposable income per capita. ^

Further, two groups—the self-employed and "independent" children living with their parent(s)—have been excluded from the estimates

Measuring child pouertg

34

The incidence of chiid pouerh/ since 1 986

because of doubts about the validity of the data. As a result, 18 per cent of dependent children have been removed from the data base.

Finally, the units of analysis are dependent children and the "in­come unit", which is a basic definition of a family consisting of any one of the following: an adult couple without dependent children, an adult couple with dependent children, a sole parent with de­pendent children, and a single adult.

OUTLINE OF THE ESTIMATION TECHNIQUEThe basis for the estimates was the unit record data from the 1986 Income Distribution Survey (IDS) undertaken by the Australian Bureau of Statistics (ABS), which provides an estimate of the dis­tribution of pre-tax, incomes in late 1986. This is the most recent detailed income distribution data available. The unit record data includes detailed income data for around 11 000 income units with weights attached to each record in the data to allow estimates of the whole population to be made.

An estimated distribution of disposable incomes in the latter part of 1989 was then generated, using the technique of microsimulation described in detail in King (1987). The technique entails:

1 reweighting the data base to account for demographic and labour market changes:

2 updating the various private income components to reflect their growth rates over the period;

3 imputing social security payments according to the prevailing rates and provisions; and

4 imputing income tax liabilities according to relevant provisions. An estimated distribution of disposable Incomes was similarly generated for the latter part of 1986, although there was no need for reweighting from the base 1986 IDS data and the updating of private income components was limited to those components which were imputed by the ABS from annual 1985/86 data. Although so­cial security incomes are included in the 1986 IDS, they were replaced with imputed data because of the need for compatibility with the technique used to estimate the 1989 distribution.

Because of the difficulties encountered in updating annual in­comes, the estimates are based on current (weekly) incomes. Nevertheless, poverty is more realistically measured on the basis of annual income, as was noted in the Commission of Inquiry into Poverty (1975, p.14):

35

Generally speaking, poverty measures on an annual basis are more ap­propriate and realistic than those based on weekly Sgures. The main reason for this is that any one particular week may be quite unrepresentative, particularly for a worker who may have a temporarily low Income ...

Because of this, the incidence of poverty tends to be somewhat higher when measured against weekly incomes rather than annual incomes. As an indication of the magnitude of the likely difference in results, the Commission of Inquiry into Poverty (1975, p.14) es­timated the incidence of poverty (before housing) to be 10.2 per cent on the basis of annual (1972/73) incomes and 12.5 per cent on the basis of weekly (August 1973) incomes.

The distributions of disposable weekly income for late 1986 and late 1989 were then compared with the detailed Henderson poverty line updated according to change in per capita household dis­posable income. Further details on the techniques used are provided in the Appendix.

THE INCIDENCE OF CHILD POVERTY IN LATE 1986The estimates of the incidence of child poverty in late 1986 are given in Tables 1 to 4.

Tables 1, 2 and 3 differ only with respect to the assumption about the size of the low-income population. Each table provides the following information about each of the six types of income unit listed in the table:

* number and proportion of income units below the poverty line;

* number and proportion of dependent children in income units below the poverty line; and

* the average poverty gap: the gap between the income of these income units and the poverty line.

The estimates are provided both before and after allowing for hous­ing costs.

As can be seen, the patterns are similar across all three tables, the differences being the effects of excluding different numbers of low-income units from the analysis. The incidence of poverty is the highest in Table 1, which is based on the assumption that the low- income group is high. It decreases successively in the following tables as the size of the low-income group gets smaller. Table 2 is taken to be the most probable representation of the actual situa­tion: Table 1 is one extreme, in which all reported low incomes in the 1986 IDS are taken to indicate actual circumstances accurately (corresponding to a FAS take-up rate in late 1989 of 50 per cent); Table 3 is the other, in which any apparently eligible income units left over are deemed not in fact to be eligible (corresponding to a

Measuring child pouertg

36

The incidence ofchiidpooertp since J986

Tabie 1 Estimated incidence o( chiid poverty among income units with children,_______ Austraiia, tow-income popuiatbn assumptbn: high, Sep tern ber/October 1986

Income units below Children belowpoverty line poverty line Poverty gap

Income unit Number Proportion^ Number Proportions $/week pertype 000 % 000 % income unit

Before housingCouple with: 1 child 46.2 8.7 46.2 8.7 612 children 69.6 10.3 139.2 10.3 613 children 52.8 18.7 158.3 18.7 844+ children 34.7 32.9 157.7 34.1 79Sub-total 203.2 12.8 501.4 15.7 70

Sole parent with:1 child 28.3 21.6 28.3 21.6 152+ children 67.3 50.6 169.5 53.5 25Sub-total 95.6 36.2 197.8 44.1 22

Total 298.9 16.1 699.2 19.2 55

After housingCouple with:1 child 46.4 8.8 46.4 8.8 712 children 70.6 10.5 141.1 10.5 683 children 48.2 17.1 144.5 17.1 964+ children 33.3 31.6 150.7 32.6 74Sub-total 198.4 12.5 482.6 15.2 77

Sole parent with:1 child 27.6 21.1 27.6 21.1 352+ children 50.2 37.7 122.5 38.6 45Sub-total 77.8 29.4 150.1 33.5 42

Total 276.2 14.9 632.7 17.4 67

a Per cent of row categoryNote: Excludes income units with selfemployment as principal source of in­come and income units who were children of the household head.Source: NIEIR simulations on basis of ABS 1986 IDS unit record data.

FAS take-up rate in late 1989 of 100 per cent). Table 3 thus repre­sents the case in which there is no scope other than through population growth or income distribution effects for further in­creases in the number of FAS recipients after late 1989.

Table 2 shows the characteristics of the incidence of poverty al­ready familiar from other estimates of Australian poverty. The table provides the following information about child poverty in late 1986:

* there were an estimated 660 000 children in income units below the poverty line before allowing for housing costs and 560 000 after:

* the degree of poverty increases as the number of children in the income unit increases;

37

Measuring child pouerty

Income units below Children belowpoYsrtyJine p.o.Yerty.line Poverty gap

Income unit Number Proportion" Number Proportion" $/week per

Tabte 2 Estimated incidence of chiid poverty among income units with children,Austraiia, low-income popuiation assumption: medium, September/Oc-

_______ tober 1986______________________________________________

type 000 % 000 % income unit

Before housingCouple with:1 child 40.7 7.9 40.7 7.9 412 children 63.4 9.8 126.8 9.8 523 children 51.3 19.0 153.9 19.0 824+ children 29.6 31.1 136.4 32.7 70Sub-total 185.1 12.1 457.9 15.1 61

Sole parent with:1 child 28.3 21.7 28.3 21.7 152+ children 67.3 52.0 169.5 55.2 25Subtotal 95.6 36.8 197.8 45.2 22

Total 280.7 15.7 655.7 18.9 48

After housingCouple with:1 child 40.1 7.7 40.1 7.7 582 children 62.0 9.6 124.0 9.6 633 children 44.7 16.6 134.2 16.6 944+ children 24.7 26.0 113.2 27.2 71Sub-total 171.5 11.2 411.5 13.6 71

Sole parent with:1 child 27.6 21.1 27.6 21.1 352+ children 50.2 38.8 122.5 39.9 45Sub-total 77.8 29.9 150.1 34.3 42Total 249.3 13.9 561.5 16.2 62

" Per cent of row categoryNote: Excludes income units with self-employment as principal source of in­come and income units who were children of the household head.Source: NIEIR simulations on basis of ABS 1986 IDS unit record data.

* the proportion of sole-parent income units below the poverty line is relatively high: about 30 per cent of the estimated number of children below the poverty line were in sole-parent families.

* the average poverty gap among sole parents is relatively low, since most of them receive social security pensions or benefits; and

* the average poverty gap among couple income units is increased significantly by the many FAS recipients (and potential FAS recipients) with very low incomes.

Table 4 shows the spread of incomes around the poverty line in terms of the number of dependent children in income units with incomes within a given range above or below the poverty line. The

The fncfdence of chiM poverty since Jt 986

Income units below Children below

Tabie 3 Estimated incidence of child poverty among income units with chiidren,_______ Austraiia, tow-income population assumption: low, September/October 1986

poverty bus poverty line Poverty gapIncome unit Number Proportion^ Number Proportion^ $/week pertype 000 % 000 % Income unit

Before housingCouple with: 1 child 35.7 7.0 35.7 7.0 292 children 54.0 8.7 108.0 8.7 463 children 47.0 18.7 141.1 18.7 754+ children 22.7 27.2 102.3 28.5 76Sub-total 159.4 10.9 387.0 13.5 55

Sole Darent with:151 child 28.3 21.7 28.3 21.7

2+ children 67.3 52.4 169.5 55.6 25Sub-total 95.6 36.9 197.8 45.4 22

Total 255.0 14.8 584.8 17.7 43

After housingCouple with:1 child 34.1 6.7 34.1 6.7 502 children 51.4 8.3 102.8 8.3 593 children 37.8 15.0 113.4 15.0 954+ children 20.5 24.6 92.4 25.7 68Subtotal 143.8 9.8 342.8 12.0 67

Sole parent with:1 child 27.6 21.1 27.6 21.1 352+ children 50.2 39.1 122.5 40.2 45Sub-total 77.8 30.0 150.1 34.4 42

Total 221.6 12.9 492.8 14.9 58

a Per cent of row categoryNote: Excludes income units with self-employment as principal source of in­come and income units who were children of the household head.Source: NIEIR simulations on basis of ABS 1986 IDS unit record data.

table shows the situation both before and after consideration of housing costs, and according to the three low-income population assumptions.

THE INCIDENCE OF CHILD POVERTY IN LATE 1989The estimated incidence of child poverty in late 1989 is given in Tables 5 to 8. which corresponds to the 1986 estimates in Tables 1 to 4. As described above and in the Appendix, these estimates are based on an updated income distribution, the estimation of which took into account a number of changes which have taken place since late 1986. These include:

* demographic change;

39

Measuring chiMpouerh/

Tabie 4 Estimated number of children by income (per cent of poverty line) of in- __________ come unit, Austraiia, September/October 1986_________________________

Low-income population assumptionHigh Medium Low

Before housingAbove poverty line 120% or higher 2517 2459 2425115%- 119% 89 75 63110%- 114% 112 92 65105%- 109% 100 95 81100%- 104% 116 95 79Sub-total 2935 2818 2715Below poverty line 95% - 99% 124 115 9590% - 94% 154 144 13485% - 89% 111 110 10780% - 84% 106 106 100Below 80% 204 180 149Sub-total 699 656 585Total 3634 3474 3300After housingAbove poverty line120% or higher 2600 2540 2483115%- 119% 86 76 59110%- 114% 106 98 94105%- 109% 85 78 63100%- 104% 123 119 105Sub-total 3002 2912 2807Below poverty line 95 % - 99% 84 74 6290% - 94% 79 61 4785% - 89% 73 60 5480% - 84% 65 61 60Below 80% 331 305 269Sub-total 632 562 493Total 3634 3474 3300

Note: Excludes Income units with self-employment as principal source of in­come and income units who were children of the household head.Source: N1E1R simulations on basis of ABS 1986 IDS unit record data.

* labour market change;

* rates of increase in private incomes from various sources;

* changes to the income security system, notably:* the Family Package measures, including the introduction of Fami­

ly Allowance Supplement and extension of rent assistance, and* the initial stage of implementation of the Child Support

Scheme; and

* changes to provisions in the income tax system.

40

T h e in c id en ce o f ch ild p ou erty s in ce f 986

Tabte 5 Estimated incidence of chiid poverty among income units with chiidren,!ow-income popuiation assumption: high; September/October 1989

Income units below Children belowpoverty line pcvertyline Poverty gap

Income unit Number Proportion^ Number Proportion^ $/week pertype 000 % 000 % Income unit

Before housingCouple with: 1 child 44.3 7.9 44.3 7.9 842 children 65.2 9.1 130.5 9.1 803 children 50.1 16.8 150.2 16.8 974+ children 35.4 32.1 161.1 33.4 93Subtotal 195.0 11.6 486.1 14.5 88

Sole parent with:1 child 27.5 18.2 27.5 18.2 192+ children 50.0 34.0 124.3 35.5 28Sub-total 77.5 26.0 151.9 30.3 25

Total 272.5 13.8 637.9 16.5 70

After housingCouple with1 child 48.1 8.6 48.1 8.6 8&2 children 65.8 9.2 131.6 9.2 893 children 47.7 16.0 143.1 16.0 1154+ children 33.9 30.8 155.0 32.1 87Sub-total 195.6 11.6 477.8 14.2 94

Sole parent with1 child 24.8 16.4 24.8 16.4 422+ children 36.2 24.6 87.1 24.9 59Subtotal 61.0 20.4 111.9 22.3 52

Total 256.6 13.0 589.8 15.3 84

a Per cent of now categoryNote: Excludes income units with self-employment as principal source of in­come and income units who were children of the household head.Source: NIEIR simulations on basis of ABS 1986 IDS unit record data.

The poverty estimates were then obtained by applying the es­timated poverty line for late 1989 to the updated income distribution. The "standard family" poverty line for late 1989 was estimated to be $330.10 per week, compared to $251.40 per week in late 1986 (the standard family poverty line is the most usually quoted line and refers to the before-housing poverty line for a couple with two children of specified ages whose male head is in the labour force).

CHANGE !N THE INCIDENCE OF CHILD POVERTY: 1986 T 0 1989

The extent of change in the incidence of chiid povertyThe key points from a comparison of the estimated incidence of child poverty in late 1986 (Tables 1 to 3) and late 1989 (Tables 5 to 7) are as follows.

41

3%* Measuring chRdpouertg

Tabie 6 Estimated incidence of child poverty among income units with chiidren,Australia, low-income population assumption: medium, September/Oc-tober 1989

1

Income unit type

Income units below pcvcr&LUns

Number Proportion? 000 %

Children below poverty line

Number Proportion" '000 %

Poverty gap $/week per income unit

i

Before housingCouple with:1 child 38.5 7.0 38.5 7.0 56

i 2 children 59.2 8.6 118.4 8.6 663 children 4S.9 16.1 137.8 16.1 984+ children 27.0 27.2 126.4 29.1 82

3 Sub-total 170.6 10.6 421.1 13.1 75

Sole parent with 1 child 27.5 18.2 27.5 18.2 192+ children 50.0 35.1 124.3 36.9 28

' Sub-total 77.5 26.4 151.9 31.1 25

3 Total 248.2 13.0 573.0 15.5 59! After housing

Couple with 1 child 41.4 7.6 41.4 7.6 672 children 56.6 8.3 113.1 8.3 823 children 44.3 15.5 133.0 15.5 1094+ children 24.4 24.6 113.7 26.2 75

i Sub-total 166.8 10.3 401.3 12.5 84

tSole parents with 1 child 24.8 16.4 24.8 16.4 42

! 2+ children 36.2 25.4 87.1 25.8 593 Sub-total 61.0 20.8 111.9 22.9 52

j Total 227.8 11.9 513.2 13.9 76

! a pgr cent of row category' Note: Excludes Income units with self-employment as principal source of in-! come and income units who were children of the household head.1 Source: NIEIR simulations on basis of ABS 1986 IDS unit record data.i3, * There is a small decrease, of the order of two to three percentage1 points, in the proportion of children in families below the poverty; line over the period. For example, with the "medium" low-income; population assumption, the proportion of children in income units' below the after-housing poverty line is estimated to M l from 16.2j per cent in late 1986 to 13.9 per cent by late 1989.

* This overall pattern comprises a small fall in the proportion of! children in married-couple income units in poverty, but a substan-! tial decline, of around a third, in the proportion of children of sole§ parents below the poverty line.

