THE 2004 New Zealand living standards survey: What does it signal about the importance of multiple disadvantage?

Author:Jensen, John
 
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Abstract

This paper provides the rationale for the Ministry of Social Development's living standards research programme by describing the distinctive features of the Economic Living Standards Index (ELSI), the measure of living standards that provides the basis for the research. The paper draws on data collected in the 2004 national living standards survey to examine living standard variation in the population and factors associated with variation. It demonstrates that while living standard is strongly associated with income, as would be expected, it is also strongly associated with a large number of other factors (assets, accommodation costs, "life shocks", health problems, etc.). The non-income factors account for a substantial part of the living standards variation. These findings are then used to explore whether the notion of multiple disadvantage can make a fruitful contribution to understanding living standards variation, especially in relation to the issue of why some people with low incomes are in severe hardship while others have adequate or good living standards. The results of the analysis suggest than when hardship occurs it is not generally the result of a single factor, but commonly reflects the compounding effects of multiple disadvantages. The paper points to the desirability of exploring ways of expanding the policy framework to better recognise the extent to which various types of disadvantage, and particularly multiple disadvantage, can act independently of income to influence the degree of hardship. It also points to the expected long-term beneficial impact on living standards from social investment policies to improve human capital, home ownership and savings.

INTRODUCTION

The Ministry of Social Development's living standards research programme is directed towards providing a continuing examination of living standards in New Zealand and developing a better understanding of the factors that influence them. The most recent publication from this research programme - New Zealand Living Standards 2004 (Jensen, Krishnan et al. 2006)--provides an updated descriptive statistical picture of national living standards, following the format of an earlier publication on living standards in 2000 but including information on a wider range of variables. In particular, the new publication includes information on the relationship between living standards and various types of personal and family adversity.

This paper draws on survey data on the relationship between living standards, family economic factors and adversity to examine the extent to which multiple disadvantage has an impact on living standards, especially among families with lower incomes.

HOW LIVING STANDARDS ARE MEASURED IN THIS RESEARCH

Rationale for the Measurement Approach

Before the inception of the living standards programme, the only established statistical measure of material wellbeing in New Zealand was the proportion of the population below a low income threshold. This statistic is included in The Social Report, which is published annually by the Ministry of Social Development. (1) The statistic is an example of a class of income-based measures commonly referred to as "poverty rates".

A number of countries (e.g. Australia, the United Kingdom, the United States of America) produce poverty rates. These differ in specifics but have as their common feature that they are calculated from information about family (or household) incomes. Because of this feature, the rates are sometimes referred to as providing a measure of "income poverty". For the poverty rate to be obtained, the income of each family must be related to an amount considered necessary for the family to achieve some minimum socially acceptable level of material wellbeing. As families of different composition will require, on average, different levels of income to reach the designated level of material wellbeing, it is necessary to specify a separate "poverty line" income for each type of family that is distinguished in the measurement process.

There are various ways in which this can be done. The "low incomes" statistics given in The Social Report make use of a general procedure called "income equivalisation", which adjusts incomes to take into account the differing requirement of families of different sizes, and then relates each family's equivalised income to a specified equivalised income threshold. (2)

A poverty rate is commonly expressed as the proportion of the population in families that are below the relevant poverty line. (3) In a similar way, separate poverty rates can also be obtained for sub-populations of interest (e.g. children, older people, people of a particular ethnicity).

Poverty rate measurement has proved valuable for many purposes (including monitoring changes over time and setting social assistance priorities), but also has two major limitations. First, it classifies people into just two groups (above threshold and below threshold) yet for many purposes it is useful to be able to make finer distinctions (e.g. to be able to distinguish between people who have good living standards, in-between living standards, and living standards that place them in hardship, or poverty). Secondly, evidence has been accumulating that a family's ability to meet its needs is affected by more than just income. (4) That is to say, there is evidence that a poverty line--as a means of determining whether a family has achieved an acceptable level of material wellbeing--