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3rd July 2006

Dominic Maxwell

The nature of risk

The politics of risk

Risk and Resilience

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Coming up…

Does “risk” shed new light on the politics of social justice?

1. Where we start: narratives of poverty

Wife swap and welfare cheats

2. Introducing risk

Politics and academia: parallel tracks?

3. Choosing our horn

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Narratives of povertyWife swap and welfare cheats

Prior to a revolution in support, do we need a revolution in empathy?

• Support for the welfare state depends on

perceptions of the causes of povertyPicketty 1995

But current stereotypes are strongly negative

• ‘Daytime TV, beer and fags and scratchcards’

• Attitudes to work, money and childrenFabian Commission on Life Chances 2006

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Narratives of povertyPerceptions of poverty are a barrier to SJ

Government should redistribute incomes from the better-

off to those who are less well off...

0

10

20

30

40

50

60

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Agree

Neither

Disagree

Source: Sefton 2005

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Introducing riskDefinitions

• “Risk”: uncertainty over future events

and conditions, especially material.

• But not pinning ourselves down –

interested in exploring different

perspectives.

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Introducing riskParallel tracks

Politics

National risks: climate

change, terrorism,

competition from China

and India

But decline in sense of

risk pooling?

Academia

“Risk society”Beck 1992, Giddens 1998

Rise and concentration

of riskTaylor Gooby 2000

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Introducing riskDoes it change conceptions of poverty?

• Risk has been criticised as individualisingAlcock 2004, Culpitt 1999.

• But it needn’t be:

Costs of povertyExhausting costs of coping strategies make it more difficult to “get out”.

MajoritarianThe constituency is bigger: both those in poverty and those at risk of poverty.

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Introducing riskChoosing our horn

Shared risk�Self-interest in

maintaining the

welfare state

But

Doesn’t address

misconceptions

of poverty.

Different risks�Increase support for

others, i.e. vulnerable

individuals

But

Could be otherising,

undermining a sense of

shared interests.

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Finally.. are we in danger of just scaring people?

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References

• Alcock, P. (2004), ‘The influence of dynamic

perspectives on poverty analysis and anti-

poverty policy in the UK’, Journal of Social

Policy, 33(3): 395-416.

• Beck, U. (1992), Risk Society: Towards a New

Modernity, London: Sage Publications.

• Culpitt, I. (1999), Social Policy and Risk,

London: Sage Publications.

• Fabian Commission on Life Chances (2006),

Narrowing the Gap, London: Fabian Society.

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References

• Giddens, Anthony (1998). The Third Way: The Renewal of Social Democrac. Cambridge: Polity.

• Piketty, T. (1995), Social Mobility and Redistributive Politics, Quarterly Journal of Economics, 110 551-584.

• Sefton, Tom (2006), ‘Give and take: public attitudes to redistribution’ in A. Park et al, British Social Attitudes 22nd Report: Two terms of New Labour: the public’s reaction

• Taylor-Gooby, Peter, ed., (2000), Risk, Trust and Welfare, London: Palgrave.

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3rd July 2006

Graeme Cooke

The nature of risk

Income Instability

Risk and Resilience

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Contents

1. A Chronology of Research

2. Income Instability and Poverty

3. Labour Market Risks

4. Benefit Income Risks

5. Transitional Risks

6. Conclusions

7. References

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Section One

A History of Research

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A History of Research

Benefit Income

Risks

•Along with risks

associated with

transitions btw benefits

and work

Harris & Woodland (2002),

Adelman et al (2003),

Woodland (2003)

• Evidence emerging

about the risks faced by

those on benefits

Preston (2005), Graham et

al (2005), Barton (2006)

Labour Market

Risks

• New attention given

to wage instability…

Nickel et al (2002)

• …increased job

insecurity

Gregg & Wadsworth (2002)

• …and ‘low pay/no pay’

cycles

Stewart (1999), McKnight

(2002), Cappellari &

Jenkins (2003), Stewart

(2005)

Drawing on BHPS and the Labour Force Survey

Income Instability and Poverty

• BHPS enables analysis

of income trends…

Gardiner & Hills (1999),

Burgess et al (2000), Sefton

& Rigg (2004)

• …and poverty

dynamics.