42

The incidence of child pouerf^ since J 986

Table 7 Estimated incidence of chiid poverty among income units with children, Austraiia, low-income population assumption: low, September/October

__________ 1989__________________________________________________________________

Income units below Children beiowPPYCrtY llilS poverty line Poverty gap

Income unit Number Proportion^ Number Proportions $/week pertype 000 % 000 % income unit

Before homingCoupie with: 1 child 33.0 6.2 33.0 6.2 382 children 47.5 7.2 95.0 7.2 533 children 38.0 14.3 113.9 14.3 904+ children 18.8 21.7 86.3 23.1 77Subtotal 137.3 8.9 328.3 10.8 63

Sole parent with1 child 27.5 18.2 27.5 18.2 192+ children 50.0 35.4 124.3 37.2 28Sub-total 77.5 26.5 151.9 31.3 25

Total 214.9 11.7 480.1 13.7 49

After homingCouple with:1 child 34.7 6.5 34.7 6.5 552 children 45.2 6.9 90.5 6.9 723 children 33.5 12.6 100.4 12.6 1144+ children 17.6 20.3 80.7 21.6 66Sub-total 131.0. 8.5 306.2 10.1 77

Sole parent with:1 child 24.8 16.4 24.8 16.4 422+ children 36.2 25.6 87.1 26.0 59Sub-total 61.0 20.9 111.9 23.1 52

Total 192.0 10.4 418.1 11.9 . 69

a Per cent of row categoryNote: Excludes income units with self-employment as principal source of in­come and income units who were children of the household head.Source: NIBIR simulations on basis of ABS 1986 IDS unit record data.

* The actual number of children below the poverty line is estimated to decline by around 10 to 15 per cent between late 1986 and late 1989. The "best case", which is under the "low" low-income popula­tion assumption, still shows 420 000 children below the after-housing poverty line in late 1989 (and this is before any allowance has been made for exclusions from the analysis).

* Overall, the average poverty gaps show some decrease between late 1986 and late 1989, particularly on the "medium" and "low" low-income population assumptions (where more low-income in­come units are excluded from the analysis). There are, however, some notable variations in the direction and magnitude of change

43

Measuring chMdpouerty

Tabte 8 Estimated number of children by income (per cent of poverty line) of in- __________ come unit, Austraiia, September/October 1989_________________________

Low-Income population assumptionHigh Medium Low

<Before housingAbove poverty line 120% or higher 2687 2650 2630115%- 119% 145 125 111110%- 114% 121 105 91

* 105% - 109% 150 127 109100% - 104% 121 114 89Sub-total 3226 3123 3033

Below poverty line 95% - 99% 146 126 10890% - 94% 127 119 10385% - 89% 112 101 9180% -84% 79 79 74Below 80% 174 148 103Subtotal 638 573 480

Total 3864 3696 3513

! After housingAbove poverty line

i 120% or higher 2812 2760 2720115%- 119% 118 108 98110%- 114% 150 143 122105% - 109% 115 100 91100%- 104% 78 70 61Sub-total 3274 3183 3095

1 Below poverty line 95% - 99% 93 83 6390% - 94% 71 62 47

3 85% - 89% 92 78 6380% -84% 61 54 493

1Below 80% 271 236 196Sub-total 590 513 418

33 Total 3864 3696 3513

Note: Excludes income units with self-employment as principal source of in­come and income units who were children of the household head.Source: NIEIR simulations on basis of ABS 1986 IDS unit record data.

in poverty gaps among the various types of income unit. Note that the poverty gaps are expressed in current dollars and inflation over the period is estimated to be 24 per cent. Furthermore, interpreta­tion of changes in average poverty gaps needs to be undertaken with Caution since it is possible ibr the average gap to increase even if no individual gaps increase.

Broad factors undertying the observed changeThese improvements may appear to be relatively weak, given theGovernment's recent initiatives in support of its pledge to eliminate

44

The incidence ofchiidpouerh/ since 1986

child poverty and estimates made soon after the introduction of the Family Package which suggested that the package would reduce child poverty by 20 to 35 per cent (Saunders & Whiteford 1987; Brownlee & King 1988).

There are two important reasons, however, why the results should not be surprising:

1 the benchmarks against which the Government assesses its income support payments are generally below the Henderson poverty line; and

2 household disposable income, to which the poverty line is in­dexed, has risen rapidly over the period since late 1986.

With regard to the first point, the impact of the Family Package on income will be concealed when it does not raise incomes above the poverty line. When the distribution of incomes around the poverty line is examined (Tables 4 and 8). however, a significant improve­ment becomes apparent, with a reduction from 1986 to 1989 in the numbers and proportions of children below 85 per cent of the poverty line.

This impact is more clearly evident from the figures presented in Table 19 in Chapter 3, which compares base income security entit­lements with the poverty line from late 1986 to late 1989, and shows the improving relativities over this period.

With regard to the second point, per capita household dis­posable income (which is the index by which the poverty line is updated) is estimated to increase by 31.3 per cent horn late 1986 to late 1989. In comparison, the base rates of pension and benefit will have increased by 26.5 per cent and average weekly earnings (all males total earnings) by 20.9 per cent. The poverty line thus has been growing faster than both social security base payments and wages. This yields an increase in the incidence of poverty that tends to offset the beneficial eSects of the income-support initiatives.

Examination of the components of household disposable income shows the main contributor to its high rate of growth over the recent period to have been the growth in wages and salaries. From September/December 1986 up to June 1989, this component in­creased by 31.7 per cent. Over the same period, AWE (all persons' total earnings) increased by 18.1 per cent. The large growth in the wages and salaries component has been due to employment growth, with the numbers employed increasing by 10.2 per cent over the period compared to underlying population growth of only around 5 per cent.

That economic growth may result in a higher degree of poverty is quite consistent where a relative concept of poverty is used, as is

45

the case with the Henderson poverty Une. A relative poverty line measures poverty against a standard which is not fixed in absolute terms but moves in line with general living standards. The relative poverty line thus retains a link with the standards of the overall society, particularly as they change over time. For example, as society as a whole becomes better off, the least well-off need to ad­vance accordingly simply to retain their position.

Employment growth and povertyEmployment growth (in excess of population growth) can have two types of effect on the incidence of poverty. Firstly, it can raise the poverty line, which serves to increase the measured extent of poverty. Secondly, there is an offsetting effect which reduces the incidence of poverty to the extent that new jobs go to those below the poverty line. The impact on the extent of poverty therefore depends crucially on the distribution of the new employment.

The relationship between employment growth and poverty (measured in relative terms) can be illustrated by examining the nature of the substantial increase in employment that took place over the 1986 to 1989 period. The number of people employed can be expressed as the total population of labour-force age, multiplied by the participation rate, multiplied again by the rate of employ­ment among the labour force. The first step in analysing the distribution effect of employment growth is to split the total in­crease in employment into the amounts that can be attributed to the change in each of these factors in such a way that the sum of the increase in employment attributable to each factor adds to the observed total increase. This can be done by defining the employ­ment effects in the following way.

The population effect: the increase in employment that would have occurred horn the observed increase in population over the 1986 to 1989 period if the participation rate and the rate of un­employment were kept at 1986 levels.

The participation rate effect: the increase in employment from the increase in participation rates between 1986 and 1989, applied to the population in 1989, with the rate of unemployment held constant at its 1986 level.

The unemployment rate effect: the increase in employment im­plied by the change in the rate of unemployment between 1986 and 1989, applied to the population and participation rates of 1989.

Table 9 illustrates this procedure. Looking at total employment, it shows, for instance, that the number of people employed in Australia rose by 809 000 between August 1986 and August 1989.

Measuring child pouerty

46

The incidence of chtM pouerh/ since J 986

It also shows that this increase can be considered as the total of the three effects defined above, in which case over half the total in­crease in employment is shown to be the result of the increase in population, the remainder being evenly shared by the participation and unemployment rate effects. Corresponding data are given for the male and female components of the population, with a further distinction between married and single people.

Table 9 Components of the increase in employment.' Australia, August 1986 to__________ August 1989______________________________________________________________

Males Females Total___________________________________ Married Single Married Single___________

Number of jobs (OOO)1. Start: August 1986 2776 1427 1658 1058 69192. Population increase +166 +104 +92 +78 +4403. Change in participation rates -23 +11 +150 +48 +1864. Change in unemployment rates +37 +74 +27 +45 +1835. Net Increase +180 +189 +269 +171 +8096. End: August 1989 2956 1616 1927 1229 7728

Contribution to total net increase (%)Population increase +92 +55 +34 +46 +54Change in participation rates -13 +6 +56 +28 +23Change in unemployment rates +21 +39 +10 +26 +23Net increase 100 100 100 100 100

Source: Derived from ABS Labour Fbrce Suruet/: Australia (Cat.No. 6203.0)

The second step in the analysis is to consider how the changes in employment attributable to each of the three factors could be ex­pected to affect the incidence of child poverty. This can be briefly expressed as follows.

1 The increase in employment attributable to population growth Over half of the increase in jobs from August 1986 to August 1989 can be attributed to population growth. That is not to say that these new jobs appeared automatically, but they were necessary to maintain labour market conditions at late 1986 levels. This component of employment growth has no effect on the incidence of poverty. It would neither raise the poverty line (which is linked to household disposable income on a per capita basis) nor change employment rates among the poor. The growth in population would be accompanied by a corresponding increase in the number in poverty, but there would be no increase in the proportion of people below the poverty line.

2 The increase in employment attributable to changing participa­tion rates

47

Changes in participation rates account for a quarter of employ­ment growth between August 1986 and August 1989. This is largely the result of increased participation by married women and, to a lesser extent, by single women. There was little change in men's participation. This component of employment growth does raise the poverty line but it will also result in reduced poverty if offset by people below the poverty line increasing their labour force participation. Here, however, the major impact of changing participation rates is experienced by married women and this, in most cases, will result in single-earner couples becoming two- earner couples. Such couples are unlikely to have been originally below the poverty line. The overall impact of this change in labour force participation will thus be to increase the incidence of child poverty.

This analytical outcome seems reasonable. It simply reflects the fact that as the two-eamer couple becomes predominant, the average level of family incomes rises.

3 The increase in employment attributable to changing unemploy­ment ratesA final quarter of the increase in employment over the period is reflected in falling unemployment rates. The impact of this component on poverty works in the same way as did the previous component, but the picture in this case is different. With regard to child poverty, the effect of the increase in the poverty line is likely to have been offset somewhat by the reduction in the unemployment rate for married men, though the main reductions in unemployment have been experienced by singles. Apart from where the new Jobs for singles go to sole parents, the reduction in singles' unemployment rates will not offset the increase in child poverty due to the rising poverty line.

Is this analytical outcome reasonable? Suppose the only in­crease in employment (above that required to keep up with population growth) is a reduction in unemployment among single people without dependent children. The poverty line would rise, poverty among single people without children would fall, but child poverty would appear to increase. This increase is only apparent, in the sense that the real circumstances of the depend­ent children have not changed, although they are worse off in relation to single people

Clearly, the above labour market analysis could be taken muchfurther but, as it is, it does indicate the three following key points:

Measuring child poucrtg

The tncidence of child pouerty since 1 986

1 Any interpretation of changes in the incidence of poverty, when poverty is measured in relative terms, requires a consideration of the changing circumstances both of the poor and of the rest of the population.

2 The relationship between employment growth and poverty is far more complex than can be expressed by the simple assertion that more jobs mean less poverty. The outcome depends on the distribution of new employment, since different elements of the increase in employment have different impacts on child poverty.

3 A relative poverty line has strengths in assessing the conditions of the poor in terms of the changing standards of the society in which they live. However, it does lead to some difficulties of interpretation. In this case in particular, it would appear that any apparently adverse impact on child poverty which can be at­tributed to a fall in the rate of unemployment of single people with no children should be discounted.

Isolating the impact of income support initiativesThe estimated change in the incidence o f child poverty shown above does not show the Impact of income-support initiatives clear­ly since their effect is confused with the effects of other factors, and particularly with the changes in the labour market.

Two approaches are taken in the following sections to isolate this impact. The first approach entails removal of the employment growth effects from the poverty line. The second approach ex­amines the hypothetical case of how matters would be in the absence of the recent income-support initiatives.

REMOVING THE EFFECTS OF EMPLOYMENT GROWTH FROM THE POVERTY LINEThe effects of employment growth (in excess of population growth) on the poverty line can be partly removed by updating it according to changes in average weekly earnings (AWE). However, since the changes in participation and unemployment rates are still incor­porated in the income distribution side of the analysis, this provides a generous indication of the type of impact on child poverty which could have been expected in the absence of the sub­stantial employment growth which has occurred.

Updating the Henderson poverty line by AWE (male equivalent units) from its base in September 1973 the poverty line for the "standard family" becomes:

* $260.50 per week in late 1986; and

* $314.90 per week in late 1989.

49

1

These compare with the HDI-updated poverty line used elsewhere In the analysis of:

* $251.40 per week in late 1986; and

* $330.10 per week in late 1989.The results obtained using AWE and the 'medium" assumption for the low-income population are given in Tables 10 to 12. The tables show a significant decline in the proportions and numbers of children below the poverty line between late 1986 and late 1989, of the order of 30 to 40 per cent. Average poverty gaps also fall sig­nificantly (after allowance has been made for inflation). These improvements are greater than was previously estimated in the "static* analyses of the Family Package which were undertaken soon after its announcement (Brownlee & King 1988; Saunders & Whiteford 1987). This is to be expected since the estimates here in­clude the impact of declining unemployment and the previous estimates did not consider the impact of the Child Support Scheme.

THE SITUATION !N THE ABSENCE OF INCOME-SUPPORT INITIATIVESA more direct "hypothetical" approach to examining the changing incidence of child poverty is to ask the question: what would the situation have been in the absence of the recent government initia­tives?

This question is answered by generating an income distribution for late 1989 using a social security system that differs from the one used in the previous sections of this chapter in the following ways:

* the Family Allowance Supplement is not Introduced;

* additional pension/beneflt for children is increased horn late 1986 according to CPI indexation, to give $20 per child per week (com­pared to $16 per child per week in late 1986);

* the value of Rent Assistance is increased from late 1986 according to CPI indexation;

* Family Allowance rates are unchanged from 1986;

* Family Income Supplement continues with no increase in the take-up rate since late 1986 but with an increase in its value (to a maximum of $20 per child per week) and an increase in the number of recipients in line with population increase; and

* the Child Support Scheme is not introduced.

Measuring chiM pouertg

50

The incidence ofchiidpouerh/ since 1986

Table 10 Estimated incidence of chiid poverty among income units with chitdren(poverty line updated by AWE), Austraiia, low-income population assump-

__________ tion: medium. September/October 1986__________________________________

Income units below Children belowpoverty line poverty, line Poverty gap

Income unit Number Proportion^ Number Proportion? $/week pertype 000 % 000 % income unit

Before housingCouple with: 1 child 46.1 8.9 46.1 8.9 442 children 71.2 11.0 142.4 11.0 563 children 57.3 21.3 172.0 21.3 844+ children 31.0 32.5 142.5 34.2 80Sub-total 205.5 13.4 502.9 16.6 65

Sole parent with:1 child 37.3 28.5 37.3 28.5 162+ children 72.0 55.6 181.5 59.1 31Sub-total 109.2 42.0 218.7 50.0 26

Total 314.8 17.6 721.6 20.8 51

After housingCouple with:1 child 41.6 8.0 41.6 8.0 622 children 70.7 10.9 141.5 10.9 633 children 51.7 19.2 155.1 19.2 904+ children 28.7 30.1 130.2 31.2 71Sub-total 192.7 12.6 468.3 15.4 71

Sole parent with:1 child 32.9 25.1 32.9 25.1 332+ children 59.4 45.9 150.3 49.0 44Sub-total 92.3 35.5 183.2 41.8 40

Total 285.0 15.9 651.5 18.8 61

^ Per cent of row categoryNote:Excludes income units with self-employment as principal source of in­come and income units who were children of the household head.Source: NIE1R simulations on basis of ABS 1986 IDS unit record data.

The results, assuming a "medium" low-income population, are shown in Table 13. Since the poverty line in both cases is updated by the growth in HD1. they can be directly compared with the results shown in Table 6. As can be seen, the effect of the recent government initiatives appears to be substantial. For instance, 13.9 per cent of children were estimated to be in after-housing poverty after the income-support initiatives had been taken into account. Without these initiatives, it is estimated that 19.2 per cent of children would have been in after-housing poverty in late 1989.

