A09-073 Family Joblessness report - Social Inclusion_proof06 (3)

January 2009

Peter Whiteford Family Joblessnessin Australia

Social Inclusion

2

Peter Whiteford

Family Joblessness in Australia

A paper commissioned by the Social Inclusion Unit of the Department of the Prime Minister and Cabinet

January 2009

© Commonwealth of Australia 2009

978-1-921385-44-5 (PDF)

978-1-921385-45-2(RTF)

This work is copyright. Apart from any use as permitted under the Copyright Act 1968,

no partmay be reproduced by any process without prior written permission from the

Commonwealth.Requests and inquiries concerning reproduction and rights should be

addressed to the Commonwealth Copyright Administration, Attorney-General’s Department,

Robert Garran Offi ces, National Circuit, Barton ACT 2600 or posted at http://www.ag.gov.au/cca

The fi ndings and conclusions in this report are those of the author and do not necessarily represent

the views of the Australian Government.

Contact for follow upSocial Inclusion Unit, Department of the Prime Minister and Cabinet, ph 02 62715271,

email [email protected].

Peter Whiteford, Social Policy Research Centre, ph 02 9385 7641,

email [email protected].

AcknowledgementsThis paper draws on a range of previous work undertaken by the author, including Whiteford and Adema (2007),

What Works Best in Reducing Child Poverty: A Benefi t or Work Strategy? OECD Social Employment and Migration

Working Papers, Number 51, and Whiteford (2008), Child Poverty in OECD Countries: Trends, Causes and Policy Responses, OECD Social Employment and Migration Working Paper, forthcoming.

I am grateful to John Landt of the Social Inclusion Unit, Department of the Prime Minister and Cabinet for analysis of the

2006 General Social Survey in Tables 13 and 14, and to Rob Bray of the Department of Family, Community Services,

Housing and Indigenous Affairs for the data used in Tables 1 to 4.

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73

3Social Inclusion | Family Joblessness in Australia

ContentsExecutive Summary 4

1 Introduction 6

2 Defi ning and measuring joblessness 7

3 Trends in family joblessness 9

4 Trends in lone parenthood 11

5 The job gap 13

6 Duration and dynamics of joblessness 15

7 The dynamics of family joblessness, child poverty and welfare receipt—2001 to 2005 17

8 How does Australia compare? 20

8.1 Changing patterns of family formation 20

8.2 Australia’s employment performance in perspective 22

8.3 International comparisons of family joblessness 22

8.4 Why do some countries have low joblessness and why do some countries have high joblessness? 25

9 Consequences of joblessness—child poverty and social exclusion 27

9.1 Family and child poverty—composition, risks and characteristics 27

10 Family joblessness and disadvantage 34

10.1. Types of disadvantage 34

10.2 Intergenerational transmission of welfare receipt 37

11 Tax and benefi t policies and their effects on poverty and employment 40

11.1 Overview of scope and nature of tax/benefi t systems and support for families 40

11.2 Adequacy of benefi ts and other support for families 47

12 Does work pay? 50

12.1 Effective marginal tax rates and average effective tax rates 53

12.2 Are child care costs a barrier to work? 55

12.3 The policy stance towards lone parents on income support 56

13 How can joblessness be reduced? 60

References 64

4 Executive Summary

Executive SummaryThe Australian Social Inclusion Board has been asked by the Government to work as a fi rst priority on jobless families and children at greatest risk of disadvantage. The priority given to jobless families refl ects the fact that children are among the most vulnerable people in the community and that family joblessness raises the risk that children themselves may grow up to be jobless and reliant on welfare payments for a signifi cant proportion of their income. The intergenerational transmission of joblessness—if it occurs—undermines both equality of outcomes and equality of opportunity.

While Australia has a high overall level of employment compared to other developed countries in the OECD, it also has one of the highest levels of joblessness among families with children of all rich countries. Identifying the factors behind this poor performance can contribute to improving policies to promote social inclusion.

Joblessness can be defi ned in a number of ways and measured at the individual, family or household level. Much of the discussion of joblessness relies on “snapshot” data of the extent of joblessness at a point in time, but data on the extent of joblessness over a year or over multiple years leads to the conclusion that the experience of joblessness is more common than suggested by point-in-time data, but that long-term joblessness is concentrated on a smaller group of families at risk of severe disadvantage. For example, between 2001 and 2005 the proportion of children living in jobless households fell from around 18% to 14%, but nearly 26% of children experienced a spell of joblessness in at least one of those fi ve years, but only 5.5% of children were in jobless households for all fi ve years.

Following nearly two decades of increasing joblessness, family joblessness has fallen since 1998 and is now nearly back to its level in 1980. This is mainly due to increasing overall employment in this period, but the rate of reduction in joblessness has increased since 2005, perhaps refl ecting policy changes since then requiring parents to actively look for work once their youngest child turns seven.

What is the link between joblessness among families with children and child poverty? Across OECD countries, on average, only around 30% of poor families with children are jobless and most child poverty is found in families where at least one parent is in paid employment. In Australia, however, around 70% of poor children live in jobless families, making the joblessness of parents the main cause of relative low income in childhood. Moreover, for lone parents in paid work, Australia has the second lowest poverty rate in the OECD, and for couples with either one or both parents in paid employment, poverty rates are also among the lowest in the OECD. All countries with low child poverty rates (under 5%) combine both effective redistribution and low rates of family joblessness. Australia appears to have one of the most effective systems of redistribution across OECD countries, but the high level of family joblessness means that Australia has rates of child poverty that are about twice as high as the best performing countries (but less than half the level of the worst performing countries).

Family joblessness is associated with a range of disadvantages including a higher incidence of poor health and disability among parents. However, while disability or poor health is likely to be a signifi cant additional barrier to employment for some families, this tends to affect a relatively small minority of jobless families.


Information on the intergenerational transmission of joblessness and welfare receipt is limited, but evidence suggest that different forms of welfare systems can lead to differing patterns of intergenerational transmission of disadvantage.

One of the main explanations advanced for family joblessness is that work doesn’t pay for parents—that is, the combination of the withdrawal of income-tested benefi ts and the effects of the tax system produce high effective marginal tax rates (EMTRs) that punish low income families who attempt to improve their fi nancial circumstances through paid work. It is also argued that high child care costs can further reduce the rewards to paid work. While Australia operates what overall is the most targeted benefi t system in the OECD, incentives for benefi ciaries to take up part-time work are among the best in the OECD, and the only countries with better work incentives are those that provide much less generous benefi ts for families with children.

While high EMTRS can be a barrier to work, it appears unlikely that they can be an explanation for Australia’s high level of family joblessness compared to other countries. Child care costs also do not appear to offer an explanation for Australia’s high level of family joblessness. Instead, the main explanation appears to be the entitlement conditions for payments (before 2006), with parents not required to actively look for work until their youngest child turned 16.

What policies are likely to be most effective in reducing Australia’s high level of family joblessness? Bearing in mind the factors discussed above, a combination of policy approaches should be considered. Maintaining strong employment growth is of key importance, but should economic conditions become more adverse it is important not to promote policies that encourage people to leave the labour force.

Requiring parents to actively look for work is strongly supported, but incentives to work—and adequacy of incomes - would be strengthened if assistance was provided on the basis of the Parenting Payment Single conditions rather than on the basis of Newstart Allowance conditions. Income adequacy would also be improved.

Consideration should be given to promoting employment among parents with pre-school age children, perhaps on a voluntary basis, but it is important to change parental expectations to “normalise” paid employment.

Consideration could be given to setting a target of achieving an 80% employment rate for lone parents (the level in Denmark). If the same rate of employment growth that has occurred over the past 10 years was maintained, this could be achieved by 2020, or if the rate of employment growth of the past three years was maintained, the target would be achieved by 2015.

Even if such a target is achieved, this would reduce family joblessness from its current level of around 12% to around 5%. It is likely that a signifi cant proportion of those remaining jobless would have complex combinations of disadvantages.

The challenge is to develop the combination of policies—both cash transfers and services—that promote and support employment for as many parents as possible, provide adequate income support for those with greater diffi culties in fi nding paid employment, and help to alleviate the problems of those with the most severe disadvantages.

6 1 | Introduction

IntroductionThe Australian Social Inclusion Board has been asked by the Government to work as a fi rst priority on jobless families and children at greatest risk of disadvantage.

The priority given to jobless families refl ects the fact that children are among the most vulnerable people in the community and that family joblessness is associated with relative low income and raises the risk that children themselves may grow up to be jobless and reliant on welfare payments for a signifi cant proportion of their income. The intergenerational transmission of joblessness—if it occurs—undermines both equality of outcomes and equality of opportunity.

Joblessness appears to be associated with a wide range of negative outcomes for parents and children, including higher rates of income poverty, poorer health status and lower educational attainment. The association is complex, however, and causation can run both ways—that is, joblessness causes disadvantage and disadvantages can also cause joblessness.

This paper provides an analysis of trends in family joblessness in Australia over the last 30 years, and identifi es the main factors that have driven trends in joblessness. The paper compares the circumstances and characteristics of jobless families in Australia relative to those in other OECD countries. The paper also discusses the relationship between family joblessness and income poverty and other forms of disadvantage. On the basis of this international experience, the paper discusses broad policy directions that could be considered to reduce the problem of joblessness while also improving support for those with multiple barriers to employment.

1


Defining and measuring joblessnessThe jobless encompasses the unemployed and looking for work and those not in the labour force (and not actively looking for work). A signifi cant factor in family joblessness is that many mothers—both lone and partnered mothers—have responsibilities for caring for children—which means that they may not be actively looking for work, although many may accept work if it was available. In other cases, parents are actively looking for work but are unsuccessful, or they may have short periods of employment between spells of joblessness.

Joblessness exists at the individual, family and household level (and also among communities).1 Generally speaking, the share of individuals of working age who are jobless can be expected to be higher than the share of families or households who are completely jobless, since some jobless individuals share accommodation with other family or household members who are not jobless. Family joblessness can also be looked at from the parental perspective or from the child’s perspective. In Australia, a higher share of children experience joblessness than the share of families, primarily because larger families are more likely to be jobless than smaller families.

One of the main points made in this paper is that there are signifi cant differences across countries in the levels of individual and family joblessness; in brief, Australia appears to have relatively low levels of overall and individual joblessness, but relatively high levels of household and family joblessness—that is in Australia, joblessness is more concentrated among specifi c households where no one works than in nearly all other OECD countries.

In part, this appears to be related to different patterns of household formation and composition in different countries—in particular some of the countries with high levels of individual joblessness have much higher levels of multi-generation households, with jobless people being more likely to share accommodation with their parents, siblings or with adult children. In addition, these patterns are affected by the nature of the social welfare systems in each country, not only the level of welfare benefi ts, but also the conditions under which welfare payments are available and the level of support for families in employment, both in terms of cash benefi ts and support services.

Joblessness has a very important time dimension—for example, it is common in discussions of joblessness for statements to be made along the lines that “x percent of Australian children are being raised in jobless families”—but these statements are potentially misleading since families can move between employment and joblessness during a year or over a number of years.

The main source of data on trends in joblessness in Australia is the Labour Force Survey, andin particular the Labour Force Status and Other Characteristics of Families publication (ABS Cat. No. 6244.0), which is published annually, with the most recent publication being in June 2008.The information on labour force status usually relates to the position during the week preceding household interviews—that is, the estimates of joblessness refer to the circumstances of families during a one week period.

In contrast, the Labour Force Experience (ABS Cat. No. 6206.0) publication which is currently issued every second year presents information about the labour force experience of persons over the entire 12 month before the survey date (most recently in February 2007).

1 Household is used here to refer to households that include people both with and without dependent children, while families refer to people with dependent children.

2

8 2 | Defining and measuring joblessness

A further source of data on joblessness is the Household, Income and Labour Dynamics in Australia (HILDA) Survey, a household–based panel study which began in 2001, and in which panel members are traced over time, with the most recent Statistical Report presenting information on joblessness trends between 2001 and 2005. The HILDA Statistical Report defi nes joblessness as not being in employment for at least 26 weeks in the survey year, thus giving a broader measure of joblessness than the Labour Force Experience survey.

As will be shown in Section 3 below each of these data sources are consistent in the picture they show of recent trends in joblessness. However, the estimated level of joblessness varies between data sources, and long duration joblessness—either for the full survey year or for at least six months over the course of two, three, four or fi ve years is signifi cantly lower than is measured with point in time data from the Labour Force Surveys.

The extent of joblessness also depends on the defi nition of a dependent child and the defi nition of a family or household. The discussion below focuses on trends in family joblessness where dependent children are defi ned as those less than 15 years of age; if those caring for an older dependent student were included then the absolute number of jobless families would increase, but their share of all families with dependents would decrease, as employment rates are higher for these groups of parents than for those with younger children. The international comparisons with OECD countries are based on households with at least one child less than 17 years of age.

The paper also looks in some detail at the links between family joblessness, child poverty and receipt of welfare payments. The association between these factors is strong, because in Australia family joblessness is the most important single cause of child poverty, and because when families are jobless they are most commonly in receipt of social welfare payments (since they do not have access to earnings).2 As a result it is also possible to use studies of the dynamics of child poverty and receipt of welfare payments to supplement information on these dimensions of joblessness.

2 It could be expected that nearly all jobless families receive welfare payments, but not all welfare recipients are jobless because families can combine benefi ts and earnings up to moderately high income levels. According to the 2002 General Social Survey (ABS, Cat. No. 4159.0), 89% of jobless households with children under 15 were dependent on government cash pensions and allowances for their principal source of income, with three quarters of the selected persons in these households having been dependent on this source of income for more than half of the last two years.


Trends in family joblessnessAs shown in Table 1 and Figure 1, the extent of family joblessness has fl uctuated over time, generally rising up until 1998, but falling since then. Long-term trends in family joblessness refl ect a number of underlying factors, including family change and labour force changes. Lone parents have increased as a share of families with children (Table 2), and since lone mothers and fathers have lower employment rates than partnered fathers, family joblessness has also increased. In addition, during the recessions of the early 1980s and early 1990s, rising unemployment disproportionately affected parents, and in the initial stages of economic recovery family unemployment did not fall at the same pace as overall unemployment.

The last decade (since 1998), however, has seen a sustained fall in family joblessness, whichis now close to its level in 1980. This is likely to refl ect the strong aggregate employment performance during this period, and possibly some of the more recent policy changes affecting Parenting Payments.

In 1980 around 11% of Australian families with children less than 15 years of age were jobless, comprising close to 60% of lone parent families and just under 5% of couple families. Total joblessness among families with children reached a peak of 19% in 1998, but has since fallen to 12% in 2008.

Joblessness among couples with children is strongly related to the state of the labour market and consequent trends in unemployment—with joblessness increasing from 4.8% to 8.5% between 1980 and 1983, and from 6.3% to 10.8% between 1990 and 1993 (its highest level). Joblessness among couples with children in 2008 (4.3%) was at its lowest level since 1980.

Joblessness among lone parents has fl uctuated over time, but has generally been falling since 1998—from 58% to 42%. But in relative terms, the decline in lone parent joblessness has not been as rapid as the decline in couple joblessness so that currently close to 72% of jobless families are lone parent families, compared to a low of 53% in 1993.

Table 1: Families with children less than 15 years by family type and joblessness status, 1980 to 2008

Couple families with children less than 15 years

One parent families with children less than 15 years

All families with children less than 15 years

Total Jobless Jobless Total Jobless Jobless Total Jobless Jobless

000s 000s % 000s 000s % 000s 000s %

1980 1690.1 80.5 4.8 234.4 137.3 58.6 1924.5 217.8 11.3

1981 1698.9 84.3 5.0 242.4 137.7 56.8 1941.3 222.0 11.4

1982 1698.7 99.3 5.8 264.6 161.9 61.2 1963.3 261.2 13.3

1983 1707.2 144.7 8.5 255.8 169.2 66.1 1963.0 313.9 16.0

1984 1696.9 128.1 7.5 270.1 174.6 64.6 1967.0 302.7 15.4

1985 1685.6 124.5 7.4 268.0 167.6 62.5 1953.6 292.1 15.0

1986 1654.8 120.1 7.3 265.2 159.0 60.0 1920.0 279.1 14.5

1987 1649.9 130.6 7.9 283.6 173.7 61.2 1933.5 304.3 15.7

1988 1678.6 121.3 7.2 283.2 170.2 60.1 1961.8 291.5 14.9

1989 1674.6 115.1 6.9 272.3 146.9 53.9 1946.9 262.0 13.5

1990 1703.5 107.8 6.3 295.3 164.9 55.8 1998.8 272.7 13.6

3

10 3 | Trends in family joblessness

1991 1681.7 136.8 8.1 320.0 181.7 56.8 2001.7 318.5 15.9

1992 1710.4 167.9 9.8 337.2 200.2 59.4 2047.6 368.1 18.0

1993 1692.0 182.3 10.8 345.5 202.3 58.6 2037.5 384.6 18.9

1994 1689.1 169.4 10.0 351.8 204.6 58.2 2040.9 374.0 18.3

1995 1711.0 144.2 8.4 388.5 220.8 56.8 2099.6 365.0 17.4

1996 1708.0 134.3 7.9 384.0 219.8 57.2 2092.0 354.1 16.9

1997 1704.1 146.0 8.6 426.4 243.3 57.1 2130.4 389.3 18.3

1998 1694.3 143.3 8.5 465.7 269.4 57.8 2160.0 412.7 19.1

1999 1707.6 134.7 7.9 458.1 256.5 56.0 2165.7 391.2 18.1

2000 1717.6 129.0 7.5 453.7 239.3 52.7 2171.3 368.3 17.0

2001 1706.4 128.3 7.5 472.2 253.1 53.6 2178.8 381.4 17.5

2002 1701.6 123.0 7.2 508.2 273.2 53.8 2211.1 396.2 17.9

2003 1712.5 108.3 6.3 476.3 255.2 53.6 2191.0 363.5 16.6

2004 1707.0 108.4 6.4 513.8 267.1 52.0 2223.9 375.5 16.9

2005 1751.8 92.8 5.3 477.0 243.4 51.0 2228.9 336.2 15.1

2006 1793.5 96.3 5.4 467.8 223.0 47.7 2261.3 319.3 14.1

2007 1754.5 84.9 4.8 485.9 218.1 44.9 2240.4 303.0 13.5

2008 1817.6 78.7 4.3 480.4 198.1 41.2 2298.0 276.8 12.0

Note: Jobless families are those where no parent is employed.

