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

11

Measuring poverty, hardship Measuring poverty, hardship and living standards in New and living standards in New

Zealand:Zealand:a brief overviewa brief overview

Bryan PerryBryan PerryMinistry of Social Development, NZMinistry of Social Development, NZ

2nd Peter Townsend Memorial Conference2nd Peter Townsend Memorial ConferenceBristol, January 2011Bristol, January 2011

Bryan Perry, Jan 2011Bristol

Introduction

• New Zealand does not have an official measure of poverty or material hardship …

• the Ministry of Social Development reports on:– income distribution and income poverty using a range of

measures

– material hardship and deprivation using non-monetary indicators

• Statistics New Zealand sends NZ income distribution and income poverty information to the OECD

• involvement by state agencies is relatively recent– Brian Easton

– NZ Poverty Measurement Project


Introduction (cont’d)

• MSD also publishes an annual ‘Social Report’– includes income distribution and poverty information …

– but it has a wider scope - 10 domains, 43 indicators

• some limited use of ‘social inclusion’ / ‘social exclusion’ discourse … some on ‘social cohesion’ … more about ‘social and economic wellbeing’

• some use of an ‘underclass’ notion by current PM

• the major data gap in NZ is for the dynamics of poverty and hardship … social mobility


Outline

• active promotion of a common language and understanding around poverty and hardship

• using HH incomes– relative and fixed (anchored) poverty lines

– an illustration of the limitations of the incomes approach (older NZers)

• using non-monetary indicators to construct more direct measures of material wellbeing

– the ELSI measure – its development, properties and value

– addressing some of ELSI’s limitations

– international comparisons

– next steps?


Active promotion of the big ideas

• idea of ‘poverty’ in richer nations– we use the EU’s high level conceptualisation

• income poverty & deprivation – different constructs

• poverty and hardship are multi-dimensional … even more so if ‘causes’ and ‘consequences’ are included … but we try to keep an uncluttered focus on the goods, services and opportunities that money can buy

• cannot avoid judgment in setting thresholds … but some thresholds are much more plausible / defensible than others


HH income Living standards

Income and living standards


Current income (eg last 12 months)

Living standards

Previous income

Assets

+

+

Contributions to budget not picked up in ‘current income’

eg HH production, help from outside the HH

+

Govt services & subsidies

+

Special demands on budgeteg unexpected bill

health/disability costs high housing costssupport for others o/s

HH

_

expected future income

Access to other services

& amenities

+


Current income (eg last 12 months)

Living standards

Previous income

Assets

+

+

Contributions to budget not picked up in ‘current income’

eg HH production, help from outside the HH

+

Govt services & subsidies

+

Special demands on budgeteg unexpected bill

health/disability costs high housing costssupport for others o/s

HH

_

preferences & wants?

expected future income

Access to other services

& amenities

+


Trends in HH incomes and income poverty, 1982 to 2009


Median HH income ($2009), 1982-2009, NZ

0

5

10

15

20

25

30

35

40

1980 82 84 86 88 90 92 94 96 98 00 02 04 06 08 2010

HES Year

Eq

uiv

alis

ed H

H in

com

e in

$20

09 (

000'

s)


Income poverty rates, 1982 to 2009, NZ

0%

5%

10%

15%

20%

25%

30%

35%

1980 82 84 86 88 90 92 94 96 98 00 02 04 06 08 2010

HES year

Pro

po

rtio

n o

f p

op

ula

tio

n b

elo

w t

hre

sho

ld

60% REL


Income poverty rates, 1982 to 2009, NZ

0%

5%

10%

15%

20%

25%

30%

35%

1980 82 84 86 88 90 92 94 96 98 00 02 04 06 08 2010

HES year

Pro

po

rtio

n o

f p

op

ula

tio

n b

elo

w t

hre

sho

ld

60% 98 FIXED

60% REL


The limitations of relying on an incomes approach alone:

the case older New Zealanders (65+)