51

Measuring child pouerty

Tabie 11 Estimated incidence of chiid poverty among income units with children ! (poverty iine updated,by AWE), Austraiia, low-income popuiation assump-- __________ tion: medium, September/October 1989__________________________________< Income units below Children below

poverty line poverty line Poverty gapi Income unit Number Proportion" Number Proportion? $/week per

type 000 % 000 % income unit

Before housingCouple with: 1 child 27.3 5.0 27.3 5.0 62

3 2 children 47.5 6.9 95.0 6.9 643 children 34.5 12.1 103.4 12.1 1084+ children 25.0 25.1 116.7 26.9 66

3Sub-total 134.2 8.3 342.4 10.7 75

Sole parent with:1 child 20.9 13.9 20.9 13.9 142+ children 36.2 25.4 94.3 28.0 23Subtotal 57.2 19.5 115.2 23.6 20

< Total 191.4 10.0 457.6 12.4 59

After housingCouple with 1 child 35.5 6.5 35.5 6.5 672 children 48.7 7.1 97.5 7.1 813 children 37.8 13.2 113.3 13.2 1114+ children 20.0 20.1 92.6 21.3 71Sub-total 141.9 8.8 338.8 10.6 84

. Soie parent with:1 child 22.2 14.7 22.2 14.7 402+ children 32.0 22.4 76.1 22.6 56Sub-total 54.2 18.4 98.3 20.1 50Total 196.1 10.3 437.1 11.8 74

a Per cent of row category, Note: Excludes income units with seif-employment as principal source of in­

come and income units who were children of the household head. Source: NIEIR simulations on basis of ABS 1986 IDS unit record data.

j

SUMMARY 1986-1989The change In the extent of child poverty from late 1986 to late 1989 appears as the net effect of two major factors. The first is the Government's income-support initiatives, which have served to reduce the extent of child poverty. The second is the distributive pattern of economic growth which has worked, on balance, to increase the extent of child poverty. A third factor, population growth, is also relevant, its effect, if everything else remains un­changed, being to increase the number of children in poverty.

iii

52

The incidence o f chiid poueriy since i 986

Table 12 Estimated number of chiidren by income (per cent of poverty tine, up­dated by AWE) of income unit, Austraiia, low-income popuiation assump­tion: medium, September/October 1986 and 1989 ( 000)

1986 1989

Before housingAbove poverty line120% or higher 2396 2790115%- 119% 77 99110%- 114% 76 123105%- 109% 104 104100%- 104% 97 121Sub-total 2752 3238

Below poverty line 95 % - 99% 105 11990% - 94% 123 10585% - 89% 133 7080% - 84% 125 61Below 80% 235 103Sub-total 722 458

Total 3474 3696

After HousingAbove poverty line 120% or higher 2450 2891115%- 119% 104 122110%- 114% 80 102105%- 109% 102 66100%- 104% 85 76Sub-total 2822 3259

Below poverty line 95% - 99% 112 6490 % - 94% 81 7085% - 89% 51 5480% - 84% 72 38Below 80% 334 211Sub-total 652 437

Total 3474 3696

Note: Excludes Income units with self-employment as principal source of In­come and Income units who were children o f the household head.Source: NIEIR simulations on basis of ABS 1986 IDS unit record data.

The Importance of each of these three contributory factors to the change in child poverty between 1986 and 1989 is summarised in Table 14. which is also a summary of the findings discussed in the previous sections of this study. The table was constructed as fol­lows.

53

Measurtng child pouerip

Tabte 13 Estimated incidence of chiid poverty among income units with chiidren in the absence of recent government initiatives, Australia, iow-income

__________ popuiation assumption: medium, September/October 1989______________

Income units below Children belowpoverty line poverty line Poverty gap

Income unit Number Proportions Number Proportions $/week pertype 000 % 000 % income, unit

Before housingCouple with: 1 child 46.8 8.6 46.8 8.6 602 children 76.1 11.1 152.2 11.1 743 children 61.2 21.5 183.5 21.5 1104+ children 32.4 32.6 149.2 34.4 110Subtotal 216.5 13.4 531.7 16.6 87

Sole parent with:1 child 43.0 28.4 43.0 28.4 242+ children 82.6 57.9 205.1 60.8 42Sub-total 125.6 42.7 248.0 50.8 36Total 342.1 17.9 779.8 21.1 68

After housingCouple with:1 child 43.6 8.0 43.6 8.0 772 children 73.1 10.7 146.3 10.7 833 children 56.2 19.7 168.5 19.7 1124+ children 30.8 31.1 141.4 32.5 97Sub-total 203.7 12.6 499.7 15.6 92

Sole parent with:1 child 37.9 25.1 37.9 25.1 402+ children 68.9 48.3 173.4 51.4 55Sub-total 106.8 36.4 211.3 43.3 50

Total 310.5 16.3 711.0 19.2 77

R Per cent of row categoryNote: Excludes income units with self-employment as principal source of in­come and income units who were children of the household head.Source: NIEIR simulations on basis of ABS 1986 IDS unit record data

1 The starting point is the estimated number of children in poverty in late 1986 (from Tables 1 to 3, the data being rounded to the nearest 10 000).

2 The impact of the income-support initiatives (Row 2 of Table 14) is calculated by comparing the incidence of child poverty in 1989 when the initiatives are included (shown in Tables 5 to 7) with what it would have been without them (shown for the medium low-income assumption in Table 13 and calculated but not shown for the other two low-income assumptions).

The incidence o f child pouerty since 1986

Tab!e 14 The change in the number o( chiidren beiow the poverty tine, contributory

Low-income population assumptionHigh

000 %Medium 000 %

Low000 %

Before housing1. Late 19862. Income-support initiatives3. Population growth4. Distribution of economic growth5. Net outcome, late 1989

700-210 (-30) +40 (+6)

+110 (+16) 640 (-9)

660-210 (-32) +40 (+6) +80 (+12)- 570 (-14)

580-210 (-36) +30 (+6) +80 (+13) 480 (-17)

After housing1. Late 19862. Income-support initiatives3. Population growth4. Distribution o f economic growth5. Net outcome, late 1989

630-200 (-32) +40 (+6)

+120 (+19) 590 (-6)

560-200 (-36) +30 (+6)

+120 (+21) 510 (-9)

490-200 (-41) +30 (+6)

+100 (+21) 420 (-14)

Note: Excludes income units with self-employment as principal source of in­come and income units who were children of the household head. Data have been rounded to the nearest 10 000.Source: NIE1R simulations on basis of ABS 1986 IDS unit record data.

3 The impact of population growth (Row 3) is based on the 6 per cent increase in the numbers of children over the period.

4 The impact of the redistribution of economic growth (Row 4) is the residual factor, or the difference between the total change in the number of children in poverty and the effects of the sum of the above two factors. Thus in the first column, the total fall in before-housing poverty from 700 000 to 640 000 was caused by the net effect of a fall of 210 000 due to the income-support initiatives, an increase due to the growth of population o f40 000, and a further increase of the balance of 110 000 attributable to the distributional effects of economic growth, which in large part reflects the effect of the distribution of new employment over the period.

5 The net outcome is the estimated number of children in poverty in late 1989 (from Tables 5 to 7).

It can be seen from Table 14 that much of the potential benefit of the Family Package and other income-security measures has been offset by the effects of the distribution of the gains from economic growth over the period. Had these gains been distributed different­ly* the picture could have been veiy different.

Thus the income-support initiatives have been an important source of improvement, although the results indicate* that much of

55

the improvement was necessary just to "keep up". To this extent, their redistributive value was reduced. These conclusions are only partly moderated by the suggestion that part of the impact of employment growth on the poveriy line should be discounted in this analysis.

Table 15 shows the composition of estimated child poverty in late 1989 according to the type of income support received, if any. The table refers to the "medium" case which corresponds to a FAS take-up rate of 75 per cent. As such, it may be surprising that FAS recipients and potential FAS recipients account for similar num­bers of children in poveriy. The reason for this is that this analysis has included no assumption of income bias in the take-up of FAS. Were such a sophistication to be added, as was done by Brownlee & King (1987), it would reduce the estimated number of potential FAS recipients' children in poverty.

Measuring child pouerty

Tabte 15 Estimated incidence of child poverty among income units with children by income security status, Austraiia, iow-income popuiation assumption:

__________ medium. September/October 1989_______________________________________

Income security status Proportion of income

units below poverty line

% of row category

Number of children below

poverty line

000

Averagepoverty

gap

$/week per income unit

Before housingPensioner - couple with children 39.0 51.2 35Pensioner - sole parent 32.0 144.9 24Beneficiary with children 85.5 187.1 47FAS recipient 32.0 86.7 116Potential FAS recipient 47.7 92.9 124Other, with children 0.3 10.3 64

Total 13.0 573.0 59

After housingPensioner - couple with children 23.7 32.9 51Pensioner - sole parent 25.4 108.1 51Beneficiary with children 66.4 145.6 66FAS recipient 36.8 95.8 119Potential FAS recipient 51.3 95.1 110Other, with children 1.4 35.7 46

Total 11.9 513.2 76

Note: Excludes income units with self-employment as principal source of in­come and income units who were children of the household head.Source: NIE1R simulations on basis of ABS 1986 IDS unit record data.

56

The Incidence o f child poueriy since I 986

GOVERNMENT CASH BENEFtTS IN RELATION TO THE POVERTY L!NE: LATE 1986, LATE 1989 AND LATE 1990This section treats the estimated position at the end of 1989 as a starting point and estimates the incidence of child poverty in late 1990. The analysis simply continues on from late 1989'. The work ibr this part of the chapter was undertaken in October 1989.

It should be noted that because they were made at different times and from data that was subject to revision, there are some minor discrepancies in the estimates given in this chapter.

The social securiiy entitlements of selected types of family with children are compared here with the Henderson poverty line. The comparison is undertaken for three points in time: late 1986 and late 1989 (to correspond with the time periods used in the preced­ing sections) and the last quarter of 1990 (when all relevant initiatives announced to date will be in place).

Social Security ratesThe rates of payment used in this analysis are shown in Table 16. The 1986 rates are those that applied before the December 1986 indexation increases, and those used for late 1989 are those that applied up to the November indexation increases. The rates for late 1990 are taken to be those that will apply after the September 1990 indexation increases. They have been estimated here on the basis of indexation arrangements, recent movements in the CPI, and NIEIR CPI forecasts where necessary. Details of the estimates for late 1990 are given below.Lata 1990 pension and benefit ratesThe rates of pension and benefit will be increased in September 1990 in line with the CPI movement between December 1989 and June 1990. This increase will apply to the April 1990 rates, which will Incorporate ad hoc increases announced in the 1989/90 Com­monwealth Budget as well as indexation up to that point. Estimation of late 1990 base pension/beneflt rates thus includes the following three steps.

1 April 1990 indexation amounting to an increase on current rates in line with CPI movement from December 1988 to December 1989. The NIEIR forecast shows a 7.2 per cent increase in the CPI over this period.

2 April 1990 ad hoc increases (applying to all pensioners and to beneficiaries with dependants) of $2 per week to the single rate and $3.30 to the married (combined) rate.

57

3 September 1990 indexation in line with the CPI movement between December 1989 and June 1990. The N1EIR forecast shows a 2.8 per cent Increase in the CPI over this period.

This gives the following estimates of weekly base pension/benefit rates in late 1990:

* $144.45 single;

* $240.80 married (combined).

Measuring child poverty

Tab!e 16 Rates of pensions, benefits and other payments: late 1986, late 1989 and estimated late 1990 (current $ per week)

Late 1986 Late 1989 Late 1990 (est.)

Base pension/benefit ratesSingle pension 102.10 129.20 144.45Married pension (combined) 170.30 215.40 240.80

Mother's/Guardlan's Allowance 12.00 12.00 12.40

Additional pension/benefit for:Child under 13 years old 16.00 24.00 24.10Child aged 13 to 15 years 16.00 34.10 35.25

Family allowance:One child 5.25 9.00 9.30Two children 12.75 18.00 18.60Three children 21.75 27.00 27.90Four children 30.75 39.00 40.30

Rent assistance:Pensioner or sickness beneficiary 15.00 see seeOther beneficiary 10.00 below belowPensioner without children 15.00 30.00Beneficiary without children see 10.00 30.00Pen./ben. with 1 or 2 children above 20.00 35.00Pen./ben. with 3 or more children 20.00 40.00

Source: see text.

Fa/n//y /Wowance

Annual indexation each Januaty of Family Allowance payments was announced in 1989 to commence in January 1990. The first indexation increase in January 1990 would be in respect of CPI movement over the six months to June 1989, with subsequent in­dexations in line with CPI movements over the 12 months to the preceding June.

The rates of Family Allowance to apply throughout 1990 will thus be the current rates indexed according to the CPI increase from December 1988 to June 1989. This increase, according to

58

The incidence o f chiid poueriy since 1 986

official CPI data, was 3.4 per cent. This gives the following weekly Family Allowance rates for 1990:

* $9.30 for the first, second and third child;

* $12.40 for the fourth and subsequent children. Add;f;ona/pens/on/benef/fIndexation arrangements for additional pension/beneflt (and FAS) were also announced in 1989. The rates would be increased each January to maintain the combined value of Family Allowance and additional pension/beneflt (or FAS) at the "standard of adequacy benchmarks" set by the Government. These benchmarks are 15 per cent of the combined pension rate for children aged less than 13 years and 20 per cent for those aged between 13 and 15 years.

Estimation of the 1990 rates of additional pension/benefit thus requires an estimate of the married rate of pension applying in Januaiy 1990, which is the same as the rate in November 1989. This in turn is the current (1989) rate increased by CPI growth be­tween December 1988 and June 1989 (3.4 per cent). The married pension rate (combined) in January 1990 will thus be $222.70 per week.

Given this and a Family Allowance for the first child of $9.30 per week in January 1990, the 15 and 20 per cent benchmarks result in the following rates of additional pension/benefit for 1990:

* $24.10 for children aged less than 13 years;

* $35.25 for children aged 13 to 15 years.Mof/ier's/Goard/an's AZ/owancaIndexation of Mother's/Guardian's Allowance is to be introduced from January 1990 in the same manner as was Family Allowance. The rate applying in 1990 will thus be a 3.4 per cent increase on the current rate of $12 per week. This gives a rate of $12.40 per week for the year from Januaiy 1990.

/?enf Ass/sfanceIncreases in Rent Assistance announced in the 1989/90 Common­wealth Budget set the following maximum weekly rates of assistance to eligible pensioners and beneficiaries from September 1990:

* $30 without children;

* $35 with one or two children;

* $40 with three or more children.

59

Measuring child pouertg

Poverty tinesUpdating the 1986 poverty line for the standard family from official data to the extent available, NIEIR forecasts of household dis­posable income, and extrapolated population growth gives the following estimates:

- $251.40—late 1986;

* $330.10—late 1989; and

* $347.30—December quarter 1990where the standard family, as before, is a married couple with two children of specific ages and whose head is in the labour force and before-housing poveriy is being measured.

The before-housing poverty lines for other selected income units were calculated on the basis of the detailed Henderson equivalence scales, and are shown in Table 17. As can be seen, the income units are differentiated by the number and ages of the dependent children, to allow for the difference in age-related payments for children under and over 13 years old. A distinction is also made for labour force participation, as the equivalence scales allow for the extra costs (and therefore higher poveriy lines) associated with either working or looking for work.

In applying the detailed Henderson equivalence scale to the selected income unit types, the following assumptions have been made:

* the income unit lives alone (i.e. is not part of a larger household);

* adults are under 40 years old;

* sole parents are female; and

* the spouse in a couple is, in all cases, not in the labour force. Slight adjustments were also made to the Henderson equivalence scale "points" for children in order to gain compatibility with the age breakdown used here. These adjustments resulted in 5.70 points for children under 13 years old and 8.36 points for children aged 13 to 15 years.

Income-support entitlementsThe basic income-support entitlements applying to the selected types of income unit at the three points in time are shown in Table 18. They include the payments covered in Table 16 with the exception of Rent Assistance, which has been excluded for two reasons.

1 Only a proportion of pensioners and beneficiaries with children are entitled to it.

60

The incidence o f child pouerty since i 986

Tabte 17 Before-housing poverty tines for seiected types of income unit: iate 1986,iate 1989 and tate 1990 (current $ per week)

Income unit head not Income unit headin labour iorce in labour force

Income unit Late Late Late Late Late Latetype 1986 1989 1990 1986 1989 1990

Couple with1C 191 251 264 213 280 295IT 201 264 278 223 293 309

2C 221 291 306 243 320 3371C, IT 231 304 319 253 333 3502T 241 316 333 263 345 364

3C 252 330 348 274 359 3792C, IT 261 343 361 283 372 3921C. 2T 271 356 375 293 385 406

4C 282 370 389 304 399 4203C, IT 292 383 403 314 412 4342C. 2T 301 396 416 323 425 447

Sole parent with1C 142 186 196 170 223 235IT 151 199 209 179 236 248

2C 172 226 237 200 263 2761C, IT 182 238 251 210 275 2902T 191 251 264 219 288 303

3C 202 265 279 230 302 3182C. IT 212 278 293 240 315 3321C, 2T 222 291 306 250 328 345

Note: "C" signifies a child under 13 years old: T signifies a child aged 13 to 15 years old.Source: see text

2 Unless after-housing incomes and poverty lines are applied to the analysis, incorporation of Rent Assistance is potentially misleading. This is because it would indicate the higher incomes but not the relatively high housing costs which need to be met by recipients of Rent Assistance.