Cappellari & Jenkins

(2002), Adelman et al

(2003), Aassvre et al (2006)

• Plus new data on short

term income instability

Hills et al (2006)

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Section Two

Income Instability

and Poverty

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Evidence suggests that income instability is problematic in two main ways…

• Most incomes – 60-70% - are generally stable when measured over yearly intervals (Rigg & Sefton, 2004, Gardiner & Hills, 1999)

But…

1. Measured over shorter intervals, only around a third of incomes are stable (Hills

at al 2006)

2. Instability affects the poorest most: those on less than £10,000 face variation of 40%

around their yearly mean (Hills et al 2006)

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This instability is pushing people into and out of poverty

• Experiences of poverty are often cyclical: Between

1991-1994, 14% of people fell below poverty line once, 8% twice,

7% three times, 5% poor across all 4 years (Hills, 2004)

• Many who escape poverty, quickly return: 30% of

those leaving poverty return the following year, rising to 60% for

particular ‘at risk’ groups (Jenkins & Rigg, 2001, in Hills, 2004)

• People on lower incomes face a much greater

risk of poverty: 21% on low incomes (60-80% median) enter

poverty the following year, compared to just 1.5% of those on high

incomes 150% median) (Cappellari & Jenkins, 2003)

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Section Three

Labour Market Income Risks

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Labour market factors cause the majority of income instability, increasing poverty risks

• Work is important in accounting for both exits out of and entries into poverty: Changes in labour income accounts for 62% of exits from poverty, but also 44% of entries (Jenkins & Rigg, 2001)

• Low paid workers face greatest wage instability: Over a year, 40% of workers experience a real

wage fall of over 30%, with the low skilled affected most (Nickell et al, 2002)

• Jobs are less stable: Median job tenure for men has fallen

by 20% since 1975 (Gregg & Wandesworth, 2002)

• Low paid work exposes people to greater risks of future unemployment (‘Low pay/no pay’cycles): low-paid workers are 3 times more likely to face

unemployment than those on high pay (Cappellari & Jenkins, 2003)

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The state can be both a help & a hindrance in experiences of labour market risks...

Since 1997:

• Union recognition legislation

• Limited adult skills + re-training agenda

• Some labour market interventions: Job Retention &

Rehabilitation Pilots (for those on long term sick leave) &

Employment Retention and Advancement (for New Deal graduates)

But:

• Overall, a much stronger focus on ‘welfare to

work’, with less attention on job progressionand retention (esp low pay/low skill sectors)

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Labour Market: Research Gaps and Policy Options…

• Research: Are ‘low pay/no pay’ cycles the result of individual choice, lack of employment protection, or wider labour market forces?

• Research: What impact do these cycles have on those affected - financially & psychologically?

• Policy: Repeated transitions btw low paid jobs & benefits highlight limitations of ‘welfare to work’agenda. Would this labour market risk be reduced by…

a) boosting in-work incomes (eg tax credits/NMW);

b) better employment protection for temporary, low paid, low skilled workers?

c) promoting skills & job progression?

And how could these be achieved?

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Section Four

Benefit Income Risk

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Those receiving benefit income also face

instability: with real human consequences

• Changes in tax credit awards: in one sample, over ½ of awards changed during a year, with over ¼ facing cuts of on average of £1,700 (Hills et al, 2006)

• Payment delays and overpayments: For example, Housing Benefit claims take on average 33 days to process (over 100 days in the worst LAs) (DWP, 2004/5). Evidence that such problems cause considerable financial hardship (and disincentives

to work) (Graham et al, 2005, Griggs et al, 2005). Benefit Re-calculations: a lone parent on Income Support whose child loses DLA + associated benefits can see her income halve from £200 to £100 per week (Preston, 2005)

• Poor official decision making: 60% of appeals against decisions on IB and DLA are upheld (Barton, 2006)

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The state can be both a help & a hindrance in experiences of benefit income risk...