Source: ABS 6224.0 and 6291.0.40.001; Data provided by FaHCSIA.

Figure 1: Trends in Family Joblessness in Australia, 1980 to 2008

10

20

30

40

50

60

70

80

1980

Couples Lone parents All families

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Source: Calculated from Table 1.


Trends in lone parenthoodLone parents as a percentage of all families with children increased from 12.2% in 1980 to 23.1% in 2004, but fell to 20.9% in 2008, the most sustained fall in 30 years (Table 2). The increase in the number of lone parent families as a share of all families with children is related to a number of underlying factors, including trends in widowhood, trends in divorce and separation, and trends in births outside marriage and cohabitation, as well as developments in age of mother at fi rst marriage and age at fi rst birth.

Table 2: Trends in lone parenthood, 1980 to 2008

Number of lone parent families Lone parents as % of all families with children

Lone parents as % of jobless families with children

000s % %

1980 234.4 12.2 63.0

1981 242.4 12.5 62.0

1982 264.6 13.5 62.0

1983 255.8 13.0 53.9

1984 270.1 13.7 57.7

1985 268.0 13.7 57.4

1986 265.2 13.8 57.0

1987 283.6 14.7 57.1

1988 283.2 14.4 58.4

1989 272.3 14.0 56.1

1990 295.3 14.8 60.5

1991 320.0 16.0 57.0

1992 337.2 16.5 54.4

1993 345.5 17.0 52.6

1994 351.8 17.2 54.7

1995 388.5 18.5 60.5

1996 384.0 18.4 62.1

1997 426.4 20.0 62.5

1998 465.7 21.6 65.3

1999 458.1 21.2 65.6

2000 453.7 20.9 65.0

2001 472.2 21.7 66.4

2002 508.2 23.0 69.0

2003 476.3 21.7 70.2

2004 513.8 23.1 71.1

2005 477.0 21.4 72.4

2006 467.8 20.7 69.8

2007 485.9 21.7 72.0

2008 480.4 20.9 71.6


4

12 4 | Trends in lone parenthood

There was a sharp increase in the divorce rate immediately following the 1975 Family Law Act, which then fell but not back to the pre-1975 level. However, divorce rates are only an indirect indicator of lone parenthood—currently just half of all divorces involve children under 18 years, a proportion which has fallen since the 1970s (ABS, Australian Social Trends, 2008). Moreover, an increasing share of families is cohabiting, and if these relationships end the result is separation rather than divorce. Further, the share of births outside marriage among all births has increased signifi cantly to around one-third in 2006. Births outside marriage, however, are only an indirect indicator of lone parenthood—the share of births outside marriage acknowledged by the father3 has increased over time to 90% of these births, although not all of these joint registrations are for couples who are actually cohabiting.

An indicator of very long term trends in the levels and characteristics of lone parenthood is given in the 2006-07 Family Characteristics and Transitions Survey (ABS Cat. No. 4442.0). This survey found that among people aged 18 to 34 years, around 24% had experienced the divorce or separation of their parents before the age of 18 years; this proportion was lower for older age groups, with 18% of persons 35 to 44 years having experienced divorce or separation in childhood, 12% of those aged 45 to 54 years, and 8% or less of older age groups. In contrast, however, 19% of persons aged 75 years and over and 14% of those aged 65 to 74 years had experienced the death of a parent during their childhood, compared to only 5% of persons less than 34 years of age and roughly 10% of persons aged between 35 and 64 years.

Putting these two experiences together shows that around 25% of persons over 75 years had the experience of lone parenthood or being an orphan during their childhood, compared to 30% of persons less than 35 years of age. In fact, the age group with the lowest share of those experiencing lone parenthood in childhood were those aged 55 to 64 years (18%)—the fi rst cohorts of the baby boom generation—because of their lower experiences of bereavement in childhood than their parents’ generation and because of their lower experience of divorce and separation than subsequent age groups.

3 This is measured by the presence of the father’s name on the birth certifi cate.


The job gapAs discussed below, lone parents and lone mothers in particular experience much higher unemployment rates than partnered mothers, with the unemployment rates of lone mothers consistently being twice as high as the unemployment rate of partnered mothers over the last decade. Having said this, the main contributing factor to joblessness among lone parent families is their higher rates of not participating in the labour force either for part or whole of the year.

Table 3 shows “job gaps” for lone mothers and partnered mothers, simply calculated as the difference between the employment rate of lone mothers and partnered mothers, according to the age of their youngest dependent child and the number of children they have. Job gaps are consistently wider for lone parents with two or more children compared to those with one child, but the gaps widened for both family groups. At the beginning of the period shown (1994), job gaps were widest for lone parents with a youngest child aged less than fi ve years, andfell for those with older children. However, over this particular period, job gaps widened for those with a youngest child less than fi ve years and also for those with a youngest child aged 10 to 14 years, and it was only for those with a youngest child aged 5 to 9 years that job gaps narrowed.

Using data from the 2001 Census, it is possible to identify the differences in employment rates of lone mothers and partnered mothers in more detail. Table 4 shows that for both partnered mothers and lone mothers full-time employment rates increase signifi cantly with the age of children—from less than 10% when the youngest child is under one year of age to close to 40% when the youngest child is 14 years of age. Part-time employment rates also increase with age, although for partnered mothers they are highest in the early school years (6 to 11 years), and decline thereafter, as mothers are then more likely to work full-time.4 It is also apparent that up until the age of around 10 years that difference in part-time employment rates are much more signifi cant than differences in full-time employment.

4 Within the partnered group, there is also a job gap between married and de facto partners, with a larger gap in part-time work for all ages of children and in full-time work for those with a youngest child less than 3 years of age, but de facto wives with children over 3 years of age are more likely to be working full-time than corresponding married mothers.

5

14 5 | The job gap

Table 3: Job gaps between lone and partnered mothers by age of youngest child and number of children, 1994 to 2005

Percentage point difference between the employment rates of lone and partnered mothers

Age of youngest child Number of children

Aged up to 4 years Aged 5 to 9 years Aged 10 to 14 years One child Two or more

1994 19.1 16.0 13.5 13.6 17.3

1995 22.3 15.1 20.9 16.9 22.4

1996 19.3 18.0 20.6 16.8 20.8

1997 14.6 25.0 15.7 16.5 18.7

1998 21.2 19.0 17.0 15.9 21.8

1999 20.5 13.3 16.5 14.8 17.7

2000 19.5 14.4 11.7 11.5 17.5

2001 20.0 20.2 14.0 15.0 19.6

2002 18.7 18.1 19.5 16.8 18.9

2003 19.8 17.6 17.0 14.6 19.6

2004 20.4 15.2 13.8 11.6 19.3

2005 21.6 12.8 23.6 16.5 20.1


Table 4: Employment rates and job gaps between lone and partnered mothers by age of youngest child and full-time and part-time employment status, 2001

Full-time and part-time employment rates and percentage point difference between the employment rates of lone and partnered mothers

Age of youngest

childPartnered mothers Lone mothers Difference

Years Full-time Part-time Full-time Part-time Full-time Part-time Total

0 7.7 28.4 3.8 11.0 3.9 17.4 21.3

1 13.8 35.1 6.5 16.9 7.3 18.2 25.4

2 16.5 36.5 9.2 21.0 7.3 15.4 22.7

3 18.7 36.9 11.4 24.5 7.4 12.4 19.8

4 19.9 38.1 12.8 26.0 7.2 12.0 19.2

5 22.2 39.2 14.6 28.3 7.5 10.9 18.4

6 23.9 41.5 16.1 30.0 7.8 11.5 19.3

7 25.6 41.8 17.3 31.6 8.3 10.2 18.5

8 27.2 42.1 18.7 31.7 8.5 10.4 18.9

9 28.6 42.1 20.1 32.6 8.6 9.5 18.1

10 30.2 41.6 21.3 32.4 8.9 9.2 18.1

11 31.9 41.0 22.9 32.9 9.0 8.1 17.1

12 33.9 39.4 25.8 32.2 8.1 7.3 15.4

13 35.9 38.0 27.4 31.6 8.5 6.4 14.9

14 37.0 37.8 29.5 31.3 7.5 6.5 14.0

Source: 2001 Census; Data provided by FaHCSIA.


Duration and dynamics of joblessnessAs noted above, the extent of family joblessness depends on the time period over which it is measured. Both family composition and joblessness and other labour force characteristics need to be seen as dynamic processes and not fi xed states. The data used in Sections 3 to 5 comes from an ABS survey that looks at the labour force status of families during one week in a specifi c month in each year. If joblessness is defi ned as referring to the entire year or to longer periods then the rate of joblessness is lower.

Table 5: Labour force experience by family status, 1997 to 2007

% of group

In labour force part of

year

Worked part of year

Unemployed part of the

year

Not in labour force part of

the year

Never in the labour force

Never worked

2007

Female lone parents 71.7 61.5 19.9 59.5 28.3 38.5

All lone parents 73.1 63.1 20.1 56.9 26.9 36.9

Other mothers 76.0 72.6 8.0 53.5 24.0 27.4

2005


All lone parents 71.1 61.4 19.9 60.1 28.9 38.6

Other mothers 75.6 72.2 7.8 54.3 24.4 27.8

2003


All lone parents 69.4 59.5 18.9 60.5 30.6 40.5

Other mothers 74.7 70.9 7.9 53.0 25.3 29.1

2001


All lone parents 72.2 60.4 22.6 59.5 27.8 39.6

Other mothers 73.3 69.6 7.6 54.4 26.7 30.4

1999


All lone parents 70.1 57.3 22.3 60.2 29.9 42.7

Other mothers 71.3 66.8 9.4 58.2 28.7 33.2

1997


All lone parents 67.7 55.6 22.8 67.5 32.3 44.4

Other mothers 71.2 65.6 10.8 59.1 28.8 34.4

Source: Calculated from Labour Force Experience, Australia, ABS Cat. No. 6206.0, various years.

6

16 6 | Duration and dynamics of joblessness

For example, in 2007 around 45% of lone parents were jobless at the time of the monthly survey (Table 1), but Table 5 shows that 37% were jobless for the entire year.5 Between 1997 and 2007 the proportion of female lone parents jobless for the entire year fell from 47% to 39%. This decline of around 17%, however, was not as pronounced as the decline of around 27% in the joblessness rate for lone parents measured in the monthly survey.

Table 5 also shows the unemployment experience of lone parents is signifi cantly higher than that of partnered mothers—in 2007, 8.0% of partnered mothers were unemployed for part of the year compared to nearly 20% of lone mothers (and slightly higher for lone fathers). As noted earlier, in terms of the total joblessness of lone parents non-participation in the labour force is more signifi cant than unemployment, with 28% of lone mothers not having been in the labour force at all during the year, so that non-participation accounted for close to 75% of their experience of joblessness. However, in terms of the difference in joblessness between lone and partnered mothers, it is unemployment that is more signifi cant, accounting for roughly 60% of the difference in joblessness between the two groups of mothers.6

5 It is important to note that the total number of lone parents during any year will be greater than the number at a point in time during the year since people move into and out of lone parenthood.

6 This can be calculated by comparing the differences between the share of each group who never worked and the share who were never in the labour force, since by defi nition this difference is due to people who were participating in the labour force but were unable to fi nd a job.


The dynamics of family joblessness, child poverty and welfare receipt—2001 to 2005As discussed earlier, a further source of data on joblessness is the Household, Income and Labour Dynamics in Australia (HILDA) Survey, a household–based panel study which began in 2001, and in which panel members are traced over time, with the most recent Statistical Report presenting information on trends between 2001 and 2005. The HILDA Statistical Report (Headey and Warren, 2008) defi nes joblessness as not being in employment for at least 26 weeks in the survey year. This is a broader defi nition than used in the Labour Force Experience Survey and is therefore likely to give higher estimates than if permanent joblessness was measured (i.e. not in employment at any time in the year).

Table 6 summarises a range of relevant results from the latest Hilda Statistical Report: overall, between 2001 and 2005:

Between 9 and 12% of the working age population was jobless during each year, with an

apparent decline in this percentage over the fi ve-year period; but close to 19% of the population of working age individuals experienced a spell of joblessness at least once in these fi ve years; 3% were jobless for three years, 2% for four years, and a further 3% for fi ve years.

The joblessness rate for lone mothers was much higher, but fell more signifi cantly from

around 45% to 30% between 2001 and 2005; but 55% of lone mothers experienced a spell of joblessness at some stage in the fi ve years; around 14% of lone mothers were jobless for three years, 7% for four years and 20% for all fi ve years.

Between 2001 and 2005, the share of all children who experienced joblessness fell from 18%

to 14%, but more than one quarter of all children experienced a period of joblessness in the 5 year period; with 10% being in jobless families for four or fi ve years.

Between 2001 and 2005, the share of children in lone mother households who

experienced joblessness fell from 52% to 44%, but more than two-thirds experienced a spell of joblessness during the fi ve year period; with 8% being in jobless families for four years and a further 29% for all fi ve years. The risk of long-term joblessness is thus much higher for children in lone parent families than for children generally—the ratio of long-term joblessness among children in lone parent families was more than fi ve times as high as for children generally, whereas in any one year the ratio was around three to one.

7

18 7 | The dynamics of family joblessness, child poverty and welfare receipt

The extent of welfare reliance (i.e. government transfers accounting for more than 50% of

gross household income) among lone mothers is higher than is joblessness, since families can still receive payments with relatively high levels of earnings, but like joblessness, welfare reliance fell signifi cantly between 2001 and 2005—from 54% to 39%; only around one-quarter of lone mother households were never welfare reliant, with 17% being reliant for four years and 37% for all fi ve years.7

Among all children under 15 years, the prevalence of welfare reliance was broadly

unchanged over these fi ve years at roughly 20% of all children; just over two-thirds of all children were never in welfare-reliant households, but close to 10% were reliant for all fi ve years.

Rates of relative income poverty (at 50% of median equivalent income) for lone mothers are

signifi cantly lower than either welfare reliance or joblessness among lone mothers, although there was only a slight decline in relative poverty in this group over a fi ve-year period. Around 44% of lone mothers never experienced a spell of poverty in this period and only 4% spent all fi ve years in relative poverty. For couples with children and for all children, poverty rates were lower again, but also showed no clear trend—but with perhaps a slight increase for couples with children. Around 85% of couples with children and 75% of all children never experienced poverty, although this implies that the proportion of each group who ever experienced some poverty was about twice as high as suggested by annual data.8

In summary, the last decade has seen a signifi cant improvement in family joblessness after many years of signifi cant worsening. This picture is confi rmed by monthly data on labour force status, by annual data on labour force experience, and by longitudinal data on long term joblessness. When looked at over a longer period, family joblessness is more common overall than when measured using annual data, but a signifi cant proportion of this is short term.

However, there are also a number of very disadvantaged children and families—more than 5% of all Australian children lived in households which were jobless for all 5 years, 20% of lone mother families were jobless for fi ve years, and close to 30% of children in lone mother households experienced family joblessness for 5 years. Thus, within a picture of strong improvements in the circumstances of the majority of the population and also in the circumstances of some of the disadvantaged, it is clear there is a smaller but still signifi cant group who appear to have remained in extreme disadvantage experiencing long-term joblessness and welfare reliance.

7 A further source of information on welfare reliance is the longitudinal survey of Centrelink customers, based on administrative data. For example, Gregory and Klug (2002, 2003) looking over the period 1995 to 2001, found that around 16% of lone parents who claimed parenting payment single (PPS) in 1995 left after one spell and around 18% were still on PPS in 2001, around 20% had multiple spells on PPS in the six years and 46% had multiple spells of PPS and other payments; of those who had two spells around 40% also received parenting payment partnered. People with single spells tend to have entered the system when they were older, were more likely to be home-owners and were more likely to have earned income; while people with multiple spells entered when young, were renters, and less likely to have earnings. Looked at in cross-section, the average length of time a lone parent spends on PPS is between 2 and 3 years, but over a long duration (the time with dependent children), the cumulative length of time could be as much as 12 years.

8 It should be noted that estimates of the extent of income poverty can be quite sensitive to where the line is drawn because Australia’s targeted social security system is associated with a high degree of clustering around benefi t rates which are quite close to a 50% of median income poverty line.


