The prevalence and persistence of low income among New Zealand children: indicative measures from benefit dynamics data.

• Author: Ball, Deborah

Abstract

This paper examines the low-income experiences of a cohort of New Zealand children using information on their inclusion in first-tier income-tested benefits. We follow children born in 1993 and estimate that more than half had some contact with these benefits and, by implication, some experience of low income by age seven. For many the duration was fairly short, but our results suggest that at least a fifth of the birth cohort spent a total of more than five of their first seven years of life with caregivers on low incomes. Analysis of factors that increase the risk of a long benefit duration highlight having contact with the benefit system at birth, and first appearing with a primary beneficiary who is female, Maori, aged under 20, or in receipt of the Domestic Purposes Benefit. These factors are likely to be interrelated. In subsequent work we will seek to estimate their independent effects. Results are linked to the literature on outcomes for children.

INTRODUCTION

A number of recent studies highlight the impact of low income on children. The Child Poverty Action Group has drawn attention to adverse impacts of low family income on children's well-being and rights (St John et al. 2001). Findings from the 2000 Survey of Living Standards confirm that New Zealand families with children on low incomes are more likely than others to report economising on basic items key to children's well-being, such as fresh fruit and vegetables, visits to the doctor, and school books (Krishnan et al. 2002). (2) Findings from the New Zealand Census-Mortality Study show that children in households with low equivalised income at the 1991 Census had higher-than-average mortality rates over the ensuing three years (Blakely 2002).

Studies carried out in New Zealand and overseas consistently find that income in childhood also matters for outcomes in later life. While not the only factor that shapes attainments and abilities, parental income in childhood has small to modest positive associations with cognitive development and levels of attainment as children move through the school system, (3) and with employment propensities and incomes in adulthood, even after controlling for related factors such as maternal education. Importantly, it appears likely that the level of parental income has a stronger effect on a child's outcomes where income is low, and that the effects are even stronger where income is low for long periods. (4)

In many countries such findings have prompted research aimed at establishing the extent to which children are exposed to low income over the course of their childhood, and the timing, duration and causes of that exposure. (5) We do not have nationally representative longitudinal data that would allow us to comprehensively examine income experiences in this way for the current generation of children in New Zealand. (6) But we do have two sources of data that allow us to begin to construct partial views.

The first is the Income Supplement, which has been attached to the Household Labour Force Survey (HLFS) since 1997. The rotating panel of the HLFS permits examination of changes in respondents' income status over a one-year interval. These data are currently being analysed to explore, over that limited interval, the proportion of children experiencing low income, the degree of turnover in that population, the events that precipitate transitions into and out of low income, and the relative probabilities of these transitions for different groups of children (Ballantyne et al. forthcoming).

The second data source, and the subject of this paper, is the longitudinal data set assembled from the benefit administration records of the Ministry of Social Development (MSD). This "benefit dynamics data set" holds details of the individual benefit histories of every child who has been included as a dependent child in a basic income-tested working-age benefit since 1993. These benefits form the "first tier" of social assistance for the working-aged and their dependants. They cover contingencies such as unemployment, sole parenthood, widowhood, sickness and long-term incapacity. (7) They are set to provide a modest level of assistance, and withdrawn fairly rapidly as private income increases. (8) Those who receive supplementary assistance through the benefit system or family assistance through the tax system, but do not receive one of the basic first-tier benefits, are not captured by the data set.

We use the benefit dynamics data set to calculate measures of whole-of-childhood (to date) contact with the benefit system for the cohort of children born in 1993. These measures provide an indication of the prevalence, timing and duration of periods of low family income over the first seven years of that cohort's childhood. (9)

It is important to be clear at the outset about what benefit dynamics data cannot tell us. While they constitute one of only a few potential sources of information on income dynamics, they can provide only a rough proxy for income status at any point in time (Bradbury et al. 2001a). Benefit data tell us nothing-about the incomes of those off benefit. If there is a large group of children experiencing low incomes without having any contact with the benefit system (such as those in families in low-paid work who may be receiving Family Assistance through the tax system), then benefit contact will understate the prevalence of low income. And if incomes often remain low when a family moves off benefit, then benefit contact will understate the duration of low income. Conversely, we expect income received while on benefit to be low in the New Zealand context, but this may not be the case. If there are large numbers supplementing benefit income with other declared or undeclared income, then benefit contact may overstate the prevalence and duration of low income.

But if benefit contact is an imperfect proxy for low income, then it is also important to recognise that neither measure is a perfect proxy for low living standards, the underlying state that is perhaps of most concern. Families experiencing only short-lived falls in income might borrow or draw on savings to protect their living standards, making income dynamics an imperfect measure of shifts in living standards (Bradbury et al. 2001a). Could benefit contact be a better, if still imperfect, measure? Aber and Ellwood (2001) argue that it could, where the benefit system entails some form of means test, and where the policy regime is sufficiently stable over time. Certainly among New Zealand children in families on low incomes, (10) Krishnan et al. (2002) found that those with benefits as their main source of income over a year were much more likely than those with market income as their main income source to be affected by economising on basic activities or purchases because of cost.

Work currently being undertaken within MSD suggests that of the range of possible measures of a family's income, those that are adjusted for housing cost have a stronger correlation with achieved living standards. When we set a constant real-dollar low-income threshold at 60% of median annual equivalent disposable income, adjusted for housing costs, this locates most, but not all, children in families receiving some income from social welfare benefits over a year below the threshold. (11) And it locates most, but not all, children in families with income below the threshold in families receiving some benefits. It is notable that the degree of overlap is not as great when we use income measures that are not adjusted for housing costs.

So if we are interested in a measure of income that approximates living standards, it appears that while benefit dynamics data are likely to tell us about most of children's experience of low income, they do not tell us about all of it, and in some cases we may be inferring low income from these data where none is occurring. The relative scale of these two sources of omission will depend partly on the threshold below which we consider income to be low.

The paper opens with a brief discussion of the strengths and limitations of the benefit dynamics data (in the following section), before turning (in the subsequent two sections) to measures of the prevalence, timing and duration of benefit contact experienced by children born in 1993. Bi-variate analysis of the factors associated with an increased risk of a long duration of benefit contact, once contact has occurred, is presented next. We then briefly examine the extent to which the experiences of the 1993 birth cohort have also been shared by children born later in the 1990s. The final section reviews our findings and summarises their implications for our conception of the proportion of New Zealand children who experience low income in their early years, and the proportion who experience long periods of low income.

DATA: STRENGTHS AND LIMITATIONS

A number of features of the benefit dynamics data set lend it particular strengths as a basis for constructing measures of the prevalence and persistence of low income in childhood.

* It covers a fairly long window of time. At the time of writing, we were able to follow children born in 1993 through to the end of 2000.

* It holds information on the entire population of children included in benefits over the period of study. This enables us to enumerate the total number of children having contact with the benefit system and also to examine the experiences of narrowly defined sub-groups of children, without encountering the problems associated with sampling error. We are also able to analyse the experiences of those children who might have a low chance of being included in a longitudinal survey, such as those moving between cities or between caregivers (Bradbury et al. 2001a).

* The frequency of information on changes in status is much greater than that generally available through longitudinal surveys, which are often constrained to...