• Incomes transfers reduce the level of instability in net pay: the impact differs internationally (McManus and DiPrete, 2000) and in the UK, social security benefits are more effective than tax credits (Hills et al, 2006)

But, there are two key problems:

• Benefit and Tax Credit (re)calculations –means testing & poor official decision making

• System (mal)administration – payment errors (delays & repayments) and appeals

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Benefit Income: Research Gaps and Policy Options…

• Research: To what extent does the tax & benefit system

stabilise initial labour market incomes and which interventions are

most effective? Building on BHPS data and drawing on Hills et al, 2006

and international research (McManus & DiPrete, 2000)

• Policy: Stabilising benefit income requires greater predictability

in calculations & payments, and better administrative decision making. Would any of these measures help?

a) increased income disregard for benefit reassessments

b) reduced means testing overall

c) simplifying applications by reducing individual tailoring

c) training for benefit officials & a simplified appeals process

And how could these be achieved?

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Section Five

Transitional Risks

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Transitions between benefits and work can expose people to short term but severe income instability

• Of children suffering ‘severe & persistent’poverty, a greater proportion experienced transitions than remained on benefits: 49% experienced a move from one worker to no worker households, compared to 19% living in a workless households throughout(Adelman et al, 2003)

• Transitional costs create barriers to work: in one study, 48% of benefit recipients ‘ready for work’ were deterred by transitional risks to their incomes (Woodland et al, 2003)

• Reducing transitional costs can change work incentives/behaviour: 36% with worries about transitional income risk said either a £100 grant or a benefit run-on would change their feelings about work (benefit run on more popular) (Woodland et al, 2003)

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The state can be both a help & a hindrance in experiences of transitional risk...

• Increasing transitional support available:- Housing Benefit, Council Tax Benefit and Lone Parent run-on

- Job Grant (£100 or £250)

- Employment on Trial (rapid benefit return)

- Child Maintenance Bonus/Premium (up to £1000)

- Advisor’s Discretionary Fund (£100 – cut from £300)

But:

• Awareness, take up and scope of transitional support still appears to be limited (for example, Woodland et al, 2003)

• Relative stability of income makes benefits attractive (Woodland et al, 2003, & CPAG, 2005))

• Complexity and uncertainty of benefit reclaim if job falls through cited as key barrier to work (Woodland et al, 2003)

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Transitional Risks: Research Gaps and Policy Ideas…

• Research: What has been the overall impact of New Labour’s

constellation of initiatives aimed at reducing transitional risks?

• Policy: For many, the risks of leaving benefits for work constitute

too high a barrier. Would the following better enable positive risk

taking?

a) Enhanced benefit run-ons

b) Wider access to work taster schemes

c) Options for ‘rapid return’ to benefits

d) Improved personal advice & support – eg financial advice,

such as help calculating potential in-work support

e) Removing wider barriers, such as availability of childcare

And how could these be achieved?

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Section Six

Conclusions

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Conclusions…

• The key priorities are to:

i) develop a better understanding of the barriers and

(dis)incentives that shape individual’s decision making, so as to…

ii) re-balance the complex, rigid & often unappealing choice

between the stability but poverty of benefit income & the

(current) vulnerability and uncertainty of work

• In addition, does this story suggests that a future anti-

poverty agenda must focus on two distinct groups?

a) those with stable but very low incomes (living predominantly

on benefit income)

b) those with variable and intermittently extremely low incomes(making regular transitions between low paid work & benefit

income)

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Section Seven

References

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References (i)

Aassvre, Burgess, Dickson and Propper (2006), ‘Modelling Poverty by not Modelling Poverty: An Application of a Simultaneous Hazards Approaches to the UK’, CASE Paper 1006 (CASE: London)

Adelman, Middleton and Ashworth (2003), ‘Britain’s Poorest Children: Severe and Persistent Poverty and Exclusion’, (JRF: London)

Barton (2006), ‘What the Doctor Ordered? CAB Evidence on Medical Assessments forIncapacity and Disability Benefits’, CAB Evidence Briefing, February 2006 (Citizen’s Advice Bureau: London)

Burgess, Gardiner, Jenkins and Propper (2000), ‘Measuring Income Risk’, CASE Paper 40 (CASE: London)

Cappellari and Jenkins (2002), ‘Modelling Low Income Transitions’, Working Papers of the Institute for Social and Economic Research, 2002-8 (University of Essex: Colchester)

Cappellari and Jenkins (2003), ‘Transitions Between Unemployment and Low Pay’, (Universita del Piemonte Orientale and University of Essex)

Child Poverty Action Group (2005), ‘Work and Pensions Committee Inquiry into Reform of Incapacity Benefits’, (CPAG: London)

DWP (2004/5), ‘Housing Benefit Quarterly Performance Stats 2004/5, Quarter 4’

Gardiner and Hills (1999), ‘Policy Implications of New Data on Income Mobility’, The Economic Journal 109

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References (ii)

Graham, Tennant, Huxley and O’Connor (2005), ‘The Role of Work in Low Income

Families with Children – A Longitudinal Qualitative Study’, Research Report No.