Table 6: Family joblessness, welfare reliance and relative income poverty: prevalence and persistence, 2001 to 2005

Jobl

essn

ess

Wel

fare

rel

ianc

eR

elat

ive

inco

me

pove

rty

Wor

king

age

in

divi

dual

sLo

ne m

othe

r ho

useh

olds

Chi

ldre

n in

all

hous

ehol

dsC

hild

ren

in lo

ne

mot

her

hous

ehol

ds

Lone

mot

her

hous

ehol

dsA

ll ch

ildre

n un

der

15C

oupl

es w

ith

child

ren

Lone

mot

hers

Chi

ldre

n un

der

15 y

ears

Cro

ss-s

ecti

onal

res

ults

: pre

vale

nce

in g

iven

yea

r

2001

11.6

45.1

17.9

52.3

53.7

20.3

5.8

24.9

12.2

2002

12.1

40.9

18.6

51.9

51.6

22.2

5.0

21.8

11.1

2003

10.9

46.8

17.7

51.9

49.6

19.2

6.4

21.6

10.5

2004

9.2

30.9

15.8

47.6

41.3

20.6

6.3

17.6

10.4

2005

9.7

30.5

14.1

43.6

38.7

19.8

6.9

22.3

12.9

Per

sist

ence

: Num

ber

of y

ears

in s

ituat

ion

Nev

er81

.144

.473

.731

.826

.668

.686

.743

.773

.7

1 ye

ar6.

35.

96.

47.

47.

68.

58.

016

.012

.4

2 ye

ars

4.3

8.0

6.1

10.4

5.8

4.9

2.5

13.7

6.6

3 ye

ars

2.8

14.1

4.1

13.0

6.7

3.1

1.7

13.9

3.7

4 ye

ars

2.3

7.14.

58.

216

.65.

60.

68.

92.

4

5 ye

ars

3.0

20.1

5.5

29.2

36.8

9.4

0.5

3.7

1.3

No

tes:

Jo

ble

ssn

ess

is d

efi n

ed

as

livin

g in

a h

ou

seh

old

in w

hic

h n

o m

em

be

r w

as

in p

aid

wo

rk fo

r a

t le

ast

26 w

ee

ks in

th

e p

rec

ed

ing

ye

ar;

we

lfare

re

lian

ce

is d

efi n

ed

as

livin

g in

a

ho

use

ho

ld w

he

re m

ore

th

an 5

0%

of

gro

ss in

co

me c

am

e fro

m g

ove

rnm

en

t in

co

me s

up

po

rt p

aym

ents

or

fam

ily p

aym

ents

; in

co

me p

ove

rty

is d

efi n

ed

as

livin

g in

a h

ou

seh

old

w

ith a

dis

po

sab

le in

co

me a

dju

ste

d fo

r h

ou

seh

old

siz

e (

eq

uiv

aliz

ed

) le

ss t

ha

n 5

0%

of

the

me

dia

n e

qu

iva

lize

d in

co

me.

So

urc

e: H

ea

dey

an

d W

arr

en,

20

08

.

20 8 | How does Australia compare?

How does Australia compare?Comparisons of the extent of family joblessness in different countries needs to take account of at least two main sets of factors: fi rst, how patterns of family and household formation and composition differ across countries and second how levels and patterns of employment differ.

8.1 Changing patterns of family formation As in Australia, family life and the nature of partnerships between adults have changed in most OECD countries. Fewer marriages are taking place than in the past; on average across the OECD marriage rates have fallen from 8.1 marriages per 100,000 persons in 1970 to 5.1 in 2004. There is considerably variation across countries; marriage rates remain highest in Turkey, Denmark and the US and lowest in Belgium, Greece and Italy; Australian marriage rates are above average and eighth highest in the OECD.

Over the same period, most OECD countries recorded signifi cantly higher crude divorce rates, except Australia, Luxembourg and the US (Stevenson and Wolfers, 2007), in fact, since 1970, Australia has had the lowest increase in crude divorce rates of any OECD country. In 2004, on average across the OECD the crude divorce rate was 2.3 per 100 000 people, twice the level recorded in 1970, and this upward trend has contributed to an increase in the number of single parent families and the number of children living in reconstituted families. Australia is just above the OECD average. In 2004, on average across the OECD, there were just over 4 divorces per 10 marriages. In Belgium there were 3 divorces for 4 new marriages; at the other extreme, in Mexico there was only 1 divorce per 10 newly formed marriages.

The decline in the marriage rate has been accompanied by a tendency to defer the age at which it occurs. On average, the mean age of women at fi rst marriage has increased from 23.3 in 1980 to 27.7 years in 2004. In Denmark, Iceland and Sweden a women who gets married for the fi rst time is on average over 30 years of age (Table 7). In many Nordic and continental western European countries and in Australia and New Zealand, cohabitation is increasingly regarded as an alternative to marriage rather than merely a trial leading up to formal marriage, and in Norway and Sweden there are now more adults in the age group 20-40 who are cohabiting than in a formal marriage (OECD, 2007b).

In fact, across the OECD the mean age of women at fi rst marriage is now higher than the mean age of women at fi rst childbirth. Therefore, it is not surprising that the number of children being born out-of-wedlock has increased rapidly. At least 4 out of 10 children are born outside marriage in Denmark, Finland, France, New Zealand and the UK, whereas the rate is over half in Norway and Sweden and two out of three children in Iceland. At around a third of all births, the out of wedlock birth rate in Australia is only slightly above average, but the distribution is very skewed, ranging from less than 2% of all births in Korea and Japan and only 5% in Greece to more than half in some of the Nordic countries, as noted earlier.

Teenage motherhood has become relatively rare in most countries, but teenage birth-rates remain relatively high in Mexico, Turkey and the United States. The teen birth rate in Australia is below the OECD average, but again the distribution is very skewed, ranging from 3.5% in Korea to 67% in Mexico.

Overall, the picture of family relationships and composition in OECD countries suggests that at the two extremes there are societies with “conservative” family values—low lone parenthood, relatively low divorce rates and low rates of births outside marriage—and at the other end of the

8


spectrum, countries with “liberal” family values—above average lone parenthood, high divorce and high rates of birth outside marriage. Australia is towards the “liberal “end of this spectrum, but is not among the most liberal countries. It is also worth noting that with the exception of the lowest income OECD countries (Turkey and Mexico), conservative countries also tend to have the lowest fertility rates.

Table 7: Selected family statistics, OECD countries

Total fertility rate

Mean age of women at

fi rst birth

Mean age of women at fi rst

marriage

Births out-of-wedlock

Teenage birth rate**

1970 2005* 1970 2004 1980 2004 1980 2004 2004

Australia 2.89 1.81 23.2 - - - - 32.2 14.9

Austria 2.29 1.41 - 27 23.2 27.9 17.8 35.9 12.7

Belgium 2.25 1.72 24.3 - 22.2 27.1 4.1 31 8.1

Canada 2.33 1.53 23.1 26.3 - - - 27.6 13.8

Czech Republic 1.9 1.28 22.5 26.3 21.5 26.0 5.6 30.6 11.5

Denmark 1.95 1.8 23.8 28.4 24.6 30.4 33.2 45.4 6.8

Finland 1.83 1.8 24.4 27.8 24.3 29.0 13.1 40.8 10.0

France 2.47 1.94 24.4 28.4 23.0 28.5 11.4 46.4 9.3

Germany 2.03 1.34 24 29 22.9 28.4 11.9 27.9 10.1

Greece 2.4 1.28 - 28 23.3 27.5 1.5 4.9 9.1

Hungry 1.98 1.32 22.8 26.3 21.2 26.2 7.1 34 21.2

Iceland 2.83 2.05 21.3 26.2 23.7 30.9 39.7 63.7 17.6

Ireland 3.87 1.88 - 28.5 24.6 28.2 5 32.3 14.0

Italy 2.43 1.34 25 - 23.8 28.0 4.3 14.9 7.0

Japan 2.13 1.29 25.6 28.9 25.2 27.8 0.8 2 3.7

Korea - 1.16 28.2 28.9 23.2 27.5 - 1.3 3.5

Luxemburg 1.97 1.7 24.7 28.6 23.0 28.1 6 25.8 8.9

Mexico 6.82 2.2 - - - - - - 67.3

Netherlands 2.57 1.73 24.8 28.9 23.2 28.7 4.1 32.5 4.8

New Zealand 3.38 2.01 23.4 28 - 28.8 21.5 44.8 24.4

Norway 2.5 1.84 - 27.6 23.5 29.1 14.5 51.4 9.6

Poland 2.26 1.24 22.8 25.6 22.7 24.9 4.8 17.1 14.7

Portugal 3.01 1.4 - 27.1 23.2 26.3 9.2 29.1 18.9

Slovak Republic 2.41 1.25 22.6 25.3 21.9 25.0 5.7 24.8 20.5

Spain 2.88 1.34 - 29.2 23.4 28.6 3.9 23.4 9.3

Sweden 1.92 1.77 25.9 28.6 26.0 30.7 39.7 55.4 6.9

Switzerland 2.1 1.42 25.3 29.3 25.0 28.6 4.7 13.3 4.6

Turkey 5.68 2.19 - - 20.7 22.6 2.9 - 41.4

United Kingdom 2.43 1.8 - 29.5 23.0 28.1 11.5 42.3 25.8

United States 2.48 2.05 24.1 25.1 23.3 25.1 18.4 35.7 50.3

OECD 2.7 1.63 1.63 27.5 23.3 27.7 11.2 30.9 15.8

* Years of reference for total fertility rates—Canada and the U.S. 2003; Korea, Mexico and New Zealand, 2004** Adolescence fertility rate; births per 1,000 women age 15–19

Source: D’Addio and Mira d’Encole (2005), Trends and Determents of Fertilty Rates in OECD Countries: The Role of Policies; and OECD (2007), Society at a Glance. (www.oecd.org/els/social/indicators).


8.2 Australia’s employment performance in perspectiveAustralia’s overall employment performance compared to the other 29 OECD countries is very strong. Adjusting for statistical differences (Productivity Commission, 2007), Australia’s workforce participation rate in 2005 was 65.5 per cent, with Australia’s ranking in the OECD at 5th place, behind Iceland, New Zealand, Canada and Switzerland, and in 2008 Australia had the 8th lowest unemployment rate in the OECD.

But relatively low participation rates are recorded for prime aged males (25 to 54 years), child-bearing aged women (25 to 44 years), particularly women with children less than six years of age, and older men and women (55 to 64 years). In contrast, for youth (15 to 24 years), Australia ranked 2nd highest among OECD countries.

The Australian workforce is also characterised by a high prevalence of part-time work. In 2005, 2.8 million Australians or around 29 per cent of the workforce were employed part-time. Most part-time workers are women — 72 per cent in 2005. Around 46 per cent of female employees and 15 per cent of male employees participate on a part-time basis. The level of part-time employment is the third highest in the OECD after the Netherlands and Switzerland.

Thus, while Australia’s overall employment performance is strong this is largely due to higher levels of youth employment and high levels of part-time employment.

8.3 International comparisons of family joblessnessTable 8 shows the relationship between individual, household and family joblessness in 2005. On the basis of individual joblessness, Australia ranks eighth lowest in the OECD9 and is 6 percentage points below the OECD average. When looking at the share of the working age population living in jobless households, in contrast, Australia is the fi fth highest in the OECD and more than 4 percentage points above the OECD average. On the measure of jobless households with children, Australia is again the fi fth highest in the OECD and 5.5 percentage points above average.

The disparity between individual or overall joblessness and household or family joblessness can be assessed by looking at the ratios of these measures: on this basis, only three OECD counties have higher ratios than Australia (Germany, Norway and the United Kingdom), and when the focus is on families with children only Germany and the United Kingdom have higher ratios. The ratio of family to individual joblessness in Australia is more than twice the OECD average.

In part, this refl ects the fact that some countries have very low ratios between family joblessness and overall individual joblessness—notably, the Southern European countries (Greece, Italy, Portugal and Spain), the East Asian countries (Japan and Korea) and the low income OECD countries (Mexico and Turkey), but also a disparate group of high income OECD countries (the Nordic welfare states, except Norway), Luxembourg, Switzerland, Canada and the United States.

Using a measure of “polarisation”—how does the actual level of family joblessness compare with the predicted level (based on the overall employment rate in each country)10—Figure 2 shows that Australia actually has the second highest level of polarisation for families with children in the

9 These fi gures are not adjusted for the statistical differences referred to earlier—for details, see Productivity Commission (2007).10 Polarisation is calculated as follows: for each country, the non-employment rate among the working-age population is the starting

point; if this is 30%, for example, then it is assumed that if non-employment were random, then 30% of lone parent households would be predicted to be jobless, while for couples with children the predicted level of joblessness would be the joint probability of both adults being jobless, i.e. 30% multiplied by 30% or 9%. For each country, the predicted level of family joblessness is then the weighted average of these probabilities (depending on the share of lone parent and two-parent families). The predicted level of family joblessness is then compared to the actual level of family joblessness, with the percentage point difference being characterised as “polarisation”. See Gregg (1996), Dawkins, Gregg and Scutella (2002) and Gregg, Scutella and Wadsworth (2008) for details.


OECD, after the United Kingdom; that is, relative to its overall strong employment performance, Australia does extremely poorly for families with children.

Table 8: Individual, household and family joblessness, OECD countries, 2005

Non-employment

rate for working age population

Share of working age population living in jobless

households

Share of households

with children jobless

Ratio of household joblessness to

individual joblessness

Ratio of family

joblessness to individual joblessness

Australia 28.4 14.2 11.9 0.50 0.42

Austria 31.4 11.0 5.3 0.35 0.17

Belgium 39.0 18.6 12.0 0.48 0.31

Canada 27.5 6.2 3.9 0.23 0.14

Czech Republic 35.2 10.1 7.3 0.29 0.21

Denmark 24.5 9.2 4.7 0.38 0.19

Finland 32.0 7.3 3.9 0.23 0.12

France 37.7 11.6 4.4 0.31 0.12

Germany 34.5 19.4 16.3 0.56 0.47

Greece 39.7 6.5 1.4 0.16 0.04

Hungary 43.1 19.1 14.7 0.44 0.34

Iceland .. 2.1 1.7 .. ..

Ireland 32.9 11.7 11.4 0.36 0.35

Italy 42.5 9.6 3.3 0.23 0.08

Japan 30.7 5.1 1.5 0.17 0.05

Korea 36.3 5.5 3.9 0.15 0.11

Luxembourg 36.4 7.1 2.3 0.20 0.06

Mexico 40.4 3.8 3.2 0.09 0.08

Netherlands 28.9 9.1 5.8 0.31 0.20

New Zealand 25.4 9.3 9.6 0.37 0.38

Norway 24.8 13.1 7.5 0.53 0.30

Poland 47.0 14.0 8.3 0.30 0.18

Portugal 32.5 5.9 3.9 0.18 0.12

Slovak Republic 42.3 10.6 6.4 0.25 0.15

Spain 35.7 5.8 3.5 0.16 0.10

Sweden 26.1 6.2 3.6 0.24 0.14

Switzerland 22.8 5.9 2.8 0.26 0.12

Turkey 54.1 10.4 7.5 0.19 0.14

United Kingdom 27.4 16.3 14.9 0.59 0.54

United States 28.5 6.3 4.5 0.22 0.16

OECD 34.1 9.7 6.4 0.28 0.19

Note: Data not available. Source: OECD, Growing Unequal (2008) and OECD Income Distribution questionnaire.


Figure 2: Relative to their high overall employment, the UK and Australia do worst for joblessness among families with children

Percentage point difference between predicted and actual joblessness rates for households with children

-20

-15

-10

-5

0

5

Italy

Greece

Belgium

Spain

Luxe

mbourg

Poland

Japa

nPort

ugal

Austria

Finlan

d

OECD

Irelan

d

Canad

a

USASwed

en

Czech

Denmark

German

y

Netherl

ands

New Ze

aland

Norwary

Austra

lia

United

Kingdo

m

Franc

e

Source: Calculated from OECD Income Distribution Study, 2000.

Employment rates for lone parent households were the third lowest in the OECD around 2000, with only the United Kingdom and Turkey having lower employment rates (Figure 3). Other countries with low employment rates for lone parents include Belgium, Germany, Ireland and New Zealand.

While employment for lone parents has increased signifi cantly in the last four to fi ve years, even at its current higher level Australia would have the fi fth lowest employment rate in the OECD. To reach the OECD average, employment rates for lone parent households would have to increase by around 15 percentage points, and to reach the level of the best performing countries would require a further 15 percentage point increase above that.


Figure 3: Despite recent increases, employment of lone parents is relatively lowEmployment to population ratio, lone parent families, 2001-2005 and 2008

0

20

40

60

80

100

90

70

50

30

10

Italy

Greece

BelgiumSpa

in

Luxe

mbourg

Japa

n

Portug

al

Austria

Finlan

dOEC

DIce

land

Irelan

d

Irelan

d (20

06)

Switerze

land

Canad

a

United

States

Sweden

Czech R

epub

lic

Denmark

German

y

Netherl

ands

New Ze

aland

Norwary

Austra

lia (2

008)

Austra

lia (2

001)

UK (200

5)

UK (200

1)

Franc

e

8.4 Why do some countries have low joblessness and why do some countries have high joblessness?

Why does Australia’s employment performance for families with children diverge so markedly from its overall employment performance? The explanations for variations in family and household joblessness are complex. This paper uses a broad economic framework for looking at cross country variations in joblessness, where the level of joblessness is related to the overall state of the labour market, the characteristics of jobless family members (their age, level of education, the age and number of children, and the health status of adults and children), and the tax and benefi t systems operating in different countries.