Housing costs are a particularly important consideration when as- . sessing the adequacy of income support (hence the emphasis on the after-housing poverty results in the preceding chapter). How­ever. to address the issue satisfactorily here would require some further work, particularly in the area of forecasting housing costs. For a useful discussion of the issues entailed in incorporating housing costs in this type of analysis, the reader is referred to

61

Saunders & Whiteford (1987, pp.39-44), preceding their assess­ment of the impact of the 1987 Family Package on the relativities between entitlements and the poverty line on an after-housing basis. Some recent projections of housing costs, and also after­housing incomes, for comparison with the after-housing poverty line have been presented in Oikos Vol.l(l).

Tab!e 18 Income support entitlements (exc. Rent Assistance) for selected types of income unit: late 1986, late 1989 and late 1990 (current $ per week)

Measuring chiidpouerty

Late Late Late1986 1989 1990

Couple with1C 192 248 274IT 192 258 285

2C 215 281 3081C. IT 215 292 3192T 215 302 330

3C 240 314 3412C. IT 240 325 3521C, 2T 240 335 363

4C 265 350 3783C, IT 265 361 3892C. 2T 265 371 400

Sole parent with1C 135 174 190IT 135 184 201

2C 159 207 2241C, IT 159 217 2352T 159 227 246

3C 184 240 2572C, IT 184 250 2681C, 2T 184 260 279

Note: "C" signifies a child under 13 years old; "T* signifies a child aged 13 to 15 years old.Source: see text.

Comparison of entitlements and the poverty lineThe material from Tables 17 and 18 is drawn together in Table 19, which expresses entitlements as a percentage of the poverty line for the different types of income unit at the three points in time.Genera/po/n/sBefore discussing the figures in Table 19 it is necessary to make two general points regarding the comparison.

62

The incidence o f chiid poueriy since 1986

1 The incomes in this comparison make no allowance for the receipt of additional income from private sources. A significant propor­tion of pensioners and beneficiaries do receive some additional income and this is likely to have been increasing with the implementation of the Child Support Scheme, in the case of sole parents, and some recent relaxation in income-testing in general. The comparison thus refers to the minimum income "guaranteed" by the social security system, and the figures in the table should not be inteipreted as showing that all families of a certain fype have incomes at the indicated level relative to the poverty line.

2 It should be remembered that the late 1986 and late 1989 entitlements have been calculated before the "end-of-year" in­dexation increases, whereas the late 1990 entitlements are after them. In addition, the poverty lines for the two earlier periods are calculated as the average of two quarters, while that for late 1990 is based on a single quarter.These factors become an important consideration because of the "stepped" nature of social security indexation, which means that the relativities between entitlements and the poverty line follow a cyclical pattern over time. The observed relativity will depend on when it is measured, irrespective of whether there are any other factors operating to change it. If one compares the June quarter of 1989 with the March quarter of 1989, for example, it can be seen that the poverty line increased, but entitlements did not (the next indexation was at the end of the quarter), so that entitlements expressed as a percentage of the poverty line would have declined.Here, the late 1990 figures are from a slightly higher point in the cycle o f pension/beneflt indexation than are those for late 1986 and late 1989. The effect is to exaggerate slightly the late 1990 relativities when compared with those for the earlier periods. On the other hand, the commencement in 1990 of annual January indexation of child-related payments introduces another cycle and the December quarter of 1990 is at the low point oh this cycle, thus countering the exaggeration noted above.

Where the income tm/f head /s not m fhe labour force The first column in Table 19 shows entitlements,as a proportion of the poverty line in late 1986 where the income unit head is not in the labour force. The pattern of relativities in late 1986 includes four elements.

1 Hie level of entitlement meets the poverty line for only one of the 19 types of income unit examined here. The relativities range from 83 per cent to 101 per cent.

1

Measuring chiid pouerfy

Tabie 19 income support entitlements as a percentage of the poverty tine: selected __________ types of income unit: iate 1986, late 1989 and late 1990 (%)______________

Income unit head not Income unit headin labour force in labour force

Income unit Late Late Late Late Late Latetype 1986 1989 1990 1986 1989 1990

Couple with1C 101 99 104 90 89 93IT 96 98 103 86 88 92

2C 97 97 101 88 88 911C. IT 93 96 100 85 88 912T 89 96 99 82 88 91

3C 95 95 98 88 87 902C. IT 92 95 98 85 87 902T 89 94 97 82 87 89

4C 94 95 97 87 88 903C. IT 91 94 97 84 88 902C. 2T 88 94 96 82 87 89

Sole parent with1C 95 94 97 79 78 81IT 89 92 96 75 78 81

2C 92 92 95 80 79 811C. IT 87 91 94 76 79 812T 83 90 93 73 79 81

3C 91 91 92 80 79 812C, IT 87 90 91 77 79 811C, 2T 83 89 91 74 79 81

Note: * C signifies a child under 13 years old; T signifies a child aged 13 to 15 years old.Source: Tables 17 and 18. See text.

2 There Is a marked and systematic decline in the relativity as the number of children increases.

3 There is a marked and systematic decline in the relativity as the age of children increases.

4 The relativities jfor sole-parent income units (ranging from 83 per cent to 95 per cent) are notably lower than those for couple income units (ranging from 88 per cent to 101 per cent).

By late 1989 (the second column of Table 19). the value of the in­creased payments for children, including the introduction of age-related payments, is evident in the dramatic reduction in the degree of variation in relativities according to the age of children. There is also evidence of a slight reduction in the degree of varia­

64

The incidence o f child pouerty since 1 986

tion according to number of children. The relativities for sole parents, however, remain notably lower than those for couples with children.

The overall effect of the changes from late 1986 to late 1989 is that there is a substantial contraction of the relativities within each group of income units classified by type (couple or sole parent) and number of children. The relativities now range from 89 per cent to 99 per cent (94 to 99 per cent for couples with children, and 89 to 94 per cent for sole parents). Since late 1986, the relativities have improved for 13 of the 19 types of income unit considered here, remained unchanged for four, and decreased for two of the types with the highest initial relativities.

By late 1990 (the third column of Table 19) all income units are better off in relative terms. The increases in relativities range be­tween two and five percentage points, with the higher increases being for those income units with fewer children. This indicates that the most important factor in the improvement is the increase in base rate pensions/benefits in 1990 through indexation and the ad hoc increase. This increase has a greater impact on the relativities for those units with fewer children, for whom the base rates make up a larger component of the total entitlement. This has the effect of accentuating the variation in relativities according to number of children, though this will be countered in the follow­ing January (1991) because of the nature of the indexation provisions for child payments.

By late 1990, it is estimated that the level of entitlements for all the types of married-couple income units considered here will be at least 96 per cent of the poverty line and in some cases will have exceeded it. The estimated relativities for couples with children range from 96 to 104 per cent, compared to 88 to 101 per cent in late 1986. A similar degree of improvement in the relativities for sole parents will also have been achieved by late 1990, with the relativities for all types included here being in excess of 90 per cent. The relativities for sole parents do, however, remain notably lower than those for couples with children, ranging from 91 to 97 per cent in late 1990, compared to 83 to 95 per cent in late 1986.iVbere t/ie income tm# bead /s /n fbe labour forceThe final three columns of Table 19 show the relativities for income units where the head is in the labour force; that is, either un­employed or with some work. The pattern of relativities and the change in the pattern of relativities is basically the same as for the "not in the labour force" case, but with two qualifications.

65

Afeasurtng cfiiM pouerty

1 The relativities in this case are significantly lower (of the order of {10 percentage points on average) due to the higher "in the labour sforce" poverty lines.

2 There is veiy little variation in the relativities according to change jin the numbers of children. This is because the additional costsof being in the labour force in the Henderson equivalence scale :do not vary with the number of children (a feature which would ichange if costs of child-care were to be included). The small 'variation here, when combined with the narrowing of relativities in respect of the ages of children resulting from the Family {Package measures, results in a very narrow range of relativities !among couples with children and among sole parents. {

By late 1990, the "in the labour force" relativities for couples with children are estimated to range from 89 to 93 per cent. For sole parents, they are all 81 per cent. Thus there is a substantial shortfall in entitlements compared to the poverty line, though it isin this "in the labour force" case that the analysis needs qualiflca- }tion, particularly with regard to consideration of other incomes. For !those with some work, it would not require much paid work to 'raise incomes above the poverty line. Hie shortfall is really a con- tcern with the unemployed, and particularly the long-term (unemployed.

CommentHits picture of the extent of child poverty by late 1990 should be qualified by the following considerations.

1 A recognition that the changes since late 1986 are likely to be different for different sub-groups within the population. More detail on housing costs and disaggregation by housing tenure and geographic area, for example, would be likely to produce a range of different results.

2 A recognition that further initiatives should further improve the incidence of child poverty. These include:* the second stage of implementation of the Child Support

Scheme:* a likely further increase in the take-up rate of FAS; and* the possible impact of future low-wage initiatives under the

Accord.

66

T H R E E

Th e measurement o f poverty: lessons from overseas

Michael Gourlay

CONTENTS

* Introduction 69

* Poverty as relative deprivation: Townsend'sapproach 71

< Direct indicators: Ringen's levels of living approach 74

* Consensual measurement of poverty:Mack & Lansley's Poor Britain 77

* Pre-transfer poverty, the underclass and permanentincome: recent American poverty debates 83

* Gender and poverty: a fundamental challenge 88

* Discussion: the implications for Australianpoverty research 90

* Conclusion: "participation" poverty and theHenderson poverty line 97

Poverty research has served academics better than the poor (Tulloch 1980, p.14).The objective of poverty research must be to provide evidence that assists understanding of the problem of poverty and guides action to combat poverty (Saunders & Whiteford 1989, p.34).It is true, of course, that to be deprived of today's necessities is much less painful than to be deprived of necessities ... [oil ... a hundred years ago. But which of those societies... could most easily eliminate these hardships? (Donnison 1988, pp. 373-374)While there is debate about the responsibility of governments with regard to eradicating inequality, its responsibility in relation to poverty has been accepted ior generations and is not seriously contested today. If poverty prevails, the welfare state has tailed (Ringen 1987a, p. 141).

INTRODUCTIONFor a variety of reasons (not the least of which is the considerable debate about what was meant by, and/or should be implemented to fulfil, Prime Minister Hawke's famous 1987 election promise to eliminate child poverty by 1990), there has recently been a marked resurgence of the debate about the appropriate way to define and measure poverty in Australia.

A number of key interrelated issues in this debate can be iden­tified:

* whether poverty should be conceptualised in absolute or relative terms;

* the extent to which the definition and measurement of poverty should go beyond inadequate levels of money income to encompass other measures of social well-being (e.g. conditions of work; access to health services and community facilities);

* within income-based measures of poverty, the merit of the Hender­son poverty line(s).

In the context of the Government's child poverty pledge, the Brotherhood of St Laurence and other community groups have ar­gued strongly for a broad understanding of poverty, with child poverty being seen to involve children's exclusion from participa­tion in the commonly accepted activities of society (ACOSS 1988; Harris 1989, 1990; Trethewey 1989). Such a definition suggests that government action to abolish child poverty must involve reforms in many areas, such as child-care, health, employment, education, transport, housing and income security.

While initially taking great care to point out that the child pover­ty pledge was framed within a narrow income-based definition of poverty, the Government has recently recognised that a broader range of social policies is necessaiy to tackle the problem of pover­ty (Gourlay 1990; Hawke 1989). With this acknowledgment has

69

Measuring chiid poueriy

come the call for Australian poverty research to move beyond "one dimensional Henderson poverty line comparisons" by more ade­quately exploring "non-income" aspects of poverty (Howe 1989c). An approach of this sort, based on the "levels of living" approach developed in Sweden has been advocated in Australia by South Australian researchers Peter Travers and Sue Richardson (Travers 1986; Richardson & Travers 1987, 1989). Meanwhile, Don Edgar. Director of the Australian Institute of Family Studies, has recently put the case for a new approach to poverty research based on broader notions of necessities and adequacy encompassing "style of life" indicators (Edgar 1990).

As King (1989) reminds us, the criticism that poverty and well­being is more than a question of income alone is not a new discovery, but a rediscovery, as even a cursory look at the volumes of the 1975 Henderson Poverty Inquiry reveals. The Brotherhood and other community groups have long included consideration of "non-income" aspects in defining poverty and describing the ex­perience of living in poverty (Backman 1988; Brewer 1980; Human Rights and Equal Opportunity Commission 1989; Trethewey 1989). However, in Australia at least, there have been precious few at­tempts to outline how "non-income" measures of need could be included in the measurement of poverty.

In short, while the need to retain some standardised measure of "income poverty" is not in doubt, the urgent research task at hand is to develop a method of measuring poverty that incorporates an appropriate measure of income poverty and "non-income" measures of need.

This chapter seeks to contribute to this effort by analysing the relevance of some recent overseas research, in particular the pioneering work of Peter Townsend (1970, 1979, 1985, 1987) in defining and measuring poverty as relative deprivation; the work of Norwegian social scientist, Stein Ringen (1985, 1987, 1988), a principal advocate of the "levels of living" approach; and the con­sensual approach used by Joanna Mack and Stewart Lansley (1985) in their study Poor Britain.

This review is followed by some notes on the "official" Ameilcan poverty line and recent debates about poverty in America. The fifth section examines the arguments for a fundamental rethink of poverty-measurement approaches, to allow for the relationship be­tween gender and poverty (Millar & Glendinning 1989).

The positive features of the issues covered in the chapter are drawn together in the conclusion, and the possible implications for Australian research about poverty are then considered.

The measurement o/*pouerty

Any lengthy discussion of overseas debates about absolute and relative poveriy has been deliberately avoided. Recent times have witnessed the emergence of both academic (Johnson 1988, 1989) and political forces (Howe 1989b) arguing against a relative ap­proach to poveriy measurement in Australia. However, this paper begins with the assumption of most overseas researchers (Piachaud 1987) and of Saunders & Whitefbrd: that the absolute versus relative debate is settled and that, as Saunders and Whitefbrd (1989, p.6) write:

the challenge [ibr Australian poverty research] is to develop a relative measure of poveriy which is relevant to the particular society to which it is applied and which is of greatest use to policy and other analysts.

POVERTY AS RELATIVE DEPRIVATION: TOWNSEND'S APPROACHTownsend (1979, p.31) suggests that poverty can be defined objec­tively and applied consistently only in terms of the concept of relative deprivation:

Individuals, families and groups in the population can be said to be in poverty when they lack the resources to obtain the types of diet, participate in the activities and have the living conditions and amenities which are customary, or are at least widely encouraged or approved, in the societies to which they belong. Their resources are so seriously below those com­manded by the average individual or family that they are, in effect, excluded horn ordinary living patterns, customs and activities.

The measurement of poverty defined as relative deprivation there­fore demands an analysis of:

* people's style of living; and

* their overall resources, which include many things besides their current cash income.

This Townsend set out to do through a large-scale social survey in the United Kingdom in 1968/69. His exhaustive questionnaire in­cluded sections on housing and living facilities; employment; occupational facilities and fringe benefits; current monetaiy in­come; savings and assets; health and disability; social services; income inkind; and style of living.

Townsend's list of the "resources" necessary to measure the de­gree of poverty is summarised in Table 29.

From the questions concerning "style of living" included in the questionnaire Townsend constructed what he called a deprivation index, the components of which are summarised in Table 30.

This deprivation index provided Townsend with the key to es­timating the extent of "objective" poverty and providing a basis for an ongoing evaluation of the level of poverty. He then assessed the correlation between the "style of living" indicators and measures of income.

71

*

Tab[e 20 Townsend's list of resources_________________________________________

1. Cash income(a) Earned(b) Unearned(c) Social security

2. Capital assets(a) House/flat occupied by families, and living facilities(b) Assets (other than occupied house) and savings.