245 (DWP: London)

Gregg and Wadsworth (2002), ‘Job Tenure in Britain 1975-2000. Is a Job for Life of

Just Christmas?’, Oxford Bulletin of Economics and Statistics 64

Griggs, McAllister and Walker (2005), ‘The New Tax Credits System: Knowledge and

Awareness Among Recipients’, (One Parent Families with the Carlsson Family

Foundation: London)

Harris and Woodland (2002), ‘Easing the Transition to Work: A Qualitative Evaluation

of Transitional Support for Clients Returning to Employment’, DWP Research

Report No. 175

Hills (2004), ‘Inequality and the State’ (OUP: Oxford)

Hills, Smithies and McKnight (2006), ‘Tracking Income: How Working Families’ Incomes

Vary Through the Year’, CASE Paper 32 (CASE: London)

Jenkins and Rigg (2001), ‘The Dynamics of Poverty in Britain’, DWP Research Report

No. 157

McKnight (2002), ‘Low-paid Work: Drip Feeding the Poor’, in Hills, Le Grand and

Piachaud (eds), ‘Understanding Social Exclusion’, (OUP: Oxford)

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References (iii)

McManus and DiPrete (2000), ‘Market, Family and State Sources of Income Instability

in Germany and the United States’, Social Science Research 29

Nickel, Jones, Qintini (2002), ‘A Picture of Job Insecurity Facing British Men’, The

Economic Journal 112

Platt (2006), ‘Social Insecurity: Children and Benefit Dynamics’, Journal of Social

Policy 35

Preston (2005), ‘Helter Skelter: Families, Disabled Children and the Benefit System’,

CASE Paper 92 (CASE: London)

Rigg and Sefton (2004), ‘Income Dynamics and the Life-Cycle’, CASE Paper 81 (CASE:

London)

Stewart (1999), ‘The Dynamics of Low Pay and Low Incomes’, Low Pay Commission,

Occasional Paper 2 (Low Pay Commission: London)

Stewart (2005), ‘The Inter-Related Dynamics of Unemployment and Low-Wage

Employment’, Journal of Applied Econometrics (University of Warwick)

Woodland, Mandy and Miller (2003), ‘Easing the Transition into Work (Part Two – Client

Survey)’, DWP Research Report No. 186

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Research Gaps and Policy Options…

• Labour Market:

Causes, consequences and measures to tackle low pay/no pay’ cycles…

• Benefits:

Impact of taxes & transfers and levers to improve stability in the system…

• Transitions:

Assessment of interventions, and options to enable positive risk taking…

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3rd July 2006

Dominic Maxwell

The Nature of Risk

Spending needs

Risk and Resilience

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Coming up…

A review of unexpected changes to income

needs:

1. How important are consumption shocks?

2. Who suffers from what?

3. Impact of the state

4. Unexplored gaps

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How important are consumption shocks?

• Less important than income shocks

– 5-13% of households in arrears attributed

debt to increased/unexpected expenses

(Kempson et al 2004)

• The literature is less well developed

– Partly because it is harder to distinguish

between planned, lumpy expenditure and

unanticipated changes in needs.

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Who suffers from what?

For sources and details, please see subsequent slides.

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Impact of the state

• Consumer regulation and protection

• Fewer state-imposed spending risks

compared to income risks:

– Cost of starting school

• But: there is a failure to protect

– Crime

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Next steps for research

• Each area of risk still suffers from large research gaps:– Is the retirement-consumption puzzle matched by a children-

consumption puzzle? How can it be explained/prevented?

• Overall, there is much more need to see how different spending risks cross-correlate.– Low earners and those in run-down areas (according to

different definitions) appear to suffer most from most types of risk.

• But the cause of the risk can not be traced back to the state to the same extent that risks to income can.