Some countries such as Greece, Italy, Spain and Mexico have relatively few lone parents and relatively low joblessness; the explanation appears to be that in these countries family values are more conservative and lone parenthood is less socially acceptable, and welfare supports for lone parents and jobless families is extremely limited, if available at all. As a result jobless individuals are more reliant on family support, and indeed they are more likely to share households with other family members who have jobs, so that individual joblessness is “hidden” within households.11

In contrast, countries like the United States and Canada have more “liberal” family values and higher levels of lone parenthood, but welfare support for those out of work is not generous (although varying widely between the two countries), so that lone parents and other families are more likely to be working in low-paid jobs because of fi nancial necessity.

11 For further discussion, see González (2005b, 2007).


Australia, along with Ireland, New Zealand and the United Kingdom as well as the Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) also appear to have “liberal” family values—high levels of lone parenthood, relatively high rates of cohabitation, divorce and births outside marriage—but these English-speaking countries have high levels of joblessness and the Nordic countries have low levels of family joblessness.

The explanation for these differences—discussed below—appears to be that the Nordic countries have welfare states oriented towards high levels of employment; indeed given their already high taxation to GDP ratios their welfare states would be unaffordable without high levels of employment, so that their welfare programmes both support and require people to have jobs. Much higher levels of spending are allocated to child care, parental leave benefi ts (but limited in duration), and spending on active labour market programmes, and benefi ts are mainly fi nanced from social insurance contributions, so that people are required to have been employed and made contributions to receive income support for unemployment, for example. Income-tested social assistance is a benefi t of last-resort and is targeted through very tight income and assets tests, and recipients can be required to actively look for work even when they have very young children (except in the case of Norway until recently).

In contrast, Australia and these other English-speaking countries have relatively generous social assistance, both in terms of payment levels and particularly in terms of duration of receipt. This refl ects the fact that their social security systems are largely not insurance-based, and in the case of Australia and New Zealand, not at all. Income and assets tests on assistance benefi ts are signifi cantly more generous than in the Nordic countries or in other parts of continental Europe—refl ecting the absence of insurance benefi ts. Supportive services—child care, family leave and active labour market policies—are less signifi cant than in the Nordic countries. Most importantly, with the exception of Australia since its recent changes to Parenting Payment—all these countries allow lone parents to receive support without actively looking for work until their youngest child is a teenager. If the level of payments to jobless parents is adjusted by the possible duration of benefi ts, then these countries have by far the most generous welfare systems for low income families in the OECD (see below).

There are also other idiosyncratic factors applying in other OECD countries. For example, Belgium has a high level of family joblessness, which seems to be a consequence of the “de-industrialisation” of the French-speaking part of the country, with the result that some communities and the families that live in them have very high levels of joblessness that has lasted for a long period of time. Germany has high levels of family joblessness also partly refl ecting wide disparities between eastern and western parts of the country, but also wide disparities in employment rates for “native” Germans and immigrant families. Many other European countries also appear to have much higher levels of joblessness and poverty among immigrant families with children compared to native-born, particularly among refugees, but these are relatively small groups in the population (Lelkes, 2007). In Eastern Europe Roma families experience signifi cantly elevated risks of joblessness and child poverty and in some countries are a relatively signifi cant minority.


Consequences of joblessness—child poverty and social exclusion9.1 Family and child poverty—composition, risks and characteristicsWhat is the link between joblessness among families with children and child poverty? In this paper, relative income poverty is defi ned as living in a household where disposable income (after direct taxes and social welfare benefi ts) is less than 50% of the population median, adjusted for household size.

There are a number of different ways of assessing the seriousness of child poverty as it affects different types of households. This section uses three different measures:

The poverty headcount or poverty rate is the proportion of a specifi c household type whose incomes are below the poverty line; for example, if 40 out of every 100 lone-parent households have incomes below the poverty line, the poverty rate for lone parents is 40%;

The poverty share is the proportion of all households in poverty who belong to a specifi c household type; for example, if lone-parent households account for 30 out of every 100 poor households with children, their poverty share is 30%;

The poverty risk is the ratio of the share of a household type as a percentage of the poor compared to their share in the total population; for example if lone-parent households are 30% of the poor population but 10% of the total population, their poverty risk is 3 to 1.

Child poverty trends are diverse across countries. Nevertheless, countries share some key characteristics of child poverty in common, in particular the effects of household composition on poverty risks. First, lone parents are everywhere more likely to be in poverty than two-adult households (Table 9), with poverty rates that are 3 times higher on average than two-adult households, with the discrepancy even higher in Australia, Canada, Denmark, Finland, Germany, Ireland, Sweden, the United Kingdom and the United States. Australia has above average poverty rates among lone parent households (38% compared to 31% on average), but below average rates for couples with children (6.5% compared to 9.0%) and below average poverty rates overall (11.8% compared to 12.4%).

9

28 9 | Consequences of joblessness—child poverty and social exclusion

Table 9: Poverty among children and households with children, around 2005

Poverty rates for children, households with children and by household type, percentages

Children All households with children

One adult with children

Two adults with children

Australia 11.8 10.1 38.3 6.5

Austria 6.2 5.5 21.2 4.5

Belgium 10.0 9.0 25.1 7.3

Canada 15.1 12.6 44.7 9.3

Czech Republic 10.3 9.2 42.3 6.9

Denmark 2.7 4.0 16.0 2.3

Finland 4.2 3.8 13.7 2.7

France 7.6 6.9 19.3 5.8

Germany 16.3 13.2 41.5 8.6

Greece 13.2 12.1 26.5 11.7

Hungary 8.7 7.7 25.2 6.8

Iceland 8.3 7.3 17.9 6.2

Ireland 16.3 13.9 47.0 10.1

Italy 15.5 14.3 25.6 14.0

Japan 13.7 12.5 58.7 10.5

Korea 10.7 9.2 18.9 8.6

Luxembourg 12.4 11.0 41.2 9.7

Mexico 22.2 19.5 32.6 18.7

Netherlands 11.5 9.3 39.0 6.3

New Zealand 15.0 12.5 39.1 9.4

Norway 4.6 3.7 13.3 2.1

Poland 21.5 19.2 43.5 18.4

Portugal 16.6 14.0 33.4 13.3

Slovak Republic 10.9 10.0 33.5 9.2

Spain 17.3 14.7 40.5 13.9

Sweden 4.0 3.6 7.9 2.8

Switzerland 9.4 8.4 21.6 7.6

Turkey 24.6 20.3 39.4 20.0

United Kingdom 11.0 9.0 24.5 6.1

United States 20.6 17.6 47.5 13.6

OECD average 12.4 10.7 30.9 9.0

Source: Whiteford (2008).

The employment status of parents is of crucial signifi cance in determining poverty risks (Table 10). Single-adult households who are working generally have higher poverty rates than two-adult households where one parent is employed, although with some exceptions including Australia, and non-employed lone-parent households also have higher poverty rates than jobless two-parent households in nearly all countries.


Table 10: Poverty by household employment status, around 2005

Poverty rates for households with children by household type, percentages

Households with children and one adult

Households with children and two or more adults

Not working Working No worker One worker Two workers

Australia 67.8 6.1 50.8 7.9 1.0

Austria 51.3 10.5 36.3 4.5 2.9

Belgium 43.2 10.1 36.1 10.6 2.5

Canada 88.6 32.2 80.5 22.4 4.5

Czech Republic 71.4 10.3 43.2 9.5 0.7

Denmark 19.8 3.9 21.1 5.3 0.4

Finland 46.3 5.6 23.4 8.9 1.1

France 45.5 11.8 48.4 11.5 1.9

Germany 56.1 26.3 47.3 5.7 1.5

Greece 83.6 17.6 39.2 22.1 4.0

Hungary 44.1 16.4 21.7 6.5 3.4

Iceland 22.9 17.1 51.0 28.8 4.1

Ireland 74.9 24.0 55.4 15.7 1.9

Italy 100.0 16.4 77.9 24.1 1.3

Japan 60.1 58.4 49.9 10.8 9.8

Korea 29.5 25.7 65.2 9.7 4.3

Luxembourg 69.0 38.3 27.4 15.8 5.3

Mexico 29.9 33.6 52.8 27.1 10.9

Netherlands 61.6 27.1 64.5 11.9 2.3

New Zealand 48.0 29.8 46.8 21.0 2.8

Norway 31.2 4.8 28.8 3.9 0.3

Poland 74.9 25.6 51.2 28.4 5.7

Portugal 90.2 26.2 53.2 34.3 4.8

Slovak Republic 65.9 23.9 66.0 18.2 1.8

Spain 78.0 32.2 70.6 23.2 5.1

Sweden 18.1 6.3 35.5 13.7 1.1

Switzerland 21.6 7.6

Turkey 43.6 31.9 28.1 18.9 20.2

United Kingdom 39.1 6.7 35.8 9.0 1.0

United States 91.5 36.2 82.2 27.0 6.2

OECD average 55.6 21.2 46.6 15.7 3.9

Source: OECD Income Distribution Study.


Overall, poverty rates among non-employed lone parents are at least twice as high as among those in paid work, and in some countries by more than fi ve to one and in Australia by more than 10 to 1. Poverty rates among couples with children where neither parent is employed, on average, are three times higher than where one parent is employed, and more than ten times higher than where both parents are employed; in Australia the corresponding ratios are six to one and fi fty to one, refl ecting the low poverty rates among couple families where one parent is employed and the extremely low rates where two parents are employed.

Poverty rates also vary by hours of work. Poverty rates are higher in households where the parent is working part-time rather than full-time, but there is a very wide variation across OECD countries—for example, fewer than one in ten lone parents working part-time are estimated to be in poverty in Australia, Denmark, Finland, France, Sweden and the United Kingdom, but 40% or more of these households are estimated to be in poverty in Canada, the Czech Republic, Germany, Greece, New Zealand, Spain and the United States, and close to 90% in Italy. Households where there are two adults working full-time tend to have extremely low poverty rates, but they are around 5% or a little higher in France, Iceland, Ireland, Italy, New Zealand, Portugal, the Slovak Republic and Spain (Whiteford, 2008).

Child poverty rates also vary by the number of children in the household. Overall, child poverty rates are higher in households with three or more children compared to households with one child, but this is not always the case. It is possible that this refl ects the fact that households with one child may either have one young child, and the parent or parents are also young themselves, or one older child with older parents; and other studies tend to fi nd higher child poverty rates in families with young children because of the higher barriers to work associated with the presence of young children.

Table 11 compares the representation of household types in the poor population with their representation in the general population - the “poverty risk”. On this basis, single parents are represented three times as often in the poor population as in the working-age population as a whole—with the corresponding risk in Australia being close to four to one; jobless households are over-represented by a factor of more than fi ve to one, and jobless lone parents by nearly seven to one .

Therefore, in most OECD countries joblessness is strongly associated with a much higher risk of child poverty. Having said this, employment per se is not the complete solution to child poverty. Working lone parents have poverty rates exceeding 20% in 16 OECD countries, and poverty rates among single-income couples are over 20% in ten countries, and are even substantial for two-earner families in Japan, Mexico and Turkey (Table 10).


Table 11: Poverty risks among households with children, around 2005

Lone parents

All jobless households with children

Non-working lone parents

% of households

with children

% of poor households

with children

Poverty Risk % of households

with children


with children

Poverty Risk % of households

with children


with children

Poverty Risk

Australia 11.4 43.0 3.8 11.9 69.9 5.9 5.9 39.7 6.7

Austria 6.2 23.9 3.8 4.3 32.9 7.6 1.6 15.1 9.3

Belgium 9.4 26.4 2.8 12.0 51.9 4.3 4.3 20.6 4.8

Canada 9.4 33.4 3.5 3.9 26.0 6.7 2.1 14.7 7.0

Czech Republic 8.4 34.7 4.1 7.7 53.7 7.0 3.0 27.5 9.2

Denmark 4.9 14.7 3.0 4.6 42.3 9.3 0.9 7.8 8.8

Finland 9.4 34.3 3.6 3.9 35.5 9.1 1.9 23.2 12.2

France 7.8 21.9 2.8 4.4 30.4 6.9 1.7 11.5 6.6

Germany 13.9 43.9 3.2 16.3 63.2 3.9 7.1 30.2 4.3

Greece 2.6 5.7 2.2 1.4 5.8 4.2 0.4 2.5 6.9

Hungary 4.5 14.8 3.3 14.7 45.8 3.1 1.4 8.2 5.8

Iceland 9.5 23.4 2.5 1.7 6.6 3.9 1.3 4.2 3.2

Ireland 10.3 34.9 3.4 11.4 52.1 4.6 4.7 25.2 5.4

Italy 2.9 5.2 1.8 3.3 18.5 5.6 0.3 2.2 7.0

Japan 4.1 19.4 4.7 1.5 6.6 4.4 0.8 3.7 4.8

Korea 5.8 16.8 2.9 3.5 18.9 5.3 1.6 5.1 3.2

Luxembourg 4.3 16.1 3.7 2.3 7.1 3.2 0.4 2.6 6.3

Mexico 5.9 9.8 1.7 3.2 6.9 2.1 1.5 2.4 1.5

Netherlands 9.1 38.5 4.2 5.8 39.6 6.8 3.1 20.9 6.7

New Zealand 10.5 32.7 3.1 9.6 36.4 3.8 5.3 20.4 3.8

Norway 13.7 49.5 3.6 7.5 61.7 8.2 4.4 37.4 8.5

Poland 3.0 6.7 2.3 8.3 23.5 2.8 1.1 4.2 3.9

Portugal 3.5 8.4 2.4 3.0 12.4 4.1 0.4 2.6 6.4

Slovak Republic 3.3 10.9 3.4 6.4 42.3 6.6 0.7 4.9 6.6

Spain 2.8 7.8 2.8 3.5 17.1 4.9 0.5 2.7 5.3

Sweden 16.1 35.2 2.2 3.6 24.1 6.8 2.2 11.2 5.0

Switzerland 6.2 13.6 2.2 2.8 .. .. 0.9 .. ..

Turkey 1.7 3.3 1.9 7.5 11.2 1.5 1.1 2.4 2.1

United Kingdom 15.7 41.9 2.7 14.9 63.0 4.2 8.2 36.2 4.4

United States 11.8 32.0 2.7 4.5 22.4 5.0 2.4 12.6 5.2

OECD 7.6 23.4 3.0 6.3 30.9 5.1 2.4 13.4 5.7

Notes: The poverty risk is the ratio of each group among poor households with children relative to their share among all households with children. ..: Data not available

Source: Calculated from OECD Income Distribution Study.


In fact, Table 12 shows that on average only around one-third of poor families with children are jobless in OECD countries, but this share ranges from under 10 per cent in Greece, Iceland, Japan, Luxembourg and Mexico to more than 50 per cent in Australia, Belgium, France, Germany, Ireland, Norway and the United Kingdom. Indeed, Australia stands out as the OECD country where joblessness is the most important source of child poverty, with 70% of all poor children living in jobless households.

Table 12: Composition of child poverty by household composition and employment status, 2005

% of poor in household type

One adult with children

All jobless households

One adult, working,

with children

Two adults with

children, one earner

All households

with one earner

Two earners

with children

Australia 43.0 69.9 3.3 21.6 24.9 5.2

Austria 23.9 32.9 8.8 28.8 37.6 29.5

Belgium 26.4 51.9 5.8 24.9 30.7 17.4

Canada 33.4 26.0 18.7 29.8 48.5 25.6

Czech Republic 34.7 53.7 7.2 33.5 40.6 5.7

Denmark 14.7 42.3 6.9 36.6 43.5 14.2

Finland 34.3 35.5 11.1 30.6 41.8 22.8

France 21.9 30.4 10.4 41.5 51.9 17.7

Germany 43.9 63.2 13.7 19.5 33.2 3.6

Greece 5.7 5.8 3.3 71.7 75.0 19.2

Hungary 14.8 45.8 6.6 22.7 29.3 24.9

Iceland 23.4 6.6 19.3 26.8 46.1 47.3

Ireland 34.9 52.1 9.7 30.7 40.4 7.4

Italy 5.2 18.5 3.0 74.0 76.9 4.5

Japan 19.4 6.6 15.6 34.4 50.0 43.4

Korea 16.8 18.9 11.8 46.6 58.4 22.8

Luxembourg 16.1 7.1 13.5 51.7 65.2 27.6

Mexico 9.8 6.9 7.5 56.7 64.1 29.0

Netherlands 38.5 39.6 17.6 25.5 43.1 17.3

New Zealand 32.7 36.4 12.3 37.3 49.5 14.1

Norway 49.5 61.7 12.2 20.9 33.1 5.2

Poland 6.7 23.5 2.5 59.1 61.6 14.9

Portugal 8.4 12.4 5.8 57.8 63.6 24.0

Slovak Republic 10.9 42.3 6.0 38.8 44.8 12.8

Spain 7.8 17.1 5.1 57.9 62.9 20.0

Sweden 35.2 24.1 24.0 29.1 53.1 22.8

Switzerland 13.6 .. .. .. .. ..