• NZ has a two-tier system of retirement income provision

– NZ Superannuation - a universal pension, neither income nor asset tested

– private provision by citizens

– no earnings-related component

• around half of older NZers have incomes of NZS plus less than $100 pw from other sources


Income poverty rates using different thresholds, by age group, 2008

0

10

20

30

40

50

60

70

42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80

Threshold as a proportion of the median (%)

Pro

po

rtio

n b

elo

w t

hre

sho

ld (

%)

65+

under 18

total

18-64


Using NMIs: our general approach

• information from individual items is useful … but need multiple items working together for a robust picture

• we don’t directly use the ‘socially defined necessities’ approach with, say, a 3+ lack defining ‘deprivation’

• we use the ‘enforced lack’ notion … … but are very conscious of the impact of ‘adaptive preferences’

• deprivation (and material living standards more generally) is conceptualised as a latent variable reflected in the pattern of association between a number of observable indicators


Using NMIs: our general approach (cont’d)

• the indicators or survey items cover the ‘necessities’, ‘desirables’, and ‘(common) luxuries’ categories

– development of a full range living stds index (low to high)

– reality of consumption decisions within HHs – even the relatively poor have some ‘desirables’, even a few ‘luxuries’

• no explicit attempt to derive an income poverty line using NMIs …

– but we use the steepening of the gradient of the core necessities vs income curves to provide credibility for the thresholds we do use


Can the ‘enforced lack’ NMI approach to measuring hardship be extended

to cover a wider range of living standards, from low to high?


Extending the enforced lack NMI approach to cover a wider range of living standards?

• the development goal

• candidate items to use in the extension

• the model and the model fit (CFA)

• a user-friendly version (ELSI and ELSI levels)

• validation

• point in time findings using ELSI

• a closer look at the underlying conceptualisation of living standards for ELSI

• implications of this for measuring changes over time

• next steps


Stylised summary of development goal

0

20

40

60

80

100

0 10 20 30 40 50 60 70 80

Cum

ulat

ive

perc

enta

ge (%

)

mainly necessities, a fewdesirables

material hardship from 'just getting by' to very good living standards


Stylised summary of development goal

0

20

40

60

80

100

0 10 20 30 40 50 60 70 80

Cum

ulat

ive

perc

enta

ge (%

)

mainly necessities, a fewdesirables

more desirables and'luxuries' added

material hardship from 'just getting by' to very good living standards

the development goal

Non-linear ordinal scale, running from low to high material living standards


Wider range of items

• in addition to the usual ‘necessities’ and ‘near necessities’, we needed some items that generally reflected higher living standards

• tried various consumer durables … such as a dishwasher (too much variation across groups ...)

• overseas holiday once each 3 years (ie no EL)

• economising items (‘not at all’) eg– cut back on local trips to visit friends and relatives

– put off buying new clothes as long as possible

– bought cheaper or less meat than wanted to

• self-rated material standard of living


The first model

Ownership ELs

Participation ELs

Economising

Financial hardship

Housing problems

SR material LS

SR income adequacy

Material living

standards


The first model

Ownership ELs

Participation ELs

Economising

Financial hardship

Housing problems

SR material LS

SR income adequacy

Material living

standards


The current model

Ownership ELs

Participation ELs

Economising

SR material LS

SR income adequacy

Material living

standards

SR satisfaction with LS

Added to stretch the top end more


Extending the NMI deprivation approach ….

• CFA analysis for a five factor model reflecting a single latent variable - model fit very good

• reliability also very good (Cronbach of 0.79)

• we created a user-friendly version of the scale, with scores ranging from 0 (low) to 60 (high living standards)

– correlation of 0.98 with generic scale

– ‘ELSI’ (the Economic Living Standards Index)

– for presentation purposes, created 7 ‘levels’ from very low to very high living standards

– Levels 1 and 2 – clear hardship zone

– Level 3 – hardship?