3. Value of employment benefts in kind(a) Employers' fringe benefits; subsidies and value of

occupational insurance(b) Occupational facilities

4. Vctlue o f public social services in kindIncluding government subsidies and services, e.g. health, education and housing but excluding social security

5. Prtuate income in kind(a) Home production (e.g. of smallholding or garden)(b) Gifts(c) Value of personal supporting services

Source: Townsend 1979, p.55.

Townsend (1979, p.57) concluded that he was correct in hypothesising that:

... as resources ior any individual or iamiiy are diminished, there is a point at which there occurs a sudden withdrawal from participation in the customs and activities sanctioned by the culture.

Townsend's empirical investigations indicated (1979, p.261) that as income diminished, so deprivation steadily increased, but that this increase was more marked below 150 per cent of the supplemen­t a l benefit standard, which is roughly equivalent, in structural terms, to the "base" pension/benefit in Australia.

He emphasised that this finding should be treated as tentative, since the summary deprivation index was not as comprehensive as it could have been and deprivation was compared with incomes, rather than with the broader measures of resources listed above in Table 29.

Nevertheless, Townsend derived an income poverty line based on the estimated income threshold below which deprivation was ob­served to increase markedly. Estimates of poverty using this

Measuring chiM poverty

72

The measurement o f pouerty

Tabta 21 Components of Townsend's summary deprivation index____________

1 Has not had a week's holiday away from home in last 12 months.2 Adults only Has not had a relative or friend to the home for a meal

or snack in the last four weeks.3 Adults only Has not been out in the last four weeks to a relative

or friend for a meal or snack.4 Children only (under 15) Has not had a friend to play or to tea in

the last four weeks.5 Children only Did not have party on last birthday.6 Has not had an afternoon or evening out for entertainment in the

last two weeks.7 Does not have fresh meat (including meals out) as many as four

days a week.8 Has gone through one or more days in the past fortnight without

a cooked meal.9 Has not had a cooked breakfast most days of the week.

10 Household does not have a reMgerator.11 Household does not usually have a Sunday joint (three ip four

times).12 Household does not have sole use of four amenities indoors (flush

water closet; sink or washbasin and cold-water tap; fixed bath or shower; and gas or electric cooker)

Source: Townsend 1979, p.55

poverty line measure were then compared with estimates using other methods. His relative deprivation standard of poverty sug­gested a much higher incidence of poverty (22.9 per cent of the population) than the 6.1 per cent and 9.2 per cent suggested by two other measures.

Townsend's approach has been the subject of extensive criticism for a variety of reasons. Considerable debate has occurred about whether the income threshold actually exists (Donnison 1988; Piachaud 1981. 1987). This debate is considered further in the sec­tion discussing the data from the study of Mack & Lansley (1985) which, it is claimed, supports Townsend's finding of an income threshold (Desai 1986).

FOt the purpose of this discussion, three other lines-of criticism are worthy of further exploration:

73

Measuring child pouertg

* the rationale for the selection of the twelve deprivation indicators, both in terms of what was included and who chose, what was included;

* the extent to which the relative deprivation index could distinguish between differences in style of living that involved choice from those which were enforced or the result of limited opportunities;

* the compatibility or otherwise between Townsend's derived tool for poverty measurement (i.e. an income poverty line) and the concept of poverty as relative deprivation.

Hie nature and relevance of these lines of criticism are discussed in the following two sections, beginning with the work of Stein Rin- gen.

DIRECT INDICATORS: RINGEN'S LEVELS OF LIVING APPROACHRingen (1987, p.159) has few qualms with Townsend's definition of poverty:

The relative deprivation concept is a reasonable understanding of the problem (of poverty) today.

His chief concern is that Townsend's ultimate poverty measure­ment tool (i.e. an income poverty line) is fundamentally inconsistent with the concept of poverty as relative deprivation (1987, p.157):

The main problem is that the income poverty line is a method of measure­ment which fits the subsistence minimum concept (of poverty) but not the relative deprivation concept.

Ringen draws a distinction between "direct" and "indirect* concepts of poverty to explain his argument. He suggests that to say that people are poor if they do not have the necessaty resources, capabilities or rights to achieve a defined minimum standard of living is an indirect conception of poverty. By contrast, a direct conception of poverty says that people are poor if they, in fact, have a way of life below a defined minimum, irrespective of what has determined this way of life. Logically then, Ringen suggests that under the indirect concept we should measure poverty by income or other resource indicators and under the direct concept by con­sumption or other way-of-life indicators.

Ringen then defines poverty as a combination of direct and in­direct forces. Poverty is (1987, p.146):

... a low standard of living, meaning deprivation In aw ay of life because of insufficient resources to avoid such deprivation.

Accordingly, Ringen indicates that measurement of poverty should involve both direct and indirect measures.

74

The measurement qfpouerty

Ringen also Attempts to clarity the pathway to poverty measure­ment by reference to poverty as "accumulated deprivation*. As previously outlined, the basic criterion of poverty under the relative deprivation concept is exclusion from one's society or community. Ringen suggests that a literal interpretation of exclusion would be neither practical nor convincing since there are types of exclusion, such as social isolation, which do not necessarily have anything to do with material deprivation. Quoting Coates & Silbum (1970), Ringen goes on to suggest (1987, p.161) that it is more fruitful to understand the meaning of relative deprivation poverty as a stand­ard of living consisting of an "interrelated network of deprivations" which "mesh one into another".

In a long passage (1987, pp. 161-2) Ringen outlines the measure­ment implications of all this conceptual clarification as follows:

A state of general deprivation cannot be measured with either resource indicators or way of life indicators alone...... Several indicators of various forms of deprivation are needed in order to identify a network of deprivations.... Resource indicators alone can only say something about the probability of deprivation in way of liie.... to ascertain poverty we need to identify directly the consequences we normally expect to follow front low income.... On the other hand, to rely on way of life indicators alone ... is also insufficient since people may live as if they were "poor" without being poor... ... We would need to establish not only that people live as if they were poor but that they do so because they do not have the means to avoid it.

Ringen concludes that this framework for measuring poverty can sustain the complexity of the concept of poverty as relative depriva- tion.In practical terms the measurement strategy involves, firstly, defining a relative income standard and, secondly, using additional social indicators to examine the "poverty" in households with in­comes below this standard.

Defining the income range and the social indicators is, of course, a matter of conjecture. Ringen draws on data from the Level of Living Surveys of the Institute of Social Research at the University of Stockholm to prbvide an analysis of trends in poverty as ac­cumulated deprivation in Sweden between 1968 and 1981. The relative income standard he uses to define the initial low-income group is half the median income of the total population.

Ringen's consumption deprivation indicators are shown in Table 31. While the components of the "deprivation* measures are clearly different, Ringen's data set-up looks veiy similar to the list of income/resources and the deprivatioh index of Townsend, shown hi Tables 29 and 30.

75

However, It is important to grasp the fundamental differences between Townsend's and Ringen's measurement approaches and their implications for the resultant poverty estimates and the policy directions to alleviate poverty.

Tab!e 22 Ringen's consumption deprivation indicators_______________________

1 Does not have phone2 Not away on holiday last year3 Not occasionally/often relatives in4 Not occasionally/often friends in5 Crowded housing6 Low standard housing * *

Source: Ringen 1987, p.365

* Townsend used his observations of deprivation to construct an income poverty line as the primary tool of poverty measurement. All households with incomes below the line were thereafter defined as living in poverty irrespective of whether they, in fact, suffered from any or some of the forms of deprivation used to construct the poverty line in the first place. Poverty in the United Kingdom according to Townsend's method was quite high (22.9 per cent). Townsend's approach leads, even to an extent against his own wishes, to people's incomes being the prime focus of anti-poverty policy.

* Ringen is not interested in a poverty line. Households are defined in poverty if they have a low income and are forced to go without a range of "necessities". Ringen contends that, in Sweden at least, when other resources and way-of-life indicators are included in addition to income, the number of households in (relative-depriva­tion) poverty is found to be considerably smaller than is conventionally estimated by poverty line approaches. Moreover, the number in poverty is found to have been reduced considerably over the last three decades as the welfare state has grown. (Ringen's data relates only to Sweden but he suggests that the trends would be applicable to most modem welfare state societies, although ob­viously to varying degrees). Ringen's approach leads to a direct focus on policy possibilities in each area of deprivation measured, e.g. if 6 per cent of the Swedish population don't have a phone, what should be done given that a phone is an agreed necessity?

Townsend's deprivation index and Ringen's consumption-depriva­tion indicators include some similar and some different components. Common indicators include lack of a regular holiday;

Measurfrtg cMdpouerty

The measurement ofpduerh;

not having Mends around: and a measure of low standard hous­ing. Perhaps not surprisingly, the Swedish Level of Living* Survey did not include Townsend's various meaty indicators such as "not having a Sunday joint* and "not having fresh meat four days of the week*. Townsend's list did not include a measure for crowded housing or not having a phone.

Obviously, a central issue in any relative deprivation measure of poverty is what to include in the deprivation scale. This is dis­cussed further in the conclusion to this chapter.

Townsend's twelve components have been criticised not only for what was included or excluded but also for who was involved in deciding what was included or excluded. More specifically, the criticism is that Townsend's indicators of deprivation have been prescribed by "experts" rather than derived from views of the general society.

This criticism (which applies equally to Ringen's approach) has come from a group of writers advocating what has been called a consensual approach to poverty measurement. Their work, includ­ing the Poor Britain study of Mack & Lansley (1985) is discussed in the following section.

CONSENSUAL MEASUREMENT OF POVERTY: MACK & LANSLEY'S POORSR/DMMA consensual approach to poverty measurement can be understood as one which attempts to define poverty in relation to standards set by the society as a whole rather than by "experts" (Mack & Lansley 1985; Veit Wilson 1987). With the consensual approach, society's "standards" are established through social surveys.

Veit Wilson identifies two major types of consensual studies of poverty (1987, p.189):

1 those which concentrate on the societal view of the income levels required to avoid deprivation (but which do not define the con­tents of that deprivation);

2 those which study the societal view of the necessities required to avoid deprivation (and which then seek to establish the income levels correlating with a prescribed level of deprivation).

The former approach is characteristic of what has become known as the Leyden method, following the work of a team at the Univer­sity of Leyden in the Netherlands which began in the 1970s (Goedhart et al. 1977; Van Praag et al. 1980, 1982). In shorts the Leyden method attempts to establish a poverty line based on a "consensus" within a country on the level of net cash income re­quired to "make ends meet". It is described in detail by Bradbury

77

(1989) and Bradbury & Saunders (1989a. 1989b), who have also considered its relevance to Australia, based on existing Australian data.

A detailed evaluation of the Leyden method is beyond the scope of this paper, although one shortcoming of the method is men­tioned in the concluding discussion of future directions for Australian poverty research.

Mack and Lansley (1985) carried out the second type of consen­sual study, which drew information from a major survey of people's living standards that rivalled Townsend's in scope. They first defined poverty as "an enforced lack of socially perceived neces­sities" (1985, p.30), in the earlier tradition of Rowntree (1901) and Beveridge (1942), and then used society, rather than "experts", to define the meaning of "necessities" by having survey respondents rank in terms of their importance 35 possible necessities, as shown in Table 32.

By these means, they obtained a list of "socially perceived" necessities, the derivation of which differs from Townsend's in two fundamental ways. Firstly, it refers to a "minimum" rather than a "norm", as does Townsend's definition, an approach that is more oriented to what Townsend classed as "minimum rights for the many" than to "distributional justice for all". This is an important distinction, since Townsend has often been accused of confusing poverty and inequality. For Mack and Lansley, the difference is crystal clear (1985, p.40):

This question of "distributional Justice* is extremely important, but it is a question about the degree of inequality that should be tolerated in society and not a question about poverty. Tackling poverty does have implications for the degree of inequality in society ... but in principle the motivation ior doing something about poverty can be quite separate from that of doing something about inequality.

Secondly, Mack and Lansley do not admit the distinction between "objective" and "socially perceived" measures of need as described by Townsend. To them (1985, p.38), there is no such thing as an objective measure:

items become "necessities* only when they are socially perceived to be so. The term need has, thereiore, no meaning outside that of the perceptions of the people.

They conclude that Townsend's aim to exclude social perceptions of need results in indicators of deprivation that are hard to inter­pret and "outside people's comprehension". By contrast they claim (1985, p.48) that their definition of poverty is more orientated towards the question of tackling poverty since it is:

Measuring child pouerig

The measurement o f pouerty

Tabte 23 The pubtic response to Mack and Lanstey's "necessities"_________

% classingStandard-of-living Item asItems In rank order necessity

1 Heating living areas of the home If It Is cold 972 Indoor toilet (not shared with another household) 963 Damp-free home 964 Bath (not shared with another household) 945 Beds for eveiyone in the household 946 Public transport lor one's needs 887 A warm waterproof coat 878 Three meals a day for children* 829 Self-contained accommodation 79

10 Two pairs of all-weather shoes 7811 Enough bedrooms for every child over 10 of different sex to have

his/her own* 7712 Refrigerator 7713 Toys for children* 7114 Carpets in living rooms and bedrooms 7015 Celebrations on special occasions such as Christmas 6916 A roast meat joint or Its equivalent onqe a week 6717 A washing machine 6718 New, not second-hand clothes 6419 A hobby or leisure activity 6420 Two hot meals a day (for adults) 6421 Meat or 8sh every other day 6322 Presents for friends or family once a year 6323 A holiday away from home for one week a year, not with relatives 6324 Leisure equipment for children, e.g. sports equipment or a bicycle* 5725 A garden 5526 A television 5127 A "best outfit" for special occasions 4828 A telephone 4329 An outing for children once a week* 4030 A dressing gown 3831 Children's friends round for tea/snack once a fortnight 3732 A night out once a fortnight (adults) 3633 Frlends/famlly round for a meal once a month 3234 A car 2235 A packet of cigarettes every other day 14

Average of all 35 items 64

Note: 'F or families, with children only Source: Mack & Lansley 1985, p.54

79

... based in the reality of the commonplace and as such has meaning ior both the poor and others... In establishing a minimum standard of living on the basis of what is to most people unacceptable it establishes a politically credible level.

They then ran all sorts of cross checks on the data and. much to their delight, found that there was widespread agreement between all groups in society about what items should be classified as necessities.

Since more than 50 per cent of respondents viewed as neces­sities such "quality of life" items as new clothes, a holiday, a garden and leisure equipment for children, Mack and Lansley also concluded from their survey that the people of Britain saw neces­sities not in terms of subsistence, but in terms of a relative view of needs based on current standards.

To measure poverty. Mack and Lansley defined as a "necessity* each of the 26 items that more than 50 per cent of respondents classified as a necessity (a television just scraping in at No. 26!). People who could not afford three or more necessities were con­sidered to be "in poverty". There was also an attempt to take account of those people who could afford but didn't want one or more of the "necessities". Their conclusion was that, according to their definition, 13.8 per cent of the British population was in poverty.

To derive an income "threshold" and poverty line from their study, Mack and Lansley commissioned a statistical evaluation of their data by Professor Meghnad Desai who had previously ex­amined Townsend's data. Desai concluded that Mack and Lansley's data showed similar patterns to Townsend's, with an income threshold at around 150 per cent of the supplementary benefit level, below which households are much more likely to be deprived than those above (Desai 1986; Mack & Lansley 1985).

On the basis of this evidence, Mack and Lansley conclude by ar­guing for an increase in the rate for supplementary benefit and provide estimates of the reduction of the numbers in "poverty" and "intensive" poverty (defined as those who cannot afford seven or more necessities) if "minimum" incomes were increased to 150 per cent. 133 per cent and 115 per cent of the supplementary benefit rate respectively.

However, Piachaud (1981, 1987) is as sceptical of Desai's iden­tification of a threshold in Mack and Lansley's data as he was of Townsend's and Desai's conclusions about Townsend's data. He argues that Desai's "threshold" is a statistical artifact arising from his specification of the income variable. Piachaud makes clear that he is not disputing that deprivation increases as income falls, nor

Measuring chiMpouerty

The measurement o^pouerfy

that at low-income levels deprivation increases more rapidly as in­come falls than at higher income levels. Rather "what remains unproven is that there is an (income) threshold at which a clear shift in behaviour occurs" (Piachaud 1987, p.155).