Turkey 3.3 11.2 1.0 49.3 50.3 38.5

United Kingdom 41.9 63.0 5.7 25.2 30.9 6.1

United States 32.0 22.4 19.4 36.3 55.7 21.9

OECD average 23.4 32.0 9.9 38.6 48.5 19.5

Source: OECD Income Distribution Study.


Close to half of all poor families with children in OECD countries live in one-earner families (including households with one adult working), but this share ranges from 20 per cent in Australia to more than 70 per cent in Greece, Italy and Luxembourg. Less than 20 per cent of poor families with children have both parents employed, on average; poverty among two-earner households accounts for less than 10% of all child poverty in Australia, Germany, Ireland, Norway and the United Kingdom, but accounts for nearly half of all child poverty in Iceland and Japan, and is signifi cant in Turkey.

Using this defi nition, across OECD countries, on average, only around 30% of poor families with children are jobless and most child poverty is found in families where at least one parent is in paid employment. In Australia, however, around 70% of poor children live in jobless families, making the joblessness of parents the main cause of relative low income in childhood. Moreover, for lone parents in paid work, Australia has the second lowest poverty rate in the OECD, and for couples with either one or both parents in paid employment, poverty rates are also among the lowest in the OECD.

34 10 | Family joblessness and disadvantage

Family joblessness and disadvantageAs noted earlier, family joblessness is strongly associated not only with low income but also with a wide range of other disadvantages, including poor health, disability and low educational attainment. The nature of these associations is complex, with causality potentially running in both directions—joblessness causing disadvantage, and disadvantage causing joblessness. There is also the possibility that other unobserved factors are causing both joblessness and associated disadvantages—the so-called selection effect.12

10.1. Types of disadvantageThere is now quite a wide range of evidence both in Australia and internationally about the disadvantages facing jobless families with children. According to the 2002 General Social Survey jobless households with children report much higher levels of fi nancial stress than those with an employed household member. In these jobless households, 58% reported that the household could not raise $2,000 in a week for something important, 57% reported having at least one cash fl ow problem in the last 12 months, and 37% took at least one dissaving action in the previous 12 months. This situation compared to the much lower 14%, 24% and 24% respectively for households with children under 15 years but with at least one employed adult in the household. Moreover, within those households with an employed adult, the proportion of lone parent families reporting these selected fi nancial stress indicators was much higher than for couple families.

Jobless households with children were more likely (57%) to have no consumer debt than similar households with employed adults (37%), but they were less likely to have access to a motor vehicle to drive (70% compared with 94%), and more likely to have diffi culty with transport sometimes at least (32% compared with 11%).

The respondents in jobless one family couple households with children were about as likely as respondents in similar households with an employed adult to have been a victim of physical or threatened violence (8%) and of a break-in (12-13%) in the last 12 months. In lone parent households the rates of victimisation of violence were not only much higher than for couple households, but the jobless lone parent household victimisation rates were higher than for lone parent households with an employed adult (30% compared to 20%).

There is a marked difference in the reported health of adults in jobless households and those in households with an employed adult, with only minor differences (in most cases) between those in lone person households and those in couple only households. Of those in jobless households, 24% reported fair or poor health, compared with 7% of those in households with an employed person. Similarly, 47% of adults in jobless households reported at least one disability or long term health condition, compared with 27% in households with an employed person.

12 For example, it is observed in many countries that children with divorced or separated parents tend to perform less well at school than children living with both their parents; leading to the argument that liberalisation of divorce laws has had negative effects on children. This might, however, just refl ect a selection effect: parents who decide to separate are often parents who fi ght with each other, etc., and it is unclear whether children growing up in a high-confl ict, two-parent families are better off than children with separated parents. Piketty (2003) uses a longitudinal survey in France to suggest that the selection hypothesis is indeed relevant. He looks at the school performance of children a couple of years before their parents separated, and shows that they were doing as badly as children already living with only one of their parents, suggesting that it is parental confl icts (rather than separation per se) that is bad for children.

10


Tables 13 and 14 present more up-to-date results from the 2006 General Social Survey for lone parent families. Table 13 shows that most lone parents do not have poor health status or a disability or long-term health condition—although it is fair to say that a signifi cant minority do, with around 12% having a moderate to profound disability or health condition. Health and disability status also appear to be worse for those with older children, perhaps refl ecting the effects of the age of parents.

Table 13: Health and disability status of lone parents, Australia, 2006

Age of youngest child in household

0-4 years 5-9 years 10-14 years 15-19 years 20-24 years Total

Health status poor 2.4 4.7 4.2 5.9 4.0 4.0

Fair health status 13.0 9.1 10.9 12.8 35.8 12.4

Profound or severe disability or long-term health condition

1.8 3.6 8.2 7.2 .. 4.6

Moderate disability or health condition

6.8 6.4 8.1 4.8 28.5 7.7

No disability or long-term health condition or no specifi c restriction

81.7 77.1 73.0 76.2 61.4 76.9

Source: Australian Bureau of Statistics, General Social Survey, 2006 (ABS, Cat. No. 4159.0).

Table 14: Health and disability status of lone parents by labour force status, Australia, 2006

Percentage by employment status

Health status Employed Unemployed Not in Labour force

Excellent 61.4 11.8 26.8

Very good 63.9 5.9 30.2

Good 52.1 9.1 38.9

Fair 31.8 9.4 58.7

Poor 27.4 .. 72.6

Total 54.3 8.3 37.4

Disability or long-term health condition

Profound core activity restriction 19.3 3.9 76.9

Severe restriction 43.2 9.4 47.4

Moderate restriction 46.4 6.4 47.3

Mild restriction 47.2 1.9 51.0

Schooling employment restriction only 36.3 16.4 47.3

No specifi c restriction 51.8 9.9 38.3

No disability or long-term health condition 60.7 6.8 32.5

Source: Australian Bureau of Statistics, General Social Survey, 2006 (ABS, Cat. No. 4159.0).


Table 14 shows the labour force status of lone parents according to their self-assessed health status as well as the presence of a disability or long-term health condition. More than 60% of lone parents with excellent or very good health status are employed, compared to only around 30% of those with fair or poor health status. For all groups, joblessness is more associated with non-participation in the labour force than with unemployment, but unemployment tends to be more signifi cant for those with excellent health. The relationship between labour force status and disability is somewhat starker. Again around 60% of lone parents with no disability or long-term health condition are employed, but only 19% of those with a profound core activity restriction are employed and more than three-quarters are outside the labour force.

Further analysis shows that while those in poor health are around 4% of the lone parent population, they account for around 8% of those not in the labour force. Including those with fair health raises their population share to around 16%, but their share of those not in the labour force to around 27%. Those with a profound or severe activity restriction are around 4.5% of the lone parent population, but 7.2% of those not in the labour force. Health and disability status does not appear to be related to duration of unemployment, but this is mainly due to the fact that very few lone parents with a disability are actively looking for work, but have instead dropped out of the labour force entirely.

Some further Australian evidence on joblessness and health is provided by Headey and Verick (2006), using the fi rst three waves of the HILDA survey (2001 to 2003). They conclude that joblessness appears to have large negative consequences for health, mental health and life satisfaction. Compared with people in households who were not jobless, individuals in jobless households averaged 13.2 percentiles lower on health, 9.4 percentiles lower on mental health and 3.1 lower on life satisfaction.13 However, a further study by Scutella and Wooden (2008) using the 2001 to 2005 waves of HILDA found that while the unemployed report signifi cantly lower levels of mental health than people in paid employment, there was no additional effect for the unemployed if they lived in a completely jobless household.

In summary, this discussion suggests that people with a disability are more likely to be jobless and jobless people are more likely to have a disability, but disability does not appear to be a major cause of joblessness among families with children in Australia. For example, Table 14 showed that levels of joblessness are quite high—close to 40% - among those in excellent health or with no disability or long-term health condition. It should also be borne in mind that lone parents with poor health status or with a profound or severe disability or long-term health condition account for less than 5% of all lone parents. Put another way, lone parents with good to excellent health account for 72% of those not in the labour force and 84% of those who are unemployed.14 Thus, while disability or poor health is likely to be a signifi cant additional barrier for some jobless households with children, this will tend to affect a relatively small group among jobless families.

13 In addition, Headey and Verick (2006) fi nd that married or partnered people in jobless households are at 1.7 times the risk of marital break-up than others.

14 This appears to be in some contrast to the United Kingdom, where according to Harker (2006), one in three children in poverty have a parent with a self-reported disability or long-standing health condition.


10.2 Intergenerational transmission of welfare receiptOne of the major concerns with joblessness among families with children is the potential negative effects that joblessness has on children themselves when they become adults. While there is a vast international literature on the intergenerational transmission of advantage and disadvantage (see D’Addio (2007) for a detailed review, on which this summary draws), there appears to be relatively few studies that concentrate on the effects of joblessness in childhood. This may be because the rise in family joblessness in many countries did not start until the 1970s and 1980s thus reducing the opportunities to look at intergenerational joblessness until quite recently.15

One study in Great Britain by Ermisch et al. (2004) estimates the relationship between several outcomes in early adulthood (education, inactivity, early birth, distress and smoking) and experiences of life in a single-parent family and with jobless parent(s) during childhood, using a sample of young adults selected from the fi rst nine waves of the British Household Panel Survey (1991–1999). They found that experiences of life in a single-parent family and with jobless parents during childhood are usually associated with disadvantageous outcomes for young adults; the effect of family structure is in general signifi cantly greater (in absolute value) than the effect of parental worklessness, and most of the unfavourable outcomes are linked to an early family disruption, when the child was aged 0–5 years, whereas the timing of parental joblessness during childhood has more complex effects.

Some further light can be thrown on this topic by looking at the literature on intergenerational welfare receipt, remembering that welfare receipt is strongly associated with joblessness. The research on the intergenerational transmission of welfare receipt is sparse—compared to the number of studies of earnings mobility across generations, for example. The extent to which welfare receipt refl ects or interacts with unobserved variables, as well as with the composition of the population and the institutional structure of social policies is largely unknown. Nevertheless, this research tends to suggest that (i) recipiency of welfare income persists across generations; and (ii) that part of the differences between the intergenerational impact of these programmes across countries might depend on the ways programmes are designed.

The inheritance of welfare participation may refl ect various mechanisms, some causal and some non-causal. First, parental welfare participation may reduce the stigma associated with the status of being a welfare recipient or increase the incentive to imitate their parents. Second, parental participation in welfare may reduce the participation cost of their children (for example, parents who are informed about the procedures and the characteristics of the programmes are more likely to pass the information on their children). Third, parents who depend on welfare are likely to have fewer interactions with the labour market and thus fewer job contacts, which, in turn, make the job-search process of their children more diffi cult. These causal links may result from the interactions of various factors (e.g. the lack of resources in the household, poor educational attainment, etc.). Other mechanisms that underpin the intergenerational transmission of welfare dependency are related to observable and unobservable characteristics that make parents and children more vulnerable to the risk of welfare participation; for example, the correlation of attitudes and values is likely to play a role in explaining their socio-economic choices.

15 There was of course very high family joblessness during the Depression of the 1930s, but this was followed by a period of close to full employment for men until the 1970s.


In the United States, most studies have focused on welfare transmission between mothers and daughters—either in the AFDC, Aid to Families with Dependent Children or in the subsequent TANF, Temporary Assistance for Needy Families programmes. These studies generally conclude that daughters of welfare recipients are more likely to receive welfare than daughters of non-recipients. Page (2004) reports an intergenerational correlation coeffi cient in welfare participation of 0.32 (implying that women who experienced a spell of welfare receipt during childhood are almost three times as likely to become welfare participants when they are adults, compared with women that did not receive welfare, much higher than that reported by the majority of previous studies.

In Canada, Corak et al. (2004) report a ten percentage point difference in the use of unemployment insurance (UI) between those whose fathers had received UI and those whose fathers did not. One third of this difference is explained by differences in observable characteristics; another third by unobserved heterogeneity; and the remaining third by social learning related to family background. Both the incidence of a fi rst unemployment-insurance claim and the chances of experiencing repeated spells of UI are signifi cantly infl uenced by family background. Coelli et al. (2004) examine the impact of graduation from high school on the probability that individuals, whose parents received Income Assistance use welfare themselves in British Columbia. They conclude that graduation would reduce that probability that dropouts depend on welfare by 1/2 to 3/4. Larger effects are documented for individuals from “troubled family backgrounds and low income neighbourhoods”. Beaulieu et al. (2005), who study the intergenerational correlation of participation in Quebec’s social assistance programme, fi nd that periods spent on social assistance during the early stages of childhood and late adolescence signifi cantly increase the probability of depending on public transfers when children reach adulthood.

In New Zealand, Maloney et al. (2003) investigate intergenerational correlation of social welfare from the Unemployment Benefi t (UB) and the Domestic Purposes Benefi t (DPB). Their estimate of intergenerational correlation is over 0.37 for the whole sample, and is higher for female recipients, for Maori and for individuals without educational qualifi cations. The proportion of years spent in a single-parent household and the educational attainment of both parents explain nearly two-thirds of the effect; the remaining one-third refl ects the lower educational attainment of children reared in families receiving social welfare benefi ts. Seth-Purdie (2000) reports that young individuals raised in welfare-dependent households are more than twice as likely to receive income from these same programmes by the time they reach age 21 as youth raised in families that never receive welfare benefi ts.

In Australia, Pech and McCoull (2000) fi nd that most young people whose parents relied heavily upon income support were more likely than other young people to rely on it. They also argue that the probability of relying on income support increases with the level of parental receipt of income support. However, the authors also highlight that young people (with parents dependent on income support) relied upon income support only for short periods of time (see also Pech and McCoull, 1998).


Overall, from the evidence surveyed, it appears also that the ways social policies are structured and delivered might matter in intergenerational terms. For example, the structure of eligibility rules and the emphasis on active versus passive payments may lead to different intergenerational patterns in the transmission of welfare-dependent status across generations—i.e. passive programmes are likely to lead to higher transmission across generations than active programmes. Thus, the strong intergenerational correlation of welfare observed in the United States might be related to the design of the programme (as it was before 1996) and how it was targeted.

In this context, it is important to note that while Australia operates what overall is the most targeted system of income support among OECD countries (Whiteford, 2006) benefi ts are actually less targeted than are social assistance benefi ts for low income families in other countries. Thus, in many European countries income-tested programmes are received by less than 5% of working age population whereas in Australia the fi gure is closer to 15%. However, in other countries a higher proportion of the population is receiving social insurance benefi ts, which do not exist in Australia. This is important because it potentially means that the characteristics of welfare recipients differ across counties. Recipients of income-tested benefi ts are likely to be more disadvantaged in countries where benefi ts are highly stigmatized and where it is a smaller minority of the population who receive these benefi ts. In a sense, social assistance recipients in other countries will tend to be more like long-term welfare recipients in Australia.

40 11 | Tax and benefit policies and their effects on poverty and employment

Tax and benefit policies and their effects on poverty and employment How effective are government social policies in reducing child poverty? Answering this question is complex, because there are varying measures of the relevant social programmes and measurement of their impacts involves diffi cult conceptual challenges. Many government policies impact on the well-being of families with children, either positively or negatively, and it is possible to defi ne family support either broadly or narrowly (Corak et al., 2005). Using a broad defi nition, tax and benefi t systems can redistribute income towards families either by providing a minimum level of income for those without paid employment (social assistance, unemployment benefi ts, disability payments), or by supplementing the incomes of employed and non-employed families with children. Other public policies also affect the disposable incomes of the employed, notably the minimum wage. Non-cash benefi ts and policies in the areas of education, health, housing and child care, for example, can also have a signifi cant impact on child well-being and child poverty. In addition, poverty lines are usually set by reference to cash disposable incomes; taking account of non-cash benefi ts implies not only adding the value of non-cash benefi ts received to the incomes of recipients, but also their value needs to be taken into account in setting the poverty line. In contrast, a narrow defi nition of family policy will usually only focus on those programmes specifi cally identifi ed as being for families; these usually only include those programmes that supplement the incomes of families with children, such as cash benefi ts that are not means-tested or through income-related supplements, or alternatively through taxation expenditures.

11.1 Overview of scope and nature of tax/benefit systems and support for families

Across the OECD, there is wide variety in the scope of public social protection systems.In 2003, public social spending was about 21% of GDP on average across the OECD and it exceeded 25% of GDP in Austria, Belgium, Denmark, Germany, France, Norway, and was highest in Sweden at over 30% of GDP (Table 15). However, governments in these countries levy signifi cant income taxes on cash transfers and indirect tax on the consumption out of benefi t income, so that net (after-tax) public social spending is at least 3 percentage points lower in these countries (except for Germany where benefi t income is often not taxable).

Tax/benefi t systems across the OECD all provide support for families with children. In most OECD countries, the combination of tax reductions and cash benefi ts reduces the direct tax burden on couple families with 2 children at average earnings by between 10 and 20 %, although there are notable outliers such as Japan (5%) and Luxembourg at 25% (OECD, 2004). Available historical information on the tax/benefi t position of employees in the OECD (OECD: 1984; 1997; and, 2004) suggests broad stability in the ratio of cash benefi ts and tax assistance provided to couple families with earnings of an average production worker, in Australia, Austria, Belgium, France, Italy, Japan, Luxembourg, Spain, Sweden and Switzerland, for example. Since 1997, however, cash and tax support for families with average earnings has increased markedly in the UK and the US.