Distribution of ELSI scores by ELSI levelwhole population, 2008

67

10

18

23

26

9

0

10

20

30

ELSI levels (1-7)

Po

pula

tion

perc

enta

ge


Validity?

• to what degree can we trust an instrument to be measuring what it claims it measures?

• requires a careful marshalling of evidence from different sources – cumulative, never ‘final’

* * * * * * * * *- items … close examination - not covered today

- internal structure - CFA and reliability

- relationship with other variables - next section

- consequences in practice - later

- re-examination of underlying construct - later


Non-ELSI items: negative association with ELSI

23

52

31

9

33

18

3

23

7

0

13

3

0

4

00 0 00 0 00

20

40

60

meal with meat, chicken orfish at least each 2nd day

[EL]

could not pay utilities ontime in last 12 mnths [MORE

than ONCE]

help with food, clothes ormoney from NGO welfareagency in last 12 mnths

[MORE than ONCE]

Pop

ulat

ion

perc

enta

ge


Non-ELSI items: negative association with ELSI

75

28

53

68

15

42

55

12

32

37

9

26

20

8

16

5 4

14

02 2

0

20

40

60

80

books, music CDs ordownloads [cut back / went

without A LOT]

crime / vandalism in theneighbourhood [MAJOR

problem]

quality of accommodationpaid for on holidays [N/A]

Pop

ulat

ion

perc

enta

ge


Non-ELSI items: positive association with ELSI

17

29

39

25

4749

42

5254

41

67

78

56

78

83

63

89

94

75

93

98

0

20

40

60

80

100

current health self-rating [VG / EX]

overall condition of home(GOOD / VG]

overall satisfaction with life[SATISFIED / V SATIS]

Po

pu

lati

on

per

cen

tag

e


Non-ELSI items: positive association with ELSI

11

0

11

23

0

16

38

2

24

53

5

30

72

15

41

89

41

57

99

72 71

0

20

40

60

80

100

delayed repair /replacement of appliancesnot working [NOT AT ALL]

spot purchase of non-essential but desirable $250

item [NO RESTRICTION]

quality of kitchen andkitchen appliances [TOP of

RANGE / GOOD]

Pop

ulat

ion

perc

enta

ge


Using ELSI for point in time comparisons


ELSI levels by age group, 2008

10

2

6 6

2

109

86

2

14

9

11

8

3

22 2220

15

10

22

27

25

23 23

17

26

23

31

46

76

8

1214

0

10

20

30

40

50

0-17 years 18-24 years 25-44 years 45-64 years 65+ years

Po

pu

lati

on

per

cen

tag

e


ELSI levels by family income source, 2008

26

42

21

6

2

18

10

3

19 20

1010

25

23

5

26

46

0

10

14

0

10

20

30

40

50

Income-tested benefit Market <65 65+

Po

pu

lati

on

per

cen

tag

e


ELSI levels by family type (under 65), 2008

6

3

22

4

8

4

15

7

9

7

19

11

20

13

2122

2425

13

2625

34

8

23

8

14

3

8

0

10

20

30

40

One person Couple only Sole parent Two parent

Po

pu

lati

on

per

cen

tag

e


ELSI levels by tenure, 2008

3

1

4

10

32

5

1

6

12

20

10

4

6

14

2121

9

16

24

13

27

23

25

21

9

26

44

31

16

4

7

19

13

4

1

0

10

20

30

40

50

Owned withmortgage

Ownedmortgage free

Family trust Private Landlord HNZC

Po

pu

lati

on

per

cen

tag

e


Children’s items by family ELSI level, 2008

4244

4038

11

16

13

23

9 9

5

13

3 4

1

4

0 0 0

4

0 0 0 00 0 0 00

20

40

60

2 pr strong / sturdyshoes for each child

[EL]

a waterproof coat foreach child [EL]

have children'sfriends to a birthday

party [EL]

children went withoutmusic, art, dance,

swimming lessons [ALOT]