Further discussion of the technical merits of DesaKs and Piachaud's opposing conclusions is beyond the scope o f this paper. Nevertheless the implications of Piachaud's criticisms should be kept in mind. If there is no identifiable income threshold then the establishment of an income poverty line based on deprivation data is more difBcult to justify, theoretically and politically.

Piachaud (1981) also makes sonie other pertinent criticisms of Mack and Lansley's approach. First, it does not entirely do away with the dreaded "experts". In attempting to discover the minimum standard of living laid down by society, someone, presumably "ex­perts" like Mack and Lansley, must define the questions. Moreover, some "expert" judgment is required to define a level of poverty with reference to the necessities. Mack and Lansley defined it as a lack of three or more necessities. Piachaud suggests, however, that if all the items were necessities even a lack of one of them could be said to constitute poverty. (To be fair, Mack and Lansley allowed for dif­ferent interpretations by estimating the proportion of people unable to afford one or more necessities, see pp. 182-3). Second, he is con­cerned about expenditure on non necessities instead of on the "necessities" in Mack and Lansley's list. Again, to be fair to Mack and Lansley they attempted to account for this sort of situation (what they called "high spending") by adjusting their poverty es­timates downwards (see pp. 176-82).

Further criticism comes from Walker (1987), who argues that, for the purpose of developing a consensual poverty line, Mack and Lansley's approach is hamstrung by the reliance on survey methodology at the stage of assessing the level of deprivation. He suggests an alternative "socially approved budget standards" ap­proach whereby, after establishing a list of socially approved "necessities* through social surveys such as Mack and Lansley's, the poverty line would be established through costings of the necessities within a socially approved budget standard. This stand­ard would involve public input concerning the sort of non-necessities referred to above. The logistics of the group meet­ings and local budget standard committees he discusses is difficult to foresee.

The potential of budget standards approaches is discussed in more detail by Bradsh&w et al. (1987). They are less concerned about facilitating social input to a "budget standard". Instead, they are prepared to rely on a mixture of observed expenditure patterns

81

and "expert" prescriptions. The potential use of budget standards methodology, particularly in relation to the inclusion of a broader "public services" deprivation indicator, is discussed further in the conclusion to this chapter.

Piachaud (1987) argues that, in common with other approaches, budget standard approaches ignore the important component of time and home production. Here Piachaud is referring not only to obvious examples like vegetable gardening, but also to cooking, cleaning, making clothes and child-care. For example, with refer­ence to available cooking time, Piachaud asks whether, in a basic diet, potatoes should be costed as muddy raw potatoes or oven- ready chips. He argues that any definition of a poverty level implies some assumption about time and home production. For example, he suggests that the budget standards for the unemployed and retired are often made with the assumption that they have more time than other people and that such assumptions should at least be made explicit.

More fundamentally, it should be noted that Mack and Lansley, like Townsend and Ringen, have not successfully grappled with how to include wealth and other resources (see Table 29) in the as­sessment of poverty. Donnison (1988), in supporting the general approach of Mack and Lansley, suggests that as a further step of analysis the distribution of wealth and other resources should be checked to see how its distribution relates to the distribution of in­come.

Donnison (1988) also advocates an examination of transactions in the "informal economy" (e.g. exchanges and favours between friends and family) to see if they are different horn patterns of in­come distribution or, as Pah! (1984) has suggested, reinforce the original distribution of income and resources.

Finally, in concluding this description of consensual approaches to poverty measurement it is important to note that, like the Leyden approach, Mack and Lansley's sense of "necessities" ex­cluded important areas of social life, such as education, child-care and health, where the chief factor affecting supply and personal ex­perience is public expenditure. "Conditions of work" were also excluded. This is because Mack and Lansley's approach is directly orientated toward income poverty and not with the whole of deprivation or social exclusion. They deliberately concentrated their list of necessities on items of personal expenditure. Of public services, only housing and transport were included and then only because they are services normally paid for in cash by the con­sumer.

Measuring chfidpouerh/

The measurement o f pouerty

Unlike Townsend, at least Mack and Lansley's income poverty ap­proach is consistent with their more limited definition of poverty (see Stein Ringen's criticism of Townsend outlined earlier). Any at­tempt to use a consensual method like Mack and Lansley's with reference to a broader Townsend-style, participation/social- exclusion definition of poverty would need to allow for access to public services to be included in the list of possible necessities. Un­fortunately, no examples of any such attempts were found in the overseas literature reviewed, although Edgar (1989, 1990) has al­ready provided some suggestions for developing such an approach in Australia. Edgar's approach, and a possible alternative approach drawing on budget-standards methodology, is discussed in the conclusion to this chapter.

PRE-TRANSFER POVERTY, THE UNDERCLASS AND PERMANENT INCOME: RECENT AMERICAN POVERTY DEBATESA detailed discussion of recent debates about poverty definition and measurement in America is beyond the scope of this report. However, a brief consideration may be given to the usefulness of three distinct concepts or approaches to poverty measurement evi­dent in recent American research:

* pre-transfer poverty (Danzinger & Plotnick 1986);

* defining and measuring poverty in terms of an underclass (Dan­zinger 1989; Jencks 1989; Van Haitsma 1989); and

* the concept of "permanent income" and an eamings-capacity measure of income (Gar&nkal & Haveman 1977; Haveman 1987, 1989; Sherraden 1988).

Before considering these approaches it is helpful to clarify the na­ture of the "official" American poverty developed by economist Mollie Orshansky in 1965 and still widely referred to.The "official" American poverty lineAmerica's "official" Orshansky poverty line was constructed during the "War on Poverty" announced during Lyndon Johnson's presidency in 1964. With the war on poverty came an official man­date to count the number of poor in order to assess the success of the War's "Great Society" programs (Economic Affairs Bureau 1983). .

Orshansky's poverty line is based on a subsistence definition of poverty. The poverty line was set according to:

* the estimated cost of purchasing food for a nutritionally adequate diet; and

83

* the proportion of total household budget normally spent on food (Orshansky 1965).

At the time, the most recent available statistics (from a 1955 US Department of Agriculture survey) suggested that one-third of the average family's spending was on food. The poverty line for the average family was therefore set at three times the cost of a nutri­tionally balanced diet. (For households with fewer than four people, a different multiplier was used according to how much the Depart­ment of Agriculture surveys indicated they spent on food as a proportion of their total spending.)

Since 1965, the Orshansky poverty line has been updated by ad­justing the original cut-off points for inflation, using the national Consumer Price Index.

Orshansky's poverty line has been criticised by the Economics Affairs Bureau (1983) on a number of grounds. Firstly, in its original conception and its updating method it takes no account of geographical price differences. Secondly, the basic diet was designed for "emergency" rather than "everyday" use (for example, it included dry, rather than fresh, milk and beans and excluded staples like spices and flour). It also assumed maximum time for "the housewife" to shop carefully and prepare all meals at home.

However, the Economics Affairs Bureau's main criticism of the continued use of Orshansky's line is that today, one-quarter of a century later, not only have food needs changed but the proportion of family income spent on food has declined markedly. Using a dif­ferent multiplier based on a 1981 US Department of Agriculture study, which showed food for the average family had declined from Orshansky's 33 per cent to 23 per cent of total costs, the Bureau estimated in 1983 that the poverty line should have been set 80 per cent higher than it was (Economic Affairs Bureau 1983). On this basis the Bureau claimed that the Government was sig­nificantly undercounting the number of American people in poverty.

Using Orshansky's poverty line the proportion of the American population in poverty is estimated to have decreased from 19 per cent in 1964 to 11.1 per cent in 1973. In 1979 poverty was measured at 11.7 per cent with an increase to 15.3 per cent in 1983 at the mid-point of President Reagen's ten-year term of office (Danzinger & Plotnick 1986).

"Pre-transfer" povertyIn their review of the extent of poverty in America and anti-poverty policy options Danzinger & Plotnick (1986) experiment with varia­tions of Orshansky's poverty measure.

Measuring chiMpouerfy

84

The measurement ofpouerfy

Firstly, drawing on the work of Smeeding [1982) they attempt to adjust poverty estimates according to the receipt of in-kind income and resources provided by the Government (e.g. concessions). They also attempt to account for the under-reporting of income. Adjust­ing for in-kind transfers, the rate of poverty in 1979 is estimated at9.0 per cent compared to the official rate of 11.7 per cent. Includ­ing an allowance for under-reporting of income and in-kind transfers reduces the estimated 1979 poverty rate even further, to6.1 per cent.

Danzinger and Plotnick also introduce an interesting measure of "pre-transfer" poverty. Households are considered to be in pre­transfer poverty if they do not receive enough money from private sources to raise them over the poverty line. The pre-transfer measure is vety useful for assessing:

* the impact of government transfers on poverty; and

* the performance of the labour market in providing protectionagainst poverty.

Danzinger and Plotnick estimate that the rate o f "pre-transfer* poverty in America declined from 21.3 per cent in 1965 to 17.7 per cent in 1969 before rising to 20.5 per cent in 1979 and 22.9 per cent in 1984.

In America the "pre-transfer" measure has proved to be a very useful tool for opposing proposed government cut-backs to income and in-kind transfers. The Government tried to use estimates of falling numbers in "official" poverty to justify cutting social programs—the logic being that spending could be cut because poverty was low. However, through the pre-transfer measure of poverty it was shown that official poverty was low only because of the very spending that was being targeted for cuts [Danzinger & Plotnick 1986, p.39).

Importantly, the pre-transfer measure also focused attention on the apparent inability or disinclination of "the market" to con­tribute to reducing poverty. This finding suggested that if the government was intent on reducing poverty and public expenditure simultaneously it had to engineer a redistribution of "market" benefits, through better wages and more jobs.

Danzinger and Plotnick also provide an analysis of the changed composition of the population in poverty in America, a task also undertaken, with slightly different results, by Haveman [1988). The emergence of young people (especially blacks), sole parents, the long-term unemployed and children as America's "new poor" has increased the attention being paid to studying poverty in terms of an underclass.

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ta

Measuring child poverty

Poverty and the underclassThere ts, as yet, no widespread agreement in America on a defini­tion of the underclass. Generally the term is used in the sense that families and Individuals are "outside the mainstream o f the American occupational system" (Wilson 1985, p.546). Generally in­cluded in this group are the long-term unemployed, those involved in street criminal activity and families experiencing prolonged poverty and/or welfare dependency. Jencks (1989) warns against generalising about the underclass and suggests that different categories within the underclass should be identified and con­sidered separately. (He identifies an economic underclass, a moral underclass, a criminal underclass, a reproductive underclass and an educational underclass.)

In their review of American literature on the underclass, Saunders & Whiteford (1989) highlight the difficulty of measuring the number of people affected. For measurement purposes some writers have defined the underclass in terms of persistent "official" poverty, while others have estimated underclass numbers by in­cluding everybody living in areas that have a high poverty rate relative to the national poverty rate (Ricketts & Sawhill 1988: Sawhill 1988). Using these alternative approaches, the estimated size of the underclass varies from 1 to 1.6 per cent of the American population. However, Ricketts & Sawhill (1988) point to the likelihood of the numbers in the underclass being higher than these estimates since existing surveys that form the basis of "offi­cial" poverty estimates do a poor job of reaching the underclass group.

Similar to the notion of a "culture of poverty", the notion of an underclass carries an image of a "fixed" group of people in poverty. In America and elsewhere many writers have suggested drat the composition of the population in poverty changes constantly, with many households moving in and out o f poverty for various reasons (Piachaud 1987). There is certainly a paucity of information about this question. Fortunately, the need for well-designed longitudinal studies of poverty has already been recognised in Australia (Gilley 1989).

Advocates of the underclass approach may well agree that a substantial proportion of the population in poverty is changing. However, their approach is based on the belief that within the con­ventionally defined poverty group there is a population that is faced with permanent ongoing exclusion from mainstream American life.

If the notion of an underclass gains more acceptance in public policy debates in America, more sophisticated techniques will

The measuremeni ofpouerty

probably be developed to measure its size and composition. Jencks (1989) concludes that, in America at least, the underclass notion seems to be a good formula for drawing attention to problems of the 'have nots" that American society has largely ignored since the mid 1970s. Piachaud (1987) is emphatic that the underclass no­tion is unconvincing as an explanation o f poverty in Britain. Saunders & Whiteford (1989) also question the relevance of the un­derclass approach to Australia.

Questions about the extent to which a state of poverty is 'fixed* and unchangeable are also central to approaches to poverty meas­urement which attempt to measure 'permanent* income and earnings capacity.Permanent Income and earnings capacity approachesMost income poverty measures involve the assessment of income at a particular point in time—there is no attempt to assess:

* other factors influencing living standards (e.g. wealth, or the abilityto draw on savings); or

* what the future may hold in terms of changes of income and wealth. Nobody would argue that the 'poverty* of a sixth-year medical stu­dent living on Austudy, staying in Ms or her parents' house with access to their car, is qualitatively different horn the poverty of long-term unemployed 24-year-old on the same income but renting privately and without a car. This sort o f difference is not reflected in most income poverty measures. Recognising this, Garfinkal & Haveman (1977) introduced a concept of'perm anent* income poverty, in which there is some attempt to adjust current income to reflect a rate of expenditure that individuals can maintain for the rest of their lives, given their current assets and savings and prospective future incomes. With reference to the permanent in­come concept, and in the context o f assessing the limitations of Household Expenditure Survey data, Whiteford, Bradbury & Saunders (1989) have suggested that the crucial issue of whether a family's current level of consumption is sustainable or not may only be determined by an analysis of the relationship between its resources and commitments over a long period.

A detailed explanation of Garfinkal and Haveman's measure­ment technique is not attempted here. However, their approach has not gained widespread support in America, primarily because of the difficulties o f accurately assessing future incomes.

Meanwhile, following an analysis of the distribution of assets in America, the case for including assets in poverty measurement was recently outlined with some force by Sherraden (1988).

87

GENDER AND POVERTY: A FUNDAMENTAL CHALLENGEIn Australia, as in Britain and America, women are far more likely to be poor than men (Baldock 1983; Cass 1985; Montague & McClelland 1987; Shaver 1983; Sheen 1987). Yet most approaches to the definition and measurement of poverty (including those al­ready discussed in this paper) fail to consider the implications of this systematic relationship. Millar & Glendinning (1989) suggest that, as a result, not only has the poverty experienced by women remained invisible, but also the causes o f women's poverty have not been addressed.

Millar and Glendinning argue that the number of women in poverty cannot simply be added in using existing poverty-measure­ment approaches and that a different analytic framework is required. This framework is explained in the following terms (1989, p.369).

. . . women's access to, use of, and attitudes towards material resources of all kinds are radically different from, and cannot be equated with, those of men. The conditions under which women obtain access to resources, the levels of those resources, women's control over resources, and their degree of responsibility for the welfare of others in deploying material resources— all these are factors which make women particularly vulnerable to poverty and which shape women's experience of the impact of poverty. In order to develop measures of poverty which more accurately reflect the reality of poverty for both women and men, it is therefore necessary to incorporate these factors explicitly into the way we conceptualise and measure poverty.

Millar and Glendinning explain the structural causes and main­tenance of women's poverty in terms of the gendered processes in the labour market, welfare systems and the operation of domestic households. In particular, they point out that women's wages are generally less than those of men; women are more likely to be in insecure casual employment; women receive less in the way of oc­cupational benefits (like superannuation); in the welfare system, women generally do not receive payments in their own right, but rather only as dependants of a male partner; within the family women still perform most o f the unpaid domestic work of household management and caring for children and other depen­dants (with a consequent loss of opportunity to pursue other interests including paid world; men still generally exercise control over the deployment of household resources even though women are primarily responsible for household management.

In order to make gender differences explicit in research on poverty, Millar and Glendinning suggest that three particular problems must be addressed:

* the definition of the unit about which information is collected;

* how to measure control or command over resources; and

Measuring chiid pouerty

The measurement ofpouerty

* the importance of time in determining living standards.With respect to the first of these problems, they challenge the con­vention of measuring poverty in terms of household income units since it rests on two mistaken assumptions: first, that the distribu­tion o f resources within families o f households is broadly equal: and therefore, second, that the consumption and living standards of those living in the same household are also broadly equal. They argue that these assumptions are mistaken since all the available evidence suggests that the distribution o f resources within households is not equal; more specifically, men both control and consume the greater share of resources.

Millar and Glendinning suggest that one way to overcome this problem would be to tiy and measure poverty on an individual rather than an aggregate household basis. Indeed, Townsend (1979) did attempt to do this by collecting income data on an in­dividual basis in conjunction with household income-unit data.