11


Table 15: Public social spending exceeds a quarter of GDP in Belgium, Denmark, France, Germany, Norway, and Sweden

Tax Burden in 2005 Public social expenditure, 2003

Tax-to-GDP ratio

Tax Wedgeper cent of general

government spending

per cent of GDP

gross net

Australia 31.2 28.3 50.9 17.9 17.2

Austria 41.9 47.4 51.2 26.1 20.6

Belgium 45.4 55.4 51.8 26.5 22.9

Canada 33.5 31.6 42.3 17.3 17.2

Czech Republic 38.5 43.8 39.5 21.1 19.5

Denmark 49.7 41.4 49.9 27.6 20.3

Finland 44.5 44.6 44.1 22.5 17.7

France 44.3 50.1 53.5 28.7 25.5

Germany 34.7 51.8 56.3 27.3 26.2

Greece 35.0 38.8 43.1 21.3 -

Hungary 37.1 50.5 45.6 22.7 -

Iceland 42.4 29.0 39.2 18.7 16.6

Ireland 30.5 25.7 47.7 15.9 14.0

Italy 41.0 45.4 50.1 24.2 20.6

Japan 26.4 27.7 46.9 17.7 17.6

Korea 25.6 17.3 18.4 5.7 5.9

Luxemburg 37.6 35.3 49.3 22.2 -

Mexico 19.8 18.2 - 6.8 7.6

Netherlands 37.5 38.6 43.9 20.7 17.9

New Zealand 36.6 20.5 50.2 18.0 15.1

Norway 45.0 37.3 51.8 25.1 20.2

Poland 34.4 43.6 50.0 22.9 -

Portugal 34.5 36.2 48.6 23.5 20.8

Slovak Republic 29.4 38.3 43.6 17.3 16.1

Spain 35.8 39.0 53.0 20.3 17.6

Sweden 51.1 47.9 53.8 31.3 24.3

Switzerland 30.0 29.5 55.9 20.5 -

Turkey 32.3 42.7 - - -

United Kingdom 37.2 33.5 48.4 20.6 18.9

United States 26.8 29.1 43.6 16.2 17.3

Tax-to-GPD data are for 2004 for Australia, Greece, Japan, the Netherlands, Poland and Portugal.

Tax wedge between total labour costs to the employer and the corresponding net take-home pay to single workers without children at average earnings. Labour costs are defi ned as gross wages paid to employees plus employer social security contributions and payroll.

Sources: OECD (2006), Revenue Statistics, 1965–2005, OECD (2006), Taxing Wages, 2004–2005, OECD (2007) Social Expenditure database.


Traditionally, one of the biggest sources of support for families with children is the provision of compulsory schooling, and public spending on primary and secondary education in the majority of OECD countries ranges from 3 to 4 % of GDP (OECD, 2007b). However, spending on family benefi ts is catching up. On average across the OECD, public spending on family benefi ts increased from 1.6% of GDP in 1980 to 2.3% in 2005, and gross (before-tax) public spending on family benefi ts and services amounted to more than 3% of GDP in Austria, Denmark, France, Luxembourg, Norway and Sweden (Figure 4).

Financial support delivered through the tax system is an important component of family assistance in many OECD countries and Figure 4, for which trend data are not available, shows that in 2005 tax breaks were particularly important in Germany, France and the United States, at 0.9%, 0.8%, and 0.7% of GDP, respectively, but were relatively minor in Australia.

In the vast majority of OECD countries, cash transfers (either income-related or universal child allowances, leave payments) constitute the dominant component of gross public spending (around 70%). In fact, as shown in Figure 4, spending on cash transfers for families in Australia is the third highest in the OECD; however, this is because Parenting Payments are counted as cash benefi ts for families, whereas in most other countries similar forms of support are paid as social assistance, and classifi ed under different expenditure headings. Even so, when Parenting Payments are subtracted from cash benefi ts – along with similar support for low income families in Ireland, New Zealand and the United Kingdom – Australia is still within the top fi ve OECD countries for spending in cash.

Spending on family services, including public support for childcare and early years’ education services, is highest (exceeding 1% of GDP) in Denmark, Finland, France, Iceland, Norway, Spain and Sweden. Except for France, these countries also spent about 0.6 to 0.8% of GDP on income support during maternity, paternity, parental and home-care leave periods (OECD, 2007a). Spending on child care services in Australia is well below these Nordic countries, as is spending on maternity, paternity and parental leave.

Figure 4: Public spending on family benefi ts in cash, services and tax breaks

Percentage of GDP, in 2003

Belgium

Franc

eJa

pan

Korea

Austrli

a

Finlan

d

Mexico

Icelan

d

Irelan

d

Canad

a

United

States

Sweden

Czech R

epub

lic

Denmark

German

y

Netherl

ands

New Ze

aland

Norwary

Austra

lia

United

Kingdo

mSpa

in

Cash Services Tax breaks Average total (2.4%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


Note: The defi nition of public support used here only concerns public support that is exclusively for families (e.g. child payments and allowances, parental leave benefi ts and childcare support). Spending recorded in other social policy areas as health and housing support also assists families, but not exclusively, and is not included here. Source: OECD (2008), Social Expenditure Database.

In order to limit public outlays and ensure it reaches those who need it most, tax/benefi t systems in many OECD countries target spending or tax assistance on low-income households. Table 16 provides estimates of the extent to which assistance for children in a two-parent household varies by the income level of parents, from no market income to earnings of 200% of the average wage. The calculation does not take account of any assistance provided to parents as adults in their own right, and it also assumes that households claim their full entitlements. It is clear that the Australian, Canadian, Japanese, New Zealand, Polish, and Korean tax/benefi t systems clearly involve a high degree of targeting of fi nancial support at low-income families with children; other countries such as the Czech Republic, Denmark, Iceland, Portugal, the United Kingdom and the United States are also relatively generous to low-income families, but, as they also provide higher assistance to high-income families, their overall assistance is less progressive. However, the effective redistributive power of tax/benefi t systems depends not only on the progressivity of income tax systems and the income-tested nature of benefi t programmes and their take-up, but also depends on the size of social spending for families.

Table 16: Financial support for families with children varies with income level

Final assistance to families as per cent of earnings of an average worker, 2004Earnings a per cent of the average wage

Country 0 25 50 75 100 125 150 175 200ratio AW=0/

AW=200

Australia 19.1 16.6 15.8 20.2 14.8 9.4 7.5 4.4 2.9 6.6

Austria 17.4 17.8 17.8 12.8 12.8 12.8 12.8 12.8 12.8 1.4

Belgium 10.9 7.7 10.0 10.1 10.1 10.1 10.1 10.1 10.1 1.1

Canada 17.0 22.7 21.4 16.4 8.7 5.8 4.7 3.7 2.6 6.5

Czech Republic 23.7 23.7 18.4 20.7 14.3 10.6 7.8 8.9 9.0 2.6

Denmark 21.6 21.6 21.6 14.0 11.1 8.6 7.5 7.5 7.5 2.9

Finland 17.9 17.9 17.9 12.3 8.1 8.1 8.1 8.1 8.1 2.2

France 12.9 14.0 14.0 6.0 5.1 6.3 7.5 8.6 9.1 1.4

Germany 9.2 9.2 9.2 9.7 9.4 9.6 9.5 9.5 9.7 0.9

Greece 1.9 1.9 1.9 1.9 2.4 3.5 5.1 5.1 5.1 0.4

Hungary 9.0 9.0 9.0 13.4 14.7 14.7 14.7 14.7 14.7 0.6

Iceland 17.1 17.1 17.1 15.4 13.9 12.3 10.6 8.8 7.1 2.4

Ireland 16.3 16.3 18.4 11.9 13.0 13.0 13.0 13.0 13.0 1.2

Italy 0.0 3.7 5.6 13.6 10.8 9.1 6.8 6.1 4.2 0.0

Japan 19.2 19.2 19.2 7.2 4.2 4.6 2.4 3.3 3.8 5.0

Korea 17.2 17.2 8.3 0.4 0.9 1.8 1.8 1.8 1.8 9.5

Luxemburg 18.0 19.9 19.7 19.6 14.4 16.8 17.5 17.5 17.5 1.0

Netherlands 4.9 4.9 7.3 6.5 5.0 5.0 5.0 5.0 4.7 1.0

New Zealand 11.2 11.1 10.7 7.9 0.0 0.0 0.0 0.0 0.0 -

Norway 14.5 14.5 8.1 6.4 6.4 6.4 6.4 6.4 6.4 2.3

Poland 25.8 23.3 9.1 9.3 6.6 3.5 0.0 0.0 0.0 -

Portugal 26.3 26.3 19.5 20.3 19.0 11.0 7.1 6.7 6.7 3.9

Slovak Republic 12.1 13.3 11.2 11.5 11.5 11.7 11.9 12.1 12.3 1.0


Final assistance to families as per cent of earnings of an average worker, 2004Earnings a per cent of the average wage

Country 0 25 50 75 100 125 150 175 200ratio AW=0/

AW=200

Spain 10.3 10.3 2.9 2.2 3.5 3.5 3.9 4.1 4.1 2.5

Sweden 12.4 12.4 12.4 8.0 7.4 7.4 7.4 7.4 7.4 1.7

Switzerland 11.7 11.7 11.7 8.0 9.8 5.4 5.6 6.1 6.4 1.8

United Kingdom 18.6 18.6 23.9 20.0 11.5 7.0 7.0 7.0 7.0 2.7

United States 29.7 24.6 24.7 16.5 11.2 10.6 10.6 10.6 10.6 2.8

Average 15.2 15.2 13.8 11.5 9.3 8.2 7.6 7.5 7.3 2.1

Note: Assistance for children is calculated as the difference between the net incomes of a single income couple without children and a single income couple with two children, at different levels of earnings, expressed as a percentage of the average production worker’s.

Source: Calculated from OECD tax-benefi t models.

A common approach to measuring the effectiveness of the tax and benefi t systems in reducing child poverty is to compare poverty rates in terms of market and disposable incomes—or “before” and “after” taxes and transfers, with the inference being that the difference between these measures can be seen as the “effectiveness” of the tax and benefi t systems in reducing poverty. This approach has a number of limitations, including the fact that not all taxes and transfers are necessarily being measured; in addition, this assumes that the distribution of market income has not been affected by the existence and incentive effects of the taxation and transfer systems.

Bearing in mind these signifi cant caveats, the results of such calculations (Table 17) suggest that public transfers and tax advantages towards families with children play a signifi cant role in reducing child poverty at a point in time. On average, across 26 OECD countries, public transfers and taxes lift out of relative poverty around 40% of all households with children whose market income is below the poverty threshold. The extent of this reduction ranges from around 70% or more in the Nordic countries, Belgium, the Czech Republic and France, around 60% in Australia to being negligible in Italy and Portugal, and the tax and benefi t systems apparently increase child poverty in Italy. If poverty reduction is measured in “absolute” terms (i.e. the percentage point reduction in poverty rates), then Australia is the second most effective country in the OECD after Ireland.

Table 16: Financial support for families with children varies with income level (continued)


Table 17: Effect of taxation and benefi t systems on child poverty, OECD countries, 2005

Poverty rates in percent before (market) and after (disposable) taxes and transfers and differences by household types

Single adult Two adultsAll households with childrenworking not

workingtwo

workingone

workingnon

working

Australia Market 34.6 99.1 4.2 29.9 93.5 23.9

Disposable 6.1 67.8 1.0 7.9 50.8 10.1

Difference 82.3% 31.6% 77.1% 73.6% 45.6% 57.8%

Austria Market 30.4 79.6 4.4 24.9 42.4 15.8

Disposable 12.5 44.4 2.6 10.2 35.3 7.8

Difference 58.4% 44.2% 39.9% 58.9% 16.7% 51.0%

Belgium Market 20.6 92.3 3.5 21.7 87.6 18.5

Disposable 10.7 48.8 2.3 12.9 46.8 10.4

Difference 48.1% 47.2% 33.1% 40.4% 46.5% 43.8%

Canada Market 47.1 97.7 9.3 38.8 91.9 20.4

Disposable 32.2 88.6 4.5 22.4 80.5 12.6

Difference 31.7% 9.2% 52.0% 42.2% 12.2% 38.0%

Czech Republic Market 22.9 98.1 2.8 26.1 99.1 17.5

Disposable 19.0 83.9 1.8 9.8 49.6 9.2

Difference 17.1% 14.5% 33.1% 62.2% 49.9% 47.2%

Denmark Market 26.1 96.4 2.5 37.5 100.0 13.0

Disposable 7.2 46.8 0.7 11.0 15.5 4.0

Difference 72.6% 51.5% 70.9% 70.6% 84.5% 69.2%

Finland Market 26.4 96.9 4.6 35.9 88.4 13.7

Disposable 5.6 46.3 1.1 8.9 23.4% 3.8

Difference 78.8% 52.2% 75.% 75.2% 73.5% 72.5%

France Market 31.8 95.6 7.4 38.6 96.6 ..

Disposable 9.6 61.7 1.6 6.3 37.9 ..

Difference 70.0% 35.4% 78.4% 83.6% 60.0% ..

Germany Market 33.6 93.3 2.9 11.1 84.2 22.6

Disposable 26.3 56.1 1.5 5.7 47.3 13.1

Difference 21.7% 39.9% 49.4% 48.5% 43.8% 41.7%

Greece Market 27.1 94.1 6.7 29.7 93.1 17.3

Disposable 17.6 83.6 4.0 22.1 39.2 12.1

Difference 35.0% 11.2% 39.4% 25.3% 57.9% 30.3%

Hungary Market 24.7 82.4 11.0 19.1 36.0 16.5

Disposable 16.4 44.1 3.4 6.5 21.7 6.8

Difference 33.3% 46.4% 68.6% 66.1% 39.8% 58.8%

Iceland Market 41.6 100.0 6.5 48.4 82.5 21.7

Disposable 17.1 22.9 4.1 28.8 51.0 9.1

Difference 58.9% 77.1% 36.1% 40.5% 38.1% 58.0%


Table 17: Effect of taxation and benefi t systems on child poverty, OECD countries, 2005 (cont’d)



workingtwo

workingone

workingnon

working

Ireland Market 66.8 100.0 6.3 36.3 99.7 28.6

Disposable 24.0 74.9 1.9 15.7 55.4 13.8

Difference 64.1% 25.2% 70.5% 56.9% 44.5% 51.4%

Italy Market 19.3 100.0 4.7 37.9 98.1 22.9

Disposable 20.5 100.0 5.6 40.0 77.9 23.6

Difference -6.2% 0.0% -19.2% -5.5% 20.6% -3.5%

Korea Market 30.3 34.0 4.2 11.6 70.8 10.6

Disposable 24.8 31.7 3.9 11.1 58.6 9.6

Difference 18.4% 6.8% 7.7% 4.0% 17.2% 8.6%

Luxembourg Market 50.8 100.0 10.4 28.3 96.4 20.4

Disposable 38.3 69.0 5.3 15.8 27.4 11.0

Difference 24.6% 30.9% 49.0% 44.4% 71.6% 45.9%

Mexico Market 34.2 42.9 12.0 27.6 66.4 20.7

Disposable 33.6 29.9 10.9 27.1 52.8 19.5

Difference 1.0% 30.4% 8.6% 1.8% 20.5% 5.7%

Netherlands Market 48.6 97.4 5.4 25.4 97.5 17.3

Disposable 27.1 61.6 2.3 11.9 64.5 9.3

Difference 44.1% 36.7% 56.6% 53.4% 33.9% 46.6%

New Zealand Market 60.8 99.4 4.9 33.8 92.7 23.0

Disposable 29.8 48.0 2.8 21.0 46.8 12.5

Difference 51.0% 51.7% 42.9% 37.9% 49.5% 45.5%

Norway Market 14.7 98.3 0.5 13.0 96.5 11.1

Disposable 4.8 31.2 0.3 3.9 28.8 3.7

Difference 67.4% 68.3% 40.0% 69.9% 70.2% 68.3%

Portugal Market 22.5 100.0 4.4 38.5 88.6 16.6

Disposable 27.8 100.0 5.7 35.4 50.3 15.5

Difference -23.4% 0.0% -31.5% 8.2% 43.2% 6.4%

Slovak Republic Market 17.5 100.0 3.3 30.4 100.0 15.6

Disposable 23.9 65.9 1.8 18.2 66.0 10.0

Difference -36.51% 34.1% 44.71% 40.0% 33.99% 36.1%

Spain Market 36.6 84.8 7.5 27.3 82.0 18.0

Disposable 32.2 78.0 5.1 23.2 70.6 14.7

Difference 12.0% 8.0% 32.0% 15.0% 13. 0% 18.6%

Sweden Market 27.5 98.0 3.6 38.2 98.6 19.7

Disposable 6.3 18.1 1.1 13.7 35.5 6.2

Difference 77.1% 81.5% 69.1% 64.3% 64.0% 68.5%


Table 17: Effect of taxation and benefi t systems on child poverty, OECD countries, 2005 (cont’d)



workingone

workingtwo

workingnon

working

United Kingdom Market 20.7 97.2 1.8 18.0 96.5 21.5

Disposable 6.7 39.1 1.0 9.0 35.8 8.9

Difference 67.5% 59.7% 41.8% 50.2% 63.0% 58.5%

United States Market 49.7 98.3 9.5 36.4 95.6 23.6

Disposable 36.2 91.5 6.2 27.0 82.2 17.6

Difference 27.2% 6.9% 35.1% 25.8% 14.0% 25.5%

OECD Market 31.5 84.0 5.3 27.0 79.9 16.9

Disposable 18.9 54.0 3.1 15.6 45.7 10.1

Difference 40.1% 35.7% 42.2% 42.3% 42.9% 40.5%

Source: Calculated from OECD Income Distribution Study.