Pro

port

ion

of c

hild

ren

(%)


Children’s items by family ELSI level, 2008

61

47

31

39 40

17

33

26

12

19

14

4

129

47

301 1 0

0

20

40

60

80

house difficult to keep warmin winter [MAJOR problem]

dampness or mould [MAJOR problem]

enough bedrooms forchildren of opposite sex

(aged 10+) to be not sharing[EL]

Pro

port

ion

of c

hild

ren

(%)


Different worlds …

62

1 1

47

1 1

33

2 3

12

4 36

12

7

2

33

15

0

60

32

0

25

50

75

borrowed money from familyand friends for everyday

needs [MORE than ONCEin last 12 mnths]

spot purchase of non-essential but desirable $250

item [NO RESTRICTION]

employed cleaner on aregular basis

Pro

port

ion

of c

hild

ren

(%)


Children: cumulative disadvantage

• ELs– friends to birthday party– waterproof coat– separate bed– separate bedrooms for children of opp sex (10+)– all school uniform required

• Economising ‘a lot’– continued with worn out clothes/shoes– postponed visit to doctor– did not pick up prescription– unable to pay for school trip– went without music, dance, kapa haka, art, swimming, etc– involvement in sport had to be limited

Distribn of children across the LS levels (%)

lower to higher LS

12 10 18 18 41

% with 4+ deps 35 11 2 0 0


ELSI is very useful as is, but it is still a work in progress

• Respondent burden– 40 items– have a ‘short-form’ of 25 items, but need to reduce further

• Compression in upper half of the scale– need for more items for modest to high living standards

– potential with some ‘quality’ items, two new economising items, and one about ‘no restrictions’ for making an ‘unplanned purchase’ of around GBP125

– would like to reduce reliance on global self-ratings

• Underlying conceptualisation of living standards– what does ELSI actually measure?


What does ELSI actually measure?

• ELSI scores reflect the degree of financial restriction (freedom) that respondents report about consumption relative to desired consumption from a list of basics and non-basics …

• … that have been shown to reflect a common underlying or latent variable

Representative list of basics and non-basics (O & P)

Have

Don’t have

Want, don’t have because of cost (= enforced lack)

Want, don’t have for other

reasonsDon’t want

Score 1 0 1 1


Implications for monitoring changes in material living standards over time

• ‘Our living standards are higher today than 20 years ago’ usually means that consumption is higher / more people have access to more of the goods and services considered out of reach 20 years ago.

• ELSI is about changes in consumption relative to desired consumption, not changes in consumption per se

• If expectations about consumption rise in step with rising living standards, then the average ELSI score is likely to show little or no change over time.


Implications for monitoring changes in material living standards over time (cont’d)

• This is what we found from 2000 to 2004 to 2008 – no change in avg ELSI scores

• The way people respond to global self-ratings of living standards is consistent with ELSI’s ‘relative to desired consumption’ conceptualisation

– viz if a person’s living standards rise in rough step with those of their ‘reference group’ then their self-rating will remain much the same

• The ELSI conceptualisation of living standards is internally consistent … but there is a marketing challenge !


FRILS?• We have experimented with a ‘Fixed Reference

Index of Living Standards’ (FRILS)– O and P items: have it / don’t have it– E items: economise a lot ≡ don’t have– SR items: omitted

Representative list of O, P and E basics and non-basics

Have

Don’t have

Want, don’t have because of cost (= enforced lack)

Want, don’t have for other

reasons

Don’t want

ELSI 1 0 1 1

FRILS 1 0 0 0


ELSI and FRILS compared:point-in-time rankings

• rankings for the usual population groups are much the same for ELSI and FRILS

• main exception is for those aged 65+, esp singles … FRILS produces similar hardship rates but a much lower proportion with higher living standards

• ‘adaptive preferences’ for the 65+, esp the singles? compared with younger adults they report fewer ELs for a given number of lacks, and also satisfaction with less:

– to maintain dignity and/or sanity by saying they’re OK even when just getting by and ‘overstating’ self-ratings? or

– having found that that is a ‘better’ way to live?