However, they also point to problems with such individual measures. Sometimes, the approach assumes that no sharing of resources occurs, but undoubtedly people who live together do pool their resources to some degree. Millar and Glendinning conclude by arguing that we need to develop methods of assessing to what extent sharing takes place.

We also need to address the second problem, that of under­standing how this process relates to patterns of control and responsibility for different items of expenditure within households. To do so, they draw on the words of Sen (1981) by suggesting that we need to move away from the tradition of thinking in terms of what income and resources exist, to thinking in terms of "who* can command what". For as financial managers in families, what mat­ters for women is not the total amount o f household income, but the amount which is actually available to meet the collective needs for which they have responsibility (Wilson 1987). It may well be that many women (and children) living in "non-poor* households may themselves be in poverty.

The third problem concerns the importance o f the relationship between time and living standards, and Millar and Glendinning suggest four ways in which this could be taken into account when measuring poverty.

Firstly, it needs to be recognised that because of women's disad­vantage in the labour market, it generally takes women longer than men to attain a set level o f income or resources.

Secondly, it needs to be recognised that it is generally women who devote time to maximising the benefits to be derived from

89

available income through "efficient" consumption—shopping around, mending rather than buying clothes, preparing food at home, etc. Millar and Glendinning suggest that this time is "in­visible" and generally given no value as a resource in the measurement of poverty. Yet the use of this time may drastically affect the living standards achieved by households.

Thirdly, it should be recognised that time represents an "oppor­tunity cost" which is usually unequally borne. Millar and Glendinning point out that although the time women spend doing domestic labour generally enhances the living standards of the whole family, it is women alone who bear the cost because their labour market participation and education and leisure oppor­tunities are restricted by domestic work.

Fourthly, they suggest that more attention needs to be devoted to the time period over which poverty-related data is collected. This would allow analysis of the gender differences in the dynamics of poverty over the life cycle. They suggest that such studies would be likely to reveal that women are likely to experience poverty for longer periods than men.

A fifth point not raised directly by Millar and Glendinning con­cerns time spent by women as voluntary or low-paid carers in community services. This is especially important at a time when the expansion of community services is in part reliant on women's voluntary or cheap labour. Bryson & Edwards (1988) have noted in the Australian context that we need to guard against the expansion of community services in a form that will further entrench women's poverty.

Millar and Glendinning's outline of the importance of consider­ing the gender-specific nature of poverty raises important questions for any new Australian approach to poverty measure­ment. The implications of their approach, along with the approaches outlined in earlier sections of this chapter, are con­sidered in the conclusion which follows.

DISCUSSION: THE IMPLICATIONS FOR AUSTRALIAN POVERTY RESEARCHThe Brotherhood of St Laurence and other Australian community groups have long argued for poverty to be understood in terms sim ilar to that o f Townsend's notion of relative deprivation, whereby poverty is said to be about lacking the resources neces­sary to participate in the "ordinary" living patterns, customs and activities of society (Harris 1989, 1990; Trethewey 1989). This review of the overseas debates about the definition and measure­ment of poverty has been undertaken with a view to contributing to

Measurtng eMdpouerfy

90

The measurement of poverty

Australian efforts to develop a means of measuring poverty that is consistent with this "participation style" definition o f poverty.

In the introduction, it was suggested that this kind of definition requires that both an appropriate measure of income poverty and "non-income" measures of need or well-being need to be con­sidered. The deprivation indicators described earlier in this chapter, and the various concepts and approaches currently under discussion in the United States, are reviewed below in terms of their potential relevance to a participation definition of poverty in Australia. Finally, in the light of these comments, the relevance of the Henderson poverty line is briefly discussed.

Deprivation indicatorsIt is important to note the key difference in the approaches of Townsend (1979) and Ringen (1987, 1988), which concerns how their deprivation indicators were used to define poverty. Townsend defined an income poverty line based on an income below which deprivation appeared to increase sharply. By contrast. Ringen defined poverty directly in terms of the enforced lack of three or more "necessities*. In turn, the approach of Mack and Lansley could be described as something o f a hybrid since they, like Rin­gen. defined poverty directly in terms of a lack of three or more necessities but, like Townsend, suggested that their data could be used to construct an income poverty line based on the verification of a deprivation-income threshold.

Importantly, in terms of affecting anti-poverty policies, Ringen's approach leads to a direct focus on policy possibilities in each area o f deprivation measured, while Townsend's and Mack and Lansley's approach makes income the prime focus.

To date, much of the Australian debate about broader "non-in­come" measures of poverty has been couched in terms of access (or the lack of it) to necessary public services or activities (e.g. child­care, health, education, transport, recreation). At first glance, Ringen's levels-of-living approach is more amenable to measuring such access and informing policy possibilities in each area. For, as alluded to above, difficulties immediately arise if "public services and activities" indicators are included with a view to establishing an income poverty line.

The nature o f these difficulties may be best understood by con­sidering an example such as "access to child-care". What could be made of a survey revealing that 20 per cent of those with pre­school age children are unable to aecess sufficient hours of qualify child-care? The lack of access to child-care could be due to its cost, inavailabilify due to insufficient child-care places, or to insufficient

91

information about available places, or to the poor quality of the available care. Of course, the survey could attempt to establish the reasons for the lack of access, but where would this leave attempts to estimate an income poverty line? In areas where there were in­sufficient child-care places, for instance, access to child-care would be equally inadequate for households with vastly different incomes. Governments could increase the incomes or lower the theoretical cost for those who said they could not afford child-care but "par­ticipation* poverty would not decline for those who could not find a suitable child-care place.

It is with this sort of situation in mind that Mack and Lansley, in attempting to estimate an income poverty line, excluded from their list o f necessities those services for which the chief factor of supply is public, not personal, expenditure. However, this exclusion runs against the very purpose behind the attempt to expand the scope of Australian poverty research, i.e. to examine the impact of public services on poverty.

There are obviously fewer problems if, following Ringen's ap­proach, the policy implications of "public services and activities" deprivation indicators are to be considered directly (Travers 1986; Richardson & Travers 1987, 1989). Returning to the child-care ex­ample, the anti-poverty policy implications of Improving access and then participation are clear.

* increase incomes or lower the cost of child-care for those whocannot afford the costs of care;

* increase child-care places to meet availability (ensuring that ade­quate information about child-care services is available); and

* ensure quality of care.These distinctions between cost, auailaMKy and quality is also made by Harris in discussing the elements of social justice for children (Harris 1990). This reinforces the apparent narrowness of an income poverty line based on deprivation indicators. By taking up the suggestion of Walker (1987) to apply budget standards methodology, it would be possible to build the cost of access to agreed-upon necessary public services and activities into the poverty line alongside other necessities like food and housing costs.

Besides acknowledging the numerous practical problems in­volved in implementing the budget-standards approach (e.g. geographical price differences, assumptions about home produc­tion) (Piachaud 1987; Millar & Glendinning 1989), it should also be understood that such an Income poverty line would only indicate the income at which adequate access to services was theoretically

Measuring child poueriy

92

The measurement o/*pouertt/

achievable. The line itself could not determine whether access itself was achieved. The development o f fully informed strategies to reduce poverty would therefore also require a thorough investiga­tion of the availability and quality of services and a Ringen-style direct measurement of the actual use made of them (Harris (1990) discusses the principles necessary in such an analysis).

The value of a dual approach is, firstly, that a standardised measure of income poverty could be retained as a basis for assess­ing the adequacy of social security payments. (Of course, within this framework efforts to reduce the number of people in income poverty could involve raising income levels and/or reducing the cost of access to services and activities).

Secondly, the active use of direct measures of well-being would highlight the importance of addressing the "non-income* factors of availability and quality of services and facilities (for, as in the child­care example, it is of little use to eradicate income poverty if "participation" poverty is not reduced because of lack of access to or insufficient quality of services).

This formulation would result in two distinct but complimentaiy measures of poverty:

* an income poverty line; and

* a "participation" poverty measure, based on the enforced lack of a set number of "necessities*.

The two "poverty populations" would be similar but probably not identical. A certain proportion of those households with Incomes above the poverty line would be defined in "participation" poverty due to the unavailability or lack of quality of necessary public ser­vices or facilities. Also a certain proportion of those in income poverty may be found not to be in participation poverty due to sup­port from family and friends.

The key elements of the preceding comments can thus be sum­marised as follows.

* For defining and measuring "participation" poverty through deprivation Indicators, the category of "access" to public services and activities is too broad. Access needs to be broken down to its component parts, namely cost, availability and quality.

* The cost o f access can be included in an income poverty line based on budget standards methodology, although the limitations of this line would need to be acknowledged.

*The availability, quality and actual use of public services and facilities need to be examined directly. These "non-income" measures, together with the income-related measures of deprtva-

93

tion could form the basis of a separate but complementary measure of "participation poverty". Harris (1990) in All our children discus­ses a strategy by which access to and participation in public services and facilities for children might be achieved (Chapter 6).

While it is important to distinguish between the different aspects to the concept of "access", it is arguable that Bradbury, in his use of the Leyden method (Bradbury 1989), and Edgar, in his use of "style of life" Indicators of adequacy (Edgar 1989), suffer horn the failure to do so. The Leyden method is to set a poverty line according to a community consensus about the income at which it is possible to "make ends meet". Edgar in turn (1990) suggests that research could be done to determine a community consensus on what is minimally adequate in various areas of social life, areas such as housing, income, nutrition, health services, safety and protection, leisure time, etc.

The problem is that these formulations of what constitutes "ade­quacy" do not take into account the effect of changes in the cost of accessing public services. For example, an estimate of "adequate" income would decline if the cost of public health care was reduced; it would increase if there was an increase in the cost of education, for instance. The price o f not making any distinction between the cost, availability and quality of services or activities is that the as­sessment of what is an "adequate" income becomes confused.

The dual approach outlined above appears to be an advance on the income-only approach to measuring poverty, but it is neverthe­less true that several conceptual problems remain to be solved. The first concerns the desirable mix of community and "expert* opinion needed to determine the indicators to be used. The second con­cerns how the deprivation indicators would be used to define and measure poverty.

On the former question, the community-based consensus ap­proach to developing deprivation indicators (Mack & Lansley 1985) contrasts sharply with the "expert" approach of Townsend (1979) and Ringen (1987, 1988). In looking towards policy changes to al­leviate poverty, Mack and Lansley's approach has the obvious advantage o f building community support for action through the process of determining the deprivation indicators. There is no doubt that "expert" defined necessities or deprivation indicators would be of little use if the general community did not consider them appropriate.

On the other hand, as Piachaud (1987) pointed out, Mack and Lansley's approach did not entirely do away with "expert" in­fluence. Moreover, as Millar & Glendinning (1989) were concerned to highlight, the claim that there could be a true consensus about

Measuring child pouertg

94

The measurement of pouerh/

"necessities" was questionable. All this suggests that Australian deprivation indicators should be developed, if not actually based on the views of the general community, at least with reference to their relevance to, and acceptance by, the general community.

The second problem concerns how the deprivation indicators would be used to define and measure poverty.

In their study, Mack and Lansley defined poverty as an enforced lack of three or more of their 26 necessities. (For Ringen it was three out of six deprivation indicators). Once an Australian list of necessities was developed there would need to be careful con­sideration of how to use the list to define "participation" poverty.

As to the issue of what constitutes adequate availability of an in­dicator, there is as yet no general agreement. For example, "(inadequate) recreational opportunities" is one common feature of most participation style definitions of poverty. But what level of recreation is adequate? Are We, for example, talking about dinner out once a week; having friends or relatives visit for a meal once a fortnight; enough money for the kids to go roller-skating or the movies once a fortnight; having a sports ground and park within walking distance; having a yearly holiday away from home?Pre-transfer povertyAs discussed above, a pre-transfer measure of poverty is very use­ful for assessing:

* the impact of government transfers on income poverty; and

* the performance of the labour market in providing protection against poverty.

The pre-transfer measure should be particularly useful for assess­ing the general problem of low wages and the concern of Millar & Glendinning (1989) about the way In which the structure of the labour market causes women's poverty.

The Income Distribution Survey should be evaluated and modified if needs be in order that fhture surveys will enable pre­transfer poverty to be estimated.

Permanent income, the underciass and weaithAs noted above, none of the approaches to deprivation indicators adequately grappled with the problem of wealth. It goes without saying that anti-poverty policy making would be much better in­formed if there was comprehensive, reliable and up-to-date data on the distribution o f wealth in Australia. The reluctance o f the Government (and the apparent reluctance of many sections of the community) to undertake such a study is regrettable. If wealth data were available, it would be possible to adjust poverty estimates to

95

take account of those who are asset rich but income poor. Ideally, also, it would be useful to adjust poverty estimates according to levels of personal debt.

Assessing future incomes, as recommended by the permanent- income approach, is an even more difficult task. The idea of distinguishing between those experiencing "temporaty" poverty from those experiencing or likely to experience, ongoing poverty is appealing. However, it is difficult to see how this could be measured accurately, except perhaps in the case of students and two-income families where one income earner has temporarily withdrawn from the labour market.

Assessing the impact on poverty of future asset accumulation is also difficult. However, there could be an argument for taking ac­count of the fact that many owner-purchasers defined to be in after-housing poverty are in fact in the process of purchasing an asset that is likely to be a prime protection against poverty in later years.

The notion of permanent poverty is also at the heart of ap­proaches defining poverty in terms of an underclass. It seems sensible to agree with the conclusion of Saunders & Whlteford (1989) that the underclass approach is largely irrelevant to current conditions in Australia. However there is a clear need for more in­formation about the length of poverty experienced by different groups and the circumstances surrounding people's movements in and out of poverty. Thankfully, the need for substantial lon­gitudinal studies of poverty has already been recognised by the Brotherhood (Gilley 1989).

Home production and the informa! econom yPiachaud (1987) rightly pointed to the fact that all approaches to the definition and measurement of poverty involve assumptions about home production. Any use of the combined deprivation in­dicators/ budget standards combination approach discussed above would need to be based on a careful assessment and articulation of assumptions about home production. This would need to take ac­count of the gender dimensions of home production outlined by Millar & Glendinning (1989).

In Australia, there is a dearth of information about the opera­tions of the informal economy and its impact on poverty. While some studies have provided anecdotal evidence of the important in­fluence that family and friendship networks can have as a protection or buffer against poverty (McCaughey et al. 1977; McCaughey 1987) more investigation is clearly required.

Measunng chiM pouerty

The measurement ofpouerh/

Gender-specific approachesAs outlined above, Miliar & Glendinning (1989) are concerned to ensure that poverty measurement takes account o f the gender dimensions of poverty. Their analysis highlights the need to update the research of Edwards (1981) into the intra-family distribution of income and resources in Australia. It is also clear that the impact on poverty of women's domestic labour and voluntary or low-paid caring work in community services needs further examination.

Millar and Glendinning also emphasise the importance of lon­gitudinal data, since, among other things, it could allow an examination of the gender differences in the dynamics of poverty over the life cycle to be made.

As already noted above, their concern to examine women's labour market disadvantage could be addressed through a measure of pre-transfer poverty.

Contentiously, they challenge the convention of using the household income unit as the basis o f poverty measurement. Like Townsend (1979), their analysis makes clear that it would certainly be of benefit to collect and compare data on a household, and in­dividual basis.

CONCLUSION: "PARTICIPATION" POVERTY AND THE HENDERSON POVERTY LINELike Orshanky's poverty line in America, the Henderson poverty line has retained public credibility for over 20 years, despite being the subject of substantial criticism. The nature and relevance of these criticisms, and suggested reform to the Henderson approach, has been discussed in Chapter One of this book. As King explains, the Henderson poverty line has been subject to the general criticism made of all income poverty lines: namely, that poverty and people's well-being is more than a question of income alone. This line of criticism is not new. Henderson himself clearly recog­nised the limitations of an Income poverty line (Henderson 1969; Commission of Inquiry into Poverty 1975).

This review has suggested that in developing an approach to poverty measurement consistent with the "participation" style definition of poverty, it is helpful to:

* define an income poverty line (based on the cost of access to socially defined necessities); and

* develop a separate but complimentary measure of "participation" poverty based on a direct assessment of the enforced lack of a set number of socially defined necessities.

97

In this framework, the question about the Henderson poverty line is then of how closely it would resemble the income line derived from the necessities/deprivation indicators approach.