Table 17 also shows that the effectiveness of tax and transfer systems in reducing child poverty varies across household types in different countries. In many countries child poverty is most strongly reduced in working households rather than in jobless households. This probably refl ects a limitation of using the headcount measure of poverty—because working families are closer to the poverty line they are more “easily” moved across the line by taxes and transfers. It can also be noted that, while the Nordic countries reduce overall child poverty to the highest degree, Australia and France are particularly effective in reducing poverty among working families.

11.2 Adequacy of benefits and other support for familiesAnother way of assessing the likely impact of the tax and transfer systems in reducing poverty is to compare the level of benefi t entitlements directly with median incomes, since the poverty line is set as a percentage of median income. Table 18 shows the net incomes of families receiving social assistance benefi ts before and after taking account of housing benefi ts, for lone parents with two children and couples with two children, expressed as a percentage of median disposable incomes in each country. Expressing benefi ts in this way facilitates comparisons with either the 50% of median income poverty line, or a 60% of median income line, a standard commonly used in European OECD countries.

In some countries benefi t packages are already above a 50% poverty line, while in others they are practically non-existent. Lone-parent social assistance recipients receiving their full basic benefi t entitlements will have incomes at or above the 50% poverty line in Australia, Denmark and Norway, and close to this in the Czech Republic, Japan and New Zealand. Benefi t entitlements are a long way below the 50% line in Portugal, Spain, the United States, Greece and Italy. The addition of housing benefi ts brings recipients closer to the poverty line or above it in a considerable number of countries, so long as they do not require considerable out-of-pocket spending on housing. In Australia, Denmark, and the United Kingdom, housing benefi ts bring families to 60% of median income or higher. Broadly similar results are found for couples with children.


Table 18: Net incomes of social assistance recipients 2005

Percentage of median household income

Lone parent Couples with children

No housing related benefi ts

With housing-related benefi ts

No housing related benefi ts

With housing-related benefi ts

Australia 53 60 56 62

Austria 39 50 41 50

Belgium 43 43 37 37

Canada 35 36 32 33

Czech Republic 45 45 49 49

Denmark 50 61 43 52

Finland 33 52 37 54

France 33 44 33 42

Germany 33 54 34 54

Greece 2 2 2 2

Hungary 32 33 37 38

Ireland 38 52 45 58

Italy 0 0 0 0

Japan 48 52 45 48

Luxembourg 38 41 43 45

Netherlands 39 48 37 44

New Zealand 48 55 30 36

Norway 52 52 51 51

Poland 45 50 23 40

Portugal 32 32 40 40

Spain 27 27 23 23

Sweden 27 49 32 51

Switzerland 27 45 27 42

Turkey 0 0 0 0

United Kingdom 41 70 43 68

United States 19 21 20 22

OECD 34 41 33 40

Note: Estimates of the value of housing benefi ts assume that the rent before such benefi ts is 20% of average earnings. Median disposable incomes are projected from 2000 to 2005 values using changes in the Consumer Price Index for each country.

Source: OECD 2007, Benefi ts and Wages, OECD Indicators.


There is an obvious puzzle here—if benefi ts for jobless families are higher than the poverty line in Australia (and a number of other countries), then why is there any child poverty in Australia and these countries– at least in this relative income sense? There appear to be a range of possible explanations. One is that not all families take up their benefi t entitlements. Non-take-up of benefi ts is a subject that has been widely noted in the United Kingdom and Europe, but less so in Australia. One study of Australia (Mood, 2006) estimates from HILDA data for 2002 that take-up of Parenting Payment Single was over 80% but of Parenting Payment Partnered take-up was only 50% to 60%. It should be noted, however, that this level of take-up is much higher than estimates for many European countries, where it may be as low as 25% to 30% for social assistance in some Nordic countries. There is also the possibility of understatement of incomes from welfare sources, and Mood (2006) points out that her estimates of take-up might be affected by this. Overall, it seems reasonable to conclude that estimates of poverty should be regarded with caution, and it is likely that in Australia and a range of other countries many poor families have incomes quite close to the poverty line. In contrast, in other countries such as Portugal, Spain and the United States, benefi t entitlements are signifi cantly below the poverty line.

50 12 | Does work pay?

Does work pay?It is clear that for employment to be an attractive alternative to welfare receipt and for it also to be effective in reducing poverty, then work must pay; that is, families who move into paid work should be better-off fi nancially. If moving into paid work actually lowers disposable incomes then poverty will increase and families are less likely to take up any work opportunities unless there is some element of compulsion. In most income-tested systems like Australia’s, benefi ts are reduced on account of earnings and families become liable for income taxes (and social security contributions in other countries), plus they have to meet the costs of working, and particularly important for families with children they need to fi nd and be able to afford child care. So guaranteeing that work pays is a fundamental element of any strategy to reduce joblessness.

Measuring whether work pays can be done in a number of ways. This section fi rst looks at the income position that families would be if they took up specifi ed employment levels, and then looks at the effective marginal tax rates that they might face in moving into paid work.

Table 19: Net incomes of full-time minimum-wage earners, 2005

Per cent of median household income

Lone parents, 2 children One-earner couples 2 children

Australia 88 75

Belgium 50 47

Canada 48 43

Czech Republic 53 53

France 52 45

Greece 42 36

Hungary 56 47

Ireland 77 60

Japan 58 53

Luxembourg 45 53

Netherlands 56 47

New Zealand 64 54

Poland 70 58

Portugal 39 45

Spain 31 27

Turkey 41 35

United Kingdom 93 82

United States 36 34

OECD 55 50

Notes: Includes housing benefi ts, assuming that rent before benefi ts is 20% of the average wage. Parents are assumed to work 40 hours per week at the minimum wage and receive all their benefi t entitlements.

Source: OECD 2007a, Benefi ts and Wages, OECD Indicators.

12


An obvious starting point is the level of the minimum wage. Table 19 shows that workingfull-time at the minimum wage—where it exists—and combined with relevant family benefi ts—should be suffi cient for lone parent families to escape poverty at the 60% level in Australia, Ireland, New Zealand and the United Kingdom and is also suffi cient for couples with childrenin Australia, Ireland and the United Kingdom. In contrast, families at the minimum wage are well below the 50% poverty line in Spain, Greece, Portugal, Turkey and the USA. If one chooses to use a 40% of median income poverty line, however, some of these countries would be closer to achieving this standard, although Spain and United States are still below this lower level.16 In fact, both lone parents and single earner couples working at the minimum wage in the United Kingdom and Australia would be better-off than in any other OECD countries.

Another way of looking at whether work pays is to estimate how much earnings families would require to be able to escape poverty, given the tax they have to pay and the in-work benefi ts they could receive. Table 20 shows the level of earnings required by families to achieve disposable incomes of 60% of median equivalent income, given the existing minimum wage and existing family assistance through the benefi t and tax system (e.g. including the EITC in the United States and similar measures elsewhere). The level of additional earnings required is expressed as a percentage of the Average Wage (AW). This calculation takes into account all interactions with the tax system, as well as the withdrawal of benefi ts.

For example, a lone parent with two children in Australia would need to earn only 5% of the AW level to reach the 60% of median income poverty line, while in Austria, a similar family would need to earn 45% of the AW level. The signifi cant differences across countries refl ect the nature of their benefi t systems, including the generosity of benefi t levels and the rate at which benefi ts are reduced as earnings rise, as well as the level of in-work benefi ts.

Bearing in mind the level of wages and the interactions of the taxation and benefi ts systems, lone-parent families could fairly easily escape poverty (at the 60% of median income level) through additional work in Australia and New Zealand, and Denmark, Poland and the United Kingdom, after taking account of housing benefi ts.17

In the majority other OECD countries lone-parent families would require a job that paid at least two-thirds of the average wage, and in the United States a lone parent would need to earn nearly the average wage level to escape poverty. The earnings required for couples with children to exit poverty are higher—because adjusted for household size, their needs are greater - but of course the presence of two adults means that their potential hours of work are considerably greater than for a lone-parent family. As with lone-parent families it appears that it would be relatively straightforward for couples to exit poverty in Australia and the United Kingdom. One conclusion that might be drawn from this is that some countries may need to consider introducing new policy instruments or extending existing programmes of in-work benefi ts if they wish to reduce child poverty signifi cantly.

However, the most striking point about these tables is how relatively well-off—simply compared to similar families in other countries—Australian jobless families would be if they were able to fi nd and take up work opportunities. It is clear that in the Australian case, work does pay.

16 Nordic countries without a statutory minimum wage are likely to have collective agreements that guarantee high effective wages for the low paid.

17 It is possible to justify a higher poverty line for employed families than for non-employed families because of the additional costs of working, particularly child care.


Table 20: In-work earnings required to reach the poverty line (60% of median disposable income)

Per cent of average wage (AW)

Lone parent Couple with kids

No housing benefi ts

With housing benefi ts

No housing benefi ts

With housing benefi ts

Australia 5 0 5 0

Austria 45 45 60 60

Belgium 58 58 67 67

Canada 61 60 94 93

Czech Republic 60 50 68 59

Denmark 66 2 95 79

Finland 46 24 79 74

France 40 29 45 43

Germany 54 31 57 33

Greece 56 56 65 65

Hungary 51 49 54 52

Ireland 26 26 52 52

Italy 59 59 67 67

Japan 63 63 72 72

Luxembourg 70 70 84 84

Netherlands 59 51 85 85

New Zealand 16 5 61 45

Norway 64 64 83 83

Poland 39 22 71 58

Portugal 68 68 59 59

Spain 75 75 87 87

Sweden 52 36 79 79

Switzerland 74 74 92 92

Turkey 38 38 44 44

United Kingdom 24 0 34 0

United States 98 98 116 116

OECD 53 44 68 63

Notes: Housing benefi ts assuming that rent before benefi ts is 20% of average wage.

Source: OECD 2007a, Benefi ts and Wages, OECD Indicators.


12.1 Effective marginal tax rates and average effective tax ratesAs noted, another way of looking at these issues is to estimate how much jobless families would retain of their earnings if they were working. A concern expressed in many OECD countries including Australia is with high effective marginal tax rates (EMTRs) facing low-paid workers as they make the transition from receipt of benefi ts into paid work, or as potential second earners entering or re-entering the paid labour market. In nearly all OECD countries, and also in Australia, effective tax rates on the low paid can be higher than on average earners or the high paid, primarily through the interaction of direct taxes with the withdrawal of benefi ts, including housing benefi ts.

Figure 5 shows the pattern of effective marginal tax rates for a lone parent with two children in Australia under the 2005 tax and benefi t system. It is apparent that effective marginal tax rates can exceed 80% when families are between 60 and 70% of average earnings, which is far higher than the top marginal income tax rate. However, it is also apparent that effective marginal tax rates can be signifi cantly lower than this for families at lower earnings level.

Figure 5: Effective marginal tax rate schedule, lone parent families with two children, 2005

0

0 10 20 30 40 50 60 70 80 90 00 10 20 30 40 50 60 70 80 90 00

100

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120,000

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In addition, the effective marginal tax rate for a family making marginal changes in hours or earnings between 60% and 70% of average earnings should not be a barrier for someone moving from joblessness to part-time or low-paid full-time work. Here the relevant concept is the average effective tax rate (AETRs), which is simply the average of all the EMTRS over a wider range of income—for example, one-third of the average wage.


Figure 6: Average effective tax rates for a lone parent with two children in moving from joblessness to 33% of the average wage

0

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Figure 6 shows calculations of AETRS for lone parents in moving from joblessness into part-time work at one-third of the average wage. This shows that effective tax rates for lone parents on moving into part-time work at around 40% are among the lowest in the OECD. Only Italy, Greece and the United States have lower AETRS for these families, for the reason that they provide much lower levels of benefi ts for jobless families (in the case of Italy, none), so that the withdrawal of this assistance does not noticeably impact on disposable income. AETRS exceed 80% in ten OECD countries and approach 100% in fi ve countries.

Figure 7 shows the corresponding calculation for a lone parent with two children in moving from joblessness to earning two-third of the average wage, likely to be a full-time but low-paid job. AETRS in Australia rise to over 50%, because effective tax rates are higher in Australia between one-third and two-thirds of the average wage than they are below one-third of average earnings. While Australia rises up the OECD rankings, it does so only slightly—although it can be noted that AETRS fall for some other countries.


Figure 7: Average effective tax rates for a lone parent with two children in moving from joblessness to 66% of the average wage

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Irelan

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12.2 Are child care costs a barrier to work?Apart from capacity and access constraints to child- and out-of-school hours care (OECD, 2002, 2003, 2004, and 2005), an important issue is the cost of childcare when parents are in paid employment (Immervoll and Barber, 2005). Net childcare costs are high in many countries. Even after deducting all relevant types of government support, typical out-of-pocket expenses for two pre-school children can add 20% and more to total family budgets. In some cases, typical net costs are found to consume more than a third of family resources. For most countries, results show that, before accounting for the costs of childcare, even low-wage employment brings signifi cant income gains for lone parents and potential second earners in two-parent families. Yet, in several countries, tax burdens and the withdrawal of social benefi ts reduce gains from work to such an extent that even very limited childcare expenses can leave families with less money to spend than if they were to stay at home.

In the case of Australia, public spending is less than 60% of the OECD average on child care and pre-school. However, enrolment rates for children under 3 years are the 10th highest in the OECD, but relatively lower for older children. Fees (before child care assistance) are roughly 40% higher than OECD average, but child care assistance reduces costs signifi cantly, particularly for low-income parents—in 2004, net fees for a high income couple were about 14% of net family income (2 % points above average), but for a low income lone parent they were 7% of net income (5% points below average), comparable to France, Austria and Denmark.


Figure 8 shows the impact of child care costs on average effective tax rates for a lone parent on moving into a low-paid full-time job. As noted, child care costs do reduce the returns to paid work in Australia, but the impact is relatively small, and even after adding in net child care costs, AETRs in Australia remain towards the lower end of the range of OECD countries. In contrast, they dramatically add to AETRs in Ireland, another country with high joblessness.

Figure 8: The impact of child care costs on work incentives, OECD countries, 2004

-20

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In summary, it should be made clear, therefore, that while high effective tax rates and high child care costs can be a barrier to jobless families taking up paid work, differences in effective tax rates cannot be used to explain variations in family joblessness across countries. Australia and other countries such as the United Kingdom and New Zealand with very high levels of family joblessness have relatively low effective tax rates on the transition into part-time work, while others such as Denmark, which has very high effective tax rates, have very low joblessness. What then can explain Australia’s (and some other countries) high level of family joblessness?

12.3 The policy stance towards lone parents on income supportThe general policy approach towards lone parents in social protection policy is critical in determining the extent of benefi t dependency among this group. At fi rst sight, it might appear paradoxical that in Austria, Iceland, Finland, Denmark and Sweden, - all countries where fi nancial incentives to work are not very strong (OECD, 2007) - lone parent employment rates are nevertheless relatively high. This is because in the policy approach towards lone parents is the same as for any other parent. Parents who are no longer entitled to parental leave (Denmark and Sweden) or home care or childrearing allowance (Austria, Finland) are work–tested for benefi t receipt (either unemployment insurance or social assistance). This policy stance towards lone parents is made possible by comprehensive childcare systems that provide formal care support when leave benefi ts expire (around 9 to 17 months in Iceland, Denmark and Sweden; around age 3 in Austria, Finland and Norway).


In addition, in Nordic countries these are supported by a comprehensive system of employment supports including job matching, training and other skill upgrading programmes that are made available to clients from an early stage of benefi t receipts. For example, in 2003, public spending on active labour market policies (not including those targeted at the disabled) in Denmark was 3.3% of GDP, compared to 0.7% of GDP in Australia. In Nordic countries, comprehensive employment and childcare support lets parents on income support focus on their labour market (re-) integration even when they are caring for a young child.

Countries with high levels of family joblessness all tend to have specifi c benefi ts targeted to lone parents, similar to Parenting Payment Single in Australia. Employment rates of sole parents in these countries are often low, and many sole parents are in receipt of income support.18 In Australia (prior to changes in 2006), Ireland, New Zealand and the United Kingdom, the entitlement to income support plays a key role in explaining low employment levels. In these countries benefi t durations are not limited and parents can receive benefi ts without a work test until their youngest child is a teenager (Table 21). The signal being given to sole parents on income support has been that dependency is expected. Little effort was made in the past to tell sole parents that work is desirable and benefi cial to the family as a whole.