ELSI & FRILS compared: hardship rates

ELSI FRILS

Overall 13 13

Age group

0-17 19 19

18-24 11 11

25-44 14 13

45-64 12 11

65+ 4 3

Ethnicity

European 10 9

Maori 26 27

Pacific 33 31

Other 14 14


Avg ELSI & FRILS scores compared

-20

-15

-10

-5

0

5

10

ben withdep

soleparent

two parent

single <65

couple<65

single 65+

couple 65+

diff

eren

ce fr

om o

vera

ll m

ean

ELSI FRILS


ELSI & FRILS compared: ‘doing OK’ rates

ELSI FRILS

Overall 50 51

Age group

0-17 36 43

18-24 45 46

25-44 47 51

45-64 62 63

65+ 71 50

Ethnicity

European

Maori

Pacific

Other


ELSI & FRILS compared: ‘doing OK’ rates

ELSI FRILS

Overall 50 51

Age group

0-17 36 43

18-24 45 46

25-44 47 51

45-64 62 63

65+ 71 50

Ethnicity

European

Maori

Pacific

Other


ELSI and FRILS compared: tracking changes over time

• major difference for 2000 to 2004 to 2008– no change in ELSI mean

– noticeable rise in FRILS mean

• using FRILS – there was an increasing proportion with higher scores (better living standards) … not so using ELSI

% with higher LS index: 2000 = 100

ELSI FRILS ELSI FRILS

2000 31 29 100 100

2004 32 35 104 120

2008 32 41 104 140


The current model

Ownership ELs

Participation ELs

Economising

SR material LS

SR income adequacy

Material living

standards

SR satisfaction with LS


Possible next model

Ownership ELs

Participation ELs

Economising – few new ones

SR material LS

Ability to purchase non-necessities ‘at will’

Material living

standards

Quality of kitchen, furniture, other durables?


International comparisons

• Return to deprivation indices

• Great value in having an internationally comparative NMI scale – EU 9 items, with all its limitations


Hardship rate for population, EU indexEU + NO, IS and NZ, 2008

0

10

20

30

40

50

60

LU NO NL SE IS DK AT FI UK IE ES BE FR DE NZ SI IT EE CZ PT GR CY SK HU LT PL LV

Pro

po

rtio

n w

ith

3+

en

fore

cd la

cks

(%)

NZ


Hardship rate for those aged 65+, EU indexEU + NO, IS and NZ, 2008

0

10

20

30

40

50

60

LU NO NL SE NZ DK IE IS UK DE FI FR AT BE ES IT CZ SI EE PT GR HU LT PL SK CY LV

Pro

po

rtio

n w

ith

3+

en

fore

cd

la

ck

s (

%)

NZ


Hardship rate for children (0-17), EU indexEU + NO, IS and NZ, 2008

0

10

20

30

40

50

60

LU NL NO SE DK ES FI IS AT DE SI EE IE BE FR UK MT NZ IT CZ GR PT CY LT SK PL HU

Pro

po

rtio

n w

ith

3+

en

fore

cd

lacks (

%)

NZ


0.6

0.8

1.0

1.2

1.4

1.6

1.8

0 5 10 15 20 25 30 35

Deprivation rate for children (%)

Ris

k ra

tio

fo

r ch

ildre

n NZ

UK

NO FI

IE

BE

CZ

SI

This quadrant: above median

deprivation rate and above median risk

ratio

SK

DK IT

LU

NL

SE

ES

EE

GR

IS

AT

DE

FR

PTLT

CY


Next steps

• further index development– improving ELSI for middle to high living standards– more thorough development of FRILS– deprivation indices – dimensions

– understanding drivers of low living standards?

• revised item list for SNZ surveys using the 25 item budget

• an official set of measures of poverty and hardship for NZ

Documents

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