Henderson deliberately set the poverty line at a level he believed to be so austere that nobody could legitimately claim that anybody living below it was not in poverty. Some have suggested that the Henderson rates of today have lost their claim to austerity (largely since the up-dating of the line is done in accordance with trends in community (after-tax) incomes, which have risen at a higher rate than the Consumer Price Index).

It would be interesting to compare today's Henderson poverty line with an income poverty line based on the cost of access to so­cially agreed necessities. It would be reasonable to suspect that the necessities-based line would in fact be higher, just like the income poverty line derived from the Leyden method (Bradbury & Saunders 1989a, 1989b).

If so, many might rue the day that they challenged the ap­propriateness of the Henderson line. In any technical revisions of the Henderson approach there would certainly be a case for raising the base level.

Meanwhile, whatever happens in relation to income poverty lines in Australia, the limitations of an income-based approach must be recognised. The usefulness of direct measures of "participation" poverty should be actively explored.

Measuring chiid pouerty

Appendix

Technical Notes

TWO PREUMfNARY ADJUSTMENTS TO THE 1986 !DSBecause this analysis is part of a broader project at NIEIR which involves tracing changes in the distribution of incomes through the 1980s, the 1986 IDS data has been adjusted in two ways in order to be compatible with the ABS 1981/82 Income and Housing Surr vey (IHS), the previous detailed income distribution survey. These adjustments concern the definition of incomes from self-employ­ment and the classification of housing tenures. They are important because they have a bearing on the exclusions from the analysis (see "Exclusions", below).

Firstly, the two surveys differed in their treatment of people employed by their own limited liability company. In the IHS, they were classified as self-employed, while they were classified as wage/salary earners in the IDS. The 1986 data were adjusted here to match the 1982 classification.

Secondly, the classification o f housing tenure diflers. In the first place, the 1986 survey makes no distinction between public and private renters, whereas the 1982 survey does. This is an impor­tant limitation to the data, and was dealt with as described in "Housing Costs" below. In the second place, housing cost data for independent children and sole parents living with their parents was collected in the 1986 survey but not in the 1982 survey. The 1986 classification of housing tenure was therefore adjusted to identify "children of the household head" income units and to match the 1982 classification.

GENERATION OF THE LATE 1989 INCOME D!STR!BUTlONA detailed account of this technique of updating an income dis­tribution has been provided in King (1987). Only key points specific to this particular analysis are set out below.

RewefghtingThe 1986 IDS was reweighted to late 1989 using adjustment fac­tors derived from a comparison of ABS Labour Force Suruer/ (Cat.

99

No. 6203.0) data for September/October 1986 (f.e. the average of the two months) and June 1989 (the latest available). The Labour Force Survey data provides a matrix of the Australian population classified by sex, age (9 classes), marital status and labour force status (distinguishing between full-time employed, part-time employed, unemployed, and not in the labour force).

As an example of the reweighting adjustment, take the case of unemployed married males aged 25-34 years. The September/Oc­tober 1986 Labour Force Survey data showed 40 400 people with these characteristics, while that for June 1989 showed 37 000. Ac­cordingly, the weights for all such individuals in the 1986 IDS data base were multiplied by a factor of 0.916.

This step thus adjusts the data base to reflect the demographic and labour-market circumstances at June 1989. To take the data base to the estimation point of September/October 1989, all weights were then increased by 0.6 per cent to account for the like­ly population increase over this latter period.

Updating private incom esWages and sa/ar/esWage and salary incomes are updated according to changes in average earnings as shown by ABS W&ekiy Earnings o f Employees (Distribution) Australia (Cat. No. 6310.0). The updating distin­guishes between males and females and between full-time and part-time employees. Because the most recent issue of Cat. No. 6310.0 relates to August 1988, N1EIR short-term forecasts of AWE were used to estimate the growth of wage and salary incomes from that point up to September/October 1989. Wage and salary incpm- es were increased from the 1986 IDS figures by the following proportions:

* 23.3 per cent—full-time males.

* 18.8 per cent—part-time males.

*23.1 per cent—full-time females.

* 26.9 per cent—part-time females,

Incomes from se/f emp/oymenfIncomes from self employment are inflated with reference to Na­tional Accounts household-income data, with the distinction made between farm and non-farm sources of self-employment income. The basis from which these incomes are updated is the recorded annual 1985/86 data in the 1986 IDS from which the ABS im­putes the weekly values of these components. These Income components are thus inflated from 1985/86 to the four quarters

Measuring child pouerty

100

Appendix

around September/October 1989 (i.e. June, September. December 1989 and March 1990). NIEIR estimates of the relevant National Accounts aggregates were used ibr the period after March 1989 (i. e. the quarter for which the most recent official National Accounts data were available at the time this part of the work was under­taken). Updating according to changes in National Accounts aggregates is applied after allowing for the population change over the period. According to this method, self-employment incomes were inflated from a 1985/86 base to late 1989 by the following proportions:

* 244.4 per cent—farm self-employment incomes (from 1985/86)

* 11.0 per cent—non-farm self-employment incomes (from 1985/86) Note that these inflators cannot be compared directly with those for wages and salaries as they are from different bases.

Asset /IncomesIncomes from interest and dividends are updated in the same man­ner as the components o f self-employment incomes using the relevant National Accounts aggregates. The inflators derived, from a 1985/86 base, were:

* 28.5 per cent for income from interest (from 1985/86),

* 11.5 per cent for income from dividends (from 1985/86).Incomes from rent are updated according to changes in the CPI component for private rental. The base for the updating is 1985/86 recorded incomes from rent. The CPI private rental component beyond the most recently available figures (June 1989) is estimated to increase in line with the NIEIR forecast for the overall CPI. This results in an inflator of:

* 43.3 per cent for income from rent (from 1985/86).The inflator for current superannuation incomes is based on chan­ges in average weekly earnings, derived in the same way as the Inflators for wage and salary incomes though using the figure for all persons in this case. This yields an inflator of:

* 22.4 per cent for current incomes from superannuation. Ma/bfenanceIn previous similar updating exercises, incomes from child main­tenance were assumed to maintain their nominal value. This assumption was based on the evidence available at the time and reflected the situation which motivated the Government's introduc­tion of the Child Support Schem$.

101

ES

The partial implementation of the Child Support Scheme to date is likely to have increased the numbers of people receiving main­tenance and to have had some effect in raising the value of maintenance payments. A major impact on the value of those pay­ments cannot, however, be expected until 1990.

The effects of increasing value and coverage of maintenance are modelled here with reference to preliminary data from the Australian Institute of Family Studies' (AIFS) evaluation of the Scheme (Snider 1989) and data provided to the Brotherhood of St Laurence by the Child Support Agency (CSA).

The CSA data refers to sole parents on the register of the Agen­cy. Prior to the introduction of the Scheme they were receiving maintenance at an average rate of $20.80 per child per week. This figure compares with corresponding estimates (referring to some­what different populations) of $23.60 per child per week from the preliminary AIFS evaluation results and $26.90 per child per week in late 1986 from the 1986 IDS. According to the CSA data, the average rate of maintenance had risen to $25.80 per child per week by September 1989 with implementation of the Child Support Scheme. This amounts to a 24 per cent increase in the average value of maintenance over the pre-Scheme value.

On the basis of the above data, incomes from maintenance in the 1986 IDS data base were increased by 24 per cent to reflect the impact of the Child Support Scheme.

With regard to the coverage of maintenance payments prior to implementation of the Child Support Scheme, the following data is available:

* CSA data shows about 30 per cent of sole parents on the Agency register to have been previously receiving maintenance;

* AIFS data shows 34 per cent of custodial parents to have been receiving regular maintenance;

* 1986 IDS shows 20 per cent of sole parents to have received maintenance.

However, at this stage there appears to be no data from which the increased coverage o f maintenance payments can be directly modelled. Instead, it is simply assumed that the proportion of sole parents receiving maintenance in late 1989 is double the propor­tion in late 1986. Thus, an additional 20 per cent o f sole parents (giving a total o f 40 per cent) is assigned income from maintenance. In these "new* maintenance cases, the value of maintenance as­signed is estimated on the basis of the number o f dependent children at $33.40 per week per child. The figure of $33.40 was

Measuring child pouertg

102

Appendix

obtained by increasing by 24 per cent the average maintenance in­come recorded in the 1986 IDS ($26.90 per week per child).Cf/ierprivate incomesincomes from worker's compensation are inflated using the in­dicator applied to current superannuation incomes.

The inflator for the small residual category of other private in­comes is derived from the change in total household receipts in the National Accounts. The inflators calculated for these income clas­ses were:

* 22.4 per cent for incomes from worker's compensation,

* 26.8 per cent for other private incomes.

Imputation of social security payments P/pv/s/onsSocial security entitlements were imputed according to the rates, eligibility criteria and income tests of September/October 1989, prior to the November 1989 indexation increases.

Because there is no distinction between public and private renters in the 1986 IDS data, it was not possible to impute rent assistance entitlements accurately. Rather than omit the impact of rent assistance, all renters were treated as potential recipients of rent assistance. The eflect o f this approach is generous, as rent as­sistance is thus imputed not only to eligible private tenants, but also to a number of ineligible public tenants.7ha /mpufaf/on of Fam#y Allowance Stvpp/emenfThe imputation of Family Allowance Supplement involves a num­ber of important considerations. These concern:

* assumptions about the FAS take-up rate;

* assumptions about the quality of IDS data on the low-income population; and

* the method of FAS income-testing.FAS has been imputed here essentially as described in Brownlee & King (1988), that is, all income units apparently eligible for FAS are identified but only a proportion are actually assigned FAS. The elaboration regarding variation in take-up rate according to level of FAS entitlement has not, however, been included here.

The number of income units assigned FAS was set to match the number and income distribution o f FAS recipients in the June 1989 DSS FAS statistics, plus an allowance of an additional 10 per cent to cover those who would be excluded from actually receiving FAS because of the assets test (note that this "over-assignment" is

103

countered later when the self employed are excluded from the analysis). The figure of 10 per cent was selected on the basis of the recorded decrease in FAS recipients at the time assets testing was introduced (i.e. at the same time annual income testing was intro­duced). The figure also accords with the estimated expenditure savings given at the time the FAS assets test was announced.

The simulation was run with three FAS take-up rates: around 50 per cent, 75 per cent and 100 per cent, the effect of which does not change the imputed number of FAS recipients, but does change the way in which those "apparently eligible" income units which are not assigned FAS are treated. In the 100 per cent take- up case, for example, this group is assumed to be not really eligible for FAS (wfth their apparent eligibility being a result of the nature of the 1986 IDS) and they are excluded from the analysis. In the 75 per cent take-up case, half this group is retained in the analysis. In the 50 per cent take-up case, the whole of this group is retained.

The FAS take-up rate assumptions are in fact assumptions about the size of the low-income population and they are termed here "low-income population assumptions". These alternative as­sumptions are maintained throughout the analysis to ensure comparability between estimates. For example, the estimates of poverty incidence in 1986 need to be made on the basis of the dif­ferent low-income population assumptions, even though FAS did not exist at that time. The three assumptions are thus:

1 a High low-income population (which corresponds to a FAS take-up rate in late 1989 of about 50 per cent);

2 a Medium low-income population (which corresponds to a FAS take-up rate in late 1989 of 75 per cent);

3 a Low low-income population (which corresponds to a FAS take-up rate in late 1989 of 100 per cent).

Two alternative approaches to simulating the income-testing of FAS were examined.

Firstly, income-testing of FAS was undertaken on the basis of annual taxable incomes with annual taxable income estimated as follows.

* Where 1986 IDS includes both annual and current income data.1988/89 taxable income is calculated as estimated weekly taxableincome in late 1989 multiplied by the ratio of recorded 1985/86annual income to recorded late 1986 weekly income.

Measuring child pouerty

Appendix

* Where 1986 IDS includes only current income data, 1988/89 taxable income is calculated as estimated weekly taxable income in late 1989 multiplied by 49.5 (i.e. 52.14 less an allowance, lor inflation).

However, this approach made no allowance for the FAS income test provisions where current weekly income differs consistently from what is indicated by annual income in the previous financial year. Furthermore, because the 1986 IDS cases with no annual income data are biased by type of income unit, it risks introducing a bias into the analysis. The approach was therefore rejected.

Instead, income-testing o f FAS was undertaken on the basis of the previous year's taxable incomes calculated in all cases to equal weekly taxable income in late 1989 multiplied by 49.5 (i.e. 52.14 less an allowance for inflation). Effectively, then, FAS was income- tested on the basis o f current weekly incomes.

The effect o f income-testing FAS on the basis of current weekly incomeg, rather than annual incomes, is to slightly lower the es­timated incidence of poverty.

7he assets testsThe 1986 IDS does not Include the data on asset holdings, which would be required to simulate the role o f assets tests, on individuals' social security entitlements. While an allowance has been made for the impact of the assets test on FAS (see above), no attempt has been made here to incorporate the effect o f the assets test on receipt o f pensions and benefits.

[mputatton of income tax MabfMttesIncome tax liabilities were imputed on the basis of the rates and provisions to apply over the 1989/90 financial year. These included new values for: the tax scale and. rates; the Dependent Spouse, Sole Parent, Pensioner and Beneflciaiy rebates; and the Medicare thresholds.

GENERATION OF THE LATE 1966 fNCOME DfSTRfBUTfONTo ensure data compatibility, social security incomes and income tax liabilities were also imputed for the late 1986 income distribu­tion, rather than using the data recorded in the 1986 IDS. The method was identical to that used for the late 1989 imputation, using the social security provisions prior to the December 1986 in­dexation increases and the tax provisions o f the 1986/87 financial year. Family Income Supplemeht was imputed with reference to the number and income distribution o f FIS recipients .shown , in the November 1986 DSS Suruep o f Famfh/ income Supplement Recipients.

105

THE POVERTY L!NE AND HOUSING COSTS

The detaited Henderson poverty tineThe poverty line used here is the "detailed" Henderson poverty line which is specified in Appendix F of Commission of Inquiry into Poverty (1975). The equivalence scale incorporated in this poverty line includes allowance for variation in costs according to:

* number, age and sex of adults;

* number, age and sex of children;

* labour force status of adults; and

* household size.

Updating the poverty lineHie poverty line has been updated from its base in 1973 according to changes in household disposable income per capita (HDI/head) as published in the NIEIR Social Policy Research Unit Newsletter. The poverty lines to apply to late 1986 and late 1989 were calcu­lated as the averages for the September and December quarters of the respective years. The latest poverty lines calculated on the basis of official data refer to the June quarter of 1989. It was thus necessary to estimate the poverty lines for the September and December quarters of 1989. This was done on the basis of popula­tion projections and NIEIR forecasts o f household disposable income.

The resulting "standard family poverty lines" were:

* $251.40 per week for late 1986; and

* $330.10 per week for late 1989.Housing co stsThe three components o f current housing costs recorded in the 1986 IDS (rent, rates and mortgage payments) were updated to late 1989 levels in line with relevant housing-cost indicators, using NIEIR estimates for the period after the most recent official data.

Without a distinction in the data base between public and private rental, it was not possible to apply separate inflators to public and private rents and a single inflator, based on increase in private rents, was applied. This will not cause any serious distor­tion since the rates of increase of public and private rents over the period have been similar.

The inflators for housing costs were derived as follows.

* Rents were inflated from the 1986 base according to changes in the CPI private rental component (resulting in a 33.1 per cent increase).

Measuring child pouerfg

106

Appendix

* Rates were inflated according to changes in the CPI local govern­ment rates and charges component (resulting in a 20.5 per cent increase).

* Mortgage payments were inflated according to a 5-year running average of the predominant home-lending rate given in the RBA Bulletin (resulting in a 14.1 per cent increase).

EXCLUSIONSTwo groups of income units in the population have been excluded from these estimates because of doubts about the validity of their income data. These groups are:

* those with self employment as their principal source of income.

* those who were a child of the household head.The effect of these exclusions on the 1989 data is to remove 18.1 per cent of dependent children and 17.5 per cent of income units with children from the data base. For different types o f income unit, the exclusions account for the following proportions o f in­come units:

* 16.8 per cent of couples with one child;

* 16.9 per cent of couples with two children;

*21.9 per cent o f couples with three children;

*21.5 per cent of couples with four or more children;

*16.5 per cent of sole parents with one child; and

* 10.8 per cent of sole parents with two or more children.

107

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She Brofherhood of Si Laurence Wording io end cfiLd poverfy

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