Poverty Relatively Transient
By Bruce Headey and Mark Wooden
The Weekend Australian,
19-20 February 2005, p. 30 Weekend Inquirer section
Compared with the citizens of most other countries, Australians are rich. Moreover, material living standards in this country have clearly been rising over time. Yet only 12 months ago the Senate Inquiry into poverty and financial hardship concluded that poverty in Australia is both widespread and rising. Indeed, their best estimate was that anywhere between 13 and 19 per cent of the population were living in poverty.
So how can so many people be living in poverty in a country which is, on most objective criteria, very well off? One answer lies in what is meant by poverty. In developed countries it is generally accepted that poverty is largely a relative concept. That is, a person or a household live in relative poverty if they are unable to afford the goods and services needed to enjoy a normal or mainstream lifestyle in the country in which they live. Poverty will thus exist in all countries where there is a substantial gap between the richest and poorest members of the community.
A second answer lies in the reliance on income data collected at a single point-in-time which refer to only a one-year period. In other words, all previously published estimates of relative income poverty describe only annual, or short-term, poverty. Further, since annual poverty rates are usually quite stable, it is perhaps natural to infer that the same people tend to remain poor year after year. But is this true?
This distinction between long-term persistent poverty and short-term transitory poverty is critical. Clearly, medium- and long-term poverty matter a great deal more than short-term poverty. Medium- and long-term poverty have serious negative effects on adults careers and childrens life prospects. Short-term poverty, on the other hand, can be distressing but may have no long-term consequences.
The only way to confidently determine the extent to which poverty is a medium- or long-term problem is by collecting data from the same people year after year. In 2001 a new survey commenced which sought to do exactly that. Funded by the Australian Government and managed by a team based at the Melbourne Institute, the Household, Income and Labour Dynamics in Australia (or HILDA) Survey is Australias first survey that will follow a large representative sample of people as they age. Further, one of the key objectives of the survey is to provide detailed measures of income and financial well-being and hardship.
To date, data are available for three years which, while not long enough to provide measures of long-term poverty, is sufficient to provide an indication of the extent to which there is mobility in and out of poverty from one year to the next.
While there are seemingly many ways for measuring relative income poverty, most involve setting a poverty line which is some proportion of household disposable (after-tax) income adjusted to account for differences in household needs arising from different household sizes. Here, following standard academic practice, we define a household as poor if it has a disposable income that is less than half that of the median, or typical, income.
According to this measure, the HILDA Survey indicates that poverty declined from 13.6% of the population in 2000-01 to 11.5% in 2002-03. Interestingly, in contrast to the conclusions drawn in the Senate Inquiry report, these figures suggest a reduction in poverty in the last three years.
Nevertheless, it is neither the level of poverty (which obviously varies depending on how high or low the poverty line is set) nor the trend in the annual rates which we think is of large importance. Far more important is how many people remain below the poverty line in each of the three years for which data are available. Still using the 50% of median income poverty threshhold, the HILDA Survey data indicate that over one-fifth of the population 22.1% were poor in at least one of the three years considered. But only 6.2% were poor in two of the three years, and only 3.8% were poor in all three years. It is this last figure which we suggest can be regarded as an initial estimate of the rate of medium term poverty in this country. In other words, the rate of medium-term poverty is a great deal lower than the one-year poverty rate at the centre of most previous poverty discussions.
Another significant finding concerns children. Like most other studies, the HILDA Survey data confirm the rather alarming finding that the annual poverty rate for children is higher than for the population average 12.6% among children aged under 15 in 2002-03, compared with an adult rate of 11.0%. The position, however, is reversed when we use longitudinal data to make 3-year estimates. The 3-year poverty rate for children was 3.5%, which compares with 3.9% for adults.
Overall, and despite the immaturity of HILDA, the central message that is emerging is clear and striking the majority of Australians, including children, who become poor do not remain poor for long. Further, these results should send a strong message to policy-makers public assistance should be targeted not simply at lifting people out of poverty but at the smaller group trapped in long-term persistent poverty.
Finally we conclude with a warning. Income measures by themselves do not adequately assess poverty, deprivation and disadvantage. It is also essential to assess and remedy those educational, health, social and employment deficits that limit opportunities in an increasingly prosperous Australia.
Associate Professor Bruce Headey and Professor Mark Wooden
Melbourne Institute of Applied Economic and Social Research, University of Melbourne
Poverty Rates in Australia
|
All |
Children under |
Part A: Annual poverty rates |
|
|
2000-01 |
13.6 |
15.0 |
2001-02 |
12.4 |
13.5 |
2002-03 |
11.5 |
12.6 |
Part B: Poverty persistence, |
|
|
Never poor |
77.9 |
75.9 |
Poor in only one year |
12.0 |
13.5 |
Poor in two years |
6.2 |
7.1 |
Poor in all three years |
3.8 |
3.5 |
Note: The poverty line is set at 50% of the median equivalised disposable household income.
Source: HILDA Survey, Confidentialised Data Release 3.0 (waves 1-3), January 2005.