Table 22 shows correlation coeffi cients for joblessness among families with children and various potential explanatory factors around 2005. In brief, overall joblessness has a fairly low level of correlation with household joblessness, but the correlation with joblessness among families with children is much lower—i.e. some countries with high family joblessness (the United Kingdom, Australia, New Zealand) have low overall joblessness among working age individuals while Southern Europe and Mexico and Turkey have low family joblessness and high individual joblessness (i.e. the jobless are living with employed relatives/multi-generation households).

Joblessness is more strongly correlated with the generosity of benefi t levels for lone parents, and including housing assistance increases the correlation. There is very low correlation between family joblessness and penalties for moving into part-time work—because the four English-speaking countries (Ireland, UK, Australia, NZ) have reasonably good incentives for these groups, while the Nordic countries apparently have poor incentives. Looking at the transition to low-paid full-time work, the correlation increases, but is still low, and including child care costs in the calculation of AETRs signifi cantly increases the correlation, but it is still relatively low.

18 Comprehensive information for recent years is not available, but around 2000 in Australia, New Zealand and Ireland more than two-thirds of sole lone parent families were receiving income support benefi ts and more than half had transfers as their main source of income. In the United Kingdom, just over half the sole parent population receive income support (and many others receive in-work benefi ts). Between 30 and 40% of sole parents receive income support benefi ts in Canada, Denmark, France, Hungary, the Netherlands, Norway and Sweden, and before the 1996 welfare reforms, in the United States. Even in countries where sole parents have relatively high employment rates, they constitute a signifi cant share of the population receiving social assistance, as for example, in Austria, Belgium, Japan, the Netherlands and Portugal (Bradshaw and Finch, 2002, Kapsalis and Tourigny, 2002 and Puide and Minas, 2001).


Table 21: Sole parents in Australia, Ireland, New Zealand and the UK can potentially remain on benefi t for long periods of time

Work tests for sole parents, selected countries, 2005/2006

No work test Work test

Independent of child age Dependent on child age (age limit in years)

Portugal

Spain

Belgium1 (Discretion)

Denmark (subject to childcare)

Finland

Japan (Discretion)

Sweden

Ireland (18 or 22 if child in full-time education)

New Zealand2 (18)

United Kingdom3 (16)

Australia4 (16/7)

Luxembourg (6)

Canada5 (0.5 - 6)

Netherlands6 (5)

Czech Republic (4)

Austria (about 3)

France (3)

Germany (3)

Norway (3)

Switzerland (3)

United States7 (0.25-1)

1. All social assistance benefi ciaries, including single mothers, are in principle required to be looking for work and to be ready to take up employment. However, in the case of sole parents with young children, this requirement is not enforced very strongly.

2. Clients are required to attend planning meetings and preparing a Personal Development and Employment Plan that covers goals for the future and steps to reach those goals.

3. Clients are required to attend a Work Focused Interview with a Personal Adviser on application for Income Support and at intervals during receipt of it.

4. Until 2006, parenting payment recipients with a youngest child aged less than 6 years had no participation requirement; those with a youngest child aged 6 to 12 years were required to attend an annual Personal Adviser interview; those with a youngest child aged 13-15 years had to undertake 150 hours of approved activities each 26 weeks. From 30 June 2006, single parents still receiving the parenting payment recipients when their youngest child turns seven must seek at least part-time work; sole parents with children aged 8 and more making a new benefi t application will instead qualify for unemployment benefi t (Newstart) with a similar work requirement. There are some exemptions for large families and parents with a child with a disability (“Changes to Parenting Payment from 1 July 2006”, www.centrelink.gov.au/internet/internet.nsf/services/welfare_parents.htm).

5. Participation requirements are as follows: Alberta from 6 months; British Columbia from 3 years; Saskatchewan 2 years; Manitoba 6 years; New Brunswick, Prince Edward Island, Nova Scotia and Yukon, no formal requirements; Ontario, school age; Quebec 5 years; Newfoundland and Labrador 2 years; Northwest Territories and Nunavut under 3 years, or under 6 years if 2 or more children.

6. Under national guidelines until 2004, municipalities did not require availability for work when the youngest child was aged less than 5. Since 2004, municipalities are free to determine work-availability requirements and some now require all lone parents to be available for work depending on individual circumstances.

7. Varies from State to State. Some States have no exemption. The maximum age exception is four years, but the majority of States have exceptions which are between 3 months and 12 months (though often this will be on a lifetime basis).

Source: Adapted from Bradshaw and Finch (2002).


The strongest correlation is with benefi t levels (% of median household disposable income) adjusted by the possible duration of benefi t receipt before a work test. This is only an approximate measure; it is calculated by estimating potential benefi ts multiplied by a rough estimate of the maximum amount of time a lone parent could spend on assistance before her child turned 18—for Ireland and New Zealand, this is 18 out of 18 years, and for the UK and Australia it is 16 out of 18 years (pre the 2006 reforms in Australia), while at the other extreme it is assumed to be 9 months in the USA, which is generous average of the differences between states. For the Nordic countries, the assumed duration of social assistance is 3 years with parental/maternal leave added in.

Table 22: Correlations between joblessness among households with children and related variables

VariablesCorrelation coeffi cients

Number of observations

Overall joblessness and household joblessness 0.199084 N=29

Overall joblessness and joblessness among households with children 0.067163 N=29

Joblessness among household with children and social assistance benefi ts for lone parents, disregarding housing benefi ts

0.317397 N=26

Joblessness among household with children and social assistance benefi ts for lone parents, including housing benefi ts

0.386433 N=26

Joblessness among household with children and AETRs to one-third of the average wage 0.045341 N=26

Joblessness among household with children and AETRs to two-thirds of the average wage 0.079893 N=26

Joblessness among household with children and AETRs to two-thirds of the average wage, including child care costs

0.139709 N=26

Joblessness among household with children and social assistance benefi ts for lone parents adjusted for duration

0.642269 N=23

Source: Personal calculations.

Thus, while this is not defi nitive, the high level of joblessness among families with children in countries like Australia and New Zealand, and the United Kingdom and Ireland appears to be associated with the nature of their benefi t systems - benefi t levels are towards the upper end of the range of OECD countries, and until recently benefi ts have been available without a work test until the youngest child is a teenager. These arrangements reinforce expectations that mothers should stay out of the labour force on a very long-term basis. In contrast, in countries with low levels of joblessness such as the Nordic countries, the public policy framework is based on encouraging and facilitating participation in paid work by mothers when their children are still quite young, and also providing the extensive support that is sometimes required to achieve this objective.

60 13 | How can joblessness be reduced?

How can joblessness be reduced?Before discussing broad policy alternatives it is useful to summarise some of the main points made in this paper:

After increasing for most of the 1980s and 1990s, family joblessness in Australia has been

falling since 1998, both as a consequence of increasing employment among parents and also due to a decline in the share of lone parent families. It seems likely, that these positive trends are mainly a consequence of sustained employment growth, perhaps reinforced by changes in policy in 2006 that require recipients of Parenting Payment to actively look for work when their youngest child is seven.

Lone mothers are less likely to be employed than partnered mothers when their youngest

child is below school age, and most of the difference is due to lower levels of part-time work.

The time dimension used to assess joblessness is important; longitudinal data show that

between 2001 and 2005, the share of children who experienced family joblessness fell from 18% to 14%, but more than 25% of all children experienced a period of joblessness, but 10% experienced joblessness for all fi ve years. That is, joblessness is a more common experience for children than when measured on a point in time basis, but the percentage of children experiencing long-term joblessness is lower.

While Australia has experienced a strong overall employment performance, the level of

joblessness among families with children is amongst the highest in the OECD. Despite the strong reduction in family joblessness in the last decade, employment rates for lone parents would have to increase by 15 percentage points to reach the OECD average, and 30 percentage points to reach the best-performing countries.

Family joblessness is strongly associated with child poverty. In Australia, jobless families are

about six times more likely to be in poverty than working families.

In most other countries, more poor children live in working families than in jobless families—

with only around one-third of poor children on average being in jobless families. In Australia, however, 70% of all poor children live in jobless households, the highest level in the OECD.

Joblessness is also associated with other problems, including fi nancial stress and poor

health. However, while poor health and disability are more prevalent among jobless families and are a signifi cant additional barrier for some households, most jobless lone parents have good to excellent health and do not experience severe disability.

The Australian system of support for families is highly effective in reducing child poverty,

particularly for working families with children.

The evidence suggest that “work does pay” in Australia; moreover, while lone parents do face

higher effective marginal tax rates than higher income families when they are in low-paid work (between 60 and 70% of the average wage), average effective tax rates on the movement between joblessness and part-time work are among the lowest in the OECD.

Child care costs in Australia are higher than in the countries with the lowest level of

joblessness, but the difference is not large, suggesting that child care costs are not a signifi cant contributor to Australia’s high level of family joblessness.

13


The paper therefore argues that the main policy factor contributing to high family joblessness

in Australia has been the policy stance towards requiring lone parents to actively look for work. In the countries with high levels of family joblessness—Australia, Ireland, New Zealand and the United Kingdom—until recently lone parents have been able to receive benefi ts without a work test until their youngest child has been 16 years of age or more. It is argued that these arrangements reinforced expectations that mothers should stay out of the labour force for extended periods of time.

In contrast, in countries with low levels of joblessness such as the Nordic countries, the public

policy framework is based on encouraging and facilitating participation in paid work by mothers when their children are still quite young, and also providing the extensive childcare and active labour market support that is sometimes required to achieve this objective.

Given these considerations, what are the possible policy directions that Australia should consider in order to further reduce family joblessness?

First, it can be noted that improved employment opportunities have already resulted in the most sustained reduction in family joblessness in the last 30 years, suggesting that maintaining employment growth is of key importance. Having said this, the current economic situation is one of considerable uncertainty and it is certainly possible that employment growth could slow in the near future, perhaps signifi cantly, or that unemployment could increase.

If this eventuates, one of the main lessons of social policy experience since the 1970s is that policies to encourage people to withdraw from the labour force as a means of reducing headline unemployment rates are counter-productive (OECD, 2005). Withdrawal from the labour force may have short-term impacts in reducing unemployment, but in the long-term it reinforces poverty and disadvantage and also undercuts the sustainability of effective social protection both by increasing social outlays and reducing tax revenues. Policy should encourage people to actively look for work and remain attached to the labour force. Therefore, the current policy approach of encouraging parents to participate in the labour force should be maintained, although it is possible that it could be modifi ed if labour market circumstances change signifi cantly (see below).

In looking at alternative policy approaches it is worth noting that some countries have low levels of joblessness but not for particularly attractive reasons. As discussed earlier, in a fairly wide range of OECD countries, family values are conservative and social support for joblessness is very limited and stigmatised. As a result, jobless individuals rely more on family support and there is considerable in-work poverty. The alternative approach is adopted in the Nordic countries, where high female labour force participation is the norm, so that family joblessness tends to be low, and child poverty is also low.

This suggests that Australia should consider establishing medium to long-term targets to increase the employment levels of lone parents (and reduce the prevalence of jobless couples with children) to the levels in the best-performing Nordic countries, particularly Denmark and Sweden. On average over the last 10 years the employment rates of lone parents have increased by 1.7 percentage points a year; if it was possible to sustain this rate, then it would be possible to attain the employment rate of lone parents in Denmark in about 12 years or around 2020. Having said this, the increase in the employment rate of lone parents since 2005 has been around 3 percentage points a year, so that if relatively favourable economic circumstances are maintained, an employment target could be reached in a shorter period of time, or by around 2015.

62 13 | How can joblessness be reduced?

However, it is also important to note that lone mothers are less likely to be employed than partnered mothers when their youngest child is below school age, and most of the difference is due to lower levels of part-time work. This suggests that consideration needs to be given to encouraging participation amongst mothers with children below school age, particularly part-time participation, if any long-term target is to be met. One option would be to reduce the age at which parents are required to actively look for work in order to continue to qualify for assistance. In order to assess whether this is feasible it would be desirable to have considerable public debate about the appropriate age of children where mothers should be encouraged or expected to work. However, as noted the reason why family joblessness and child poverty are low in most of the Nordic countries is precisely because parents are expected to be in paid work by the time that their youngest child is around three years of age—and because the child care support is available to encourage this.

In this context, research suggests that there is a danger that long periods of maternity, parental and/or home care leaves lead to detachment from the labour market, resulting in lower employment rates and this affecting career prospects and earnings for mothers in the longer term. Ruhm (1998), in an analysis of 16 OECD countries, concludes that short spells of maternity leave (three months) are associated with higher female employment rates but fi nds that longer periods of leave (over nine months) reduce future earnings capacity. In another cross-national study Jaumotte (2003) fi nds that considered from a narrow labour supply perspective the optimal full-time equivalent19 period of maternity leave is about fi ve months. Given this, previous policies of allowing low-income mothers to receive benefi ts until their youngest child was 16 years of age clearly operated to signifi cantly reduce the future earnings capacity of these mothers, but even allowing low income parents to stay out of the labour market until their youngest child is seven years of age is likely to have signifi cant adverse employment effects for some mothers.

Given the sensitivity of these issues, compulsion may not be an attractive option for families with children below school age, but it is fair to suggest that policy should consider how to further encourage part-time employment among parents with pre-school children on a voluntary basis. The pre-2006 policy of requiring parents with a youngest child aged 6 to 12 years to attend an annual interview with a Personal Adviser could be considered, or the requirement could be made for six-monthly interviews. A further alternative for families with pre-school children is to (re)introduce a Jobs, Education, Training (JET) type scheme, using a facilitative approach designed to encourage sole parents into the work force either directly or through education and training. The important issue here is to change expectations about participation in the paid labour market.

Consideration could also be given to changing aspects of the 2006 reforms in order to strengthen the anti-poverty effectiveness of this policy and to reward employment. The results in the earlier section of this paper showing that work pays for low income families and that average effective tax rates on the transition into part-time work are relatively low were based on the assumption that lone parents were receiving Parenting Payment Single (PPS). However, the 2006 reforms did not simply involve the requirement that lone parents should actively seek work but it also involved transferring them to the Newstart Allowance (NSA).

As discussed by Harding et al. (2005), levels of NSA are signifi cantly lower than PPS payment rates (and the gap is likely to increase over time due to differing indexation arrangements), the NSA income test is much less generous than the PPS income test, and the tax treatment of allowees is also much less generous that the income tax treatment of pensioners. Taken together, these mean that the losses in take-home income can range between $30 and $96 a week for

19 In other words, 10 months of leave paid at 50% of previous earnings are considered equivalent to 5 months leave paid at 100%.


sole parents with one child who are transferred to NSA, and the loss increases with the number of dependent children.

The other consequence of the more restrictive NSA income test and less generous income tax treatment is to create much higher effective marginal tax rates for lone parents than they face under the PPS income test. Sole parents placed on Newstart Allowance will face EMTRs of 65 per cent or more over a broad band of private income ranging from $31 to about $400 a week under the new system. For those who are in public housing, the maximum EMTRs faced can exceed 80 cents in the dollar. The overall effect of all these income test and tax changes is thus to reduce the attractiveness of paid work to lone parents—and thus to reduce the amount of income that they have available to support themselves and their children after they undertake paid work.

The decision to require parents to actively look for work earlier is a policy strongly supported by the analysis in this paper, but as Harding et al. (2005, p. 26) point out: “ While it is to be hoped that in the longer term many children will be living in sole parent families whose incomes are higher as a result of the expected increases in paid work, in the shorter term many children will be living in sole parent families whose incomes are much lower than under the current income support rules. These concerns could be overcome by allowing sole parents to remain on the existing PPS, rather than transferring them to NSA when their youngest child turns six. Thus, the government’s key goal of encouraging sole parents to work could still be achieved via some form of paid work obligation, but sole parents could remain on an income support payment regime that ensured that they and their children were fi nancially much better off after undertaking paid work.”

In seeking to encourage higher employment rates among low income families with children, it is also important to recognise that it is highly unlikely that joblessness can be completely abolished, and indeed that those families remaining jobless are likely to be those with the lowest employment-related skills or the highest personal barriers to taking paid work. If the levels of employment of lone parents were increased to Nordic levels and joblessness among couples with children were similarly reduced, then family joblessness would be reduced from its current level of around 12% of families with children to around 5% and joblessness among lone parents would be reduced from 40% to 20%. These would be very signifi cant achievements, but clearly some family joblessness would continue. From earlier discussion, it is plausible that the current level of jobless families includes a smaller sub-set of families with very signifi cant and complex disadvantages, in some cases related to disability or ill health of parents or children, low levels of educational attainment or related to ethnic or indigenous backgrounds, or because the families live in regions or neighbourhoods with very limited job opportunities. The fi ve per cent or so of children in families who have been jobless for fi ve years could be expected to have parents with these sorts of multiple disadvantages, problems that are unlikely to be addressed by the sort of broad policy interventions discussed above.

Families with complex combinations of problems will continue to require both adequate income support and services to address their specifi c problems, including health services, social work support, drug and alcohol counselling and programmes to improve family competencies and functioning, where relevant. Jobless families more generally will also require supportive services in the area of child care and in some cases active labour market policies to equip them for seeking and fi nding work. The challenge is to develop the set of policies—both cash transfers and services - that promote and support employment for as many parents as possible, provide adequate income support for those with greater diffi culties in fi nding paid employment, and help to alleviate the problems of those with severe disadvantages.

64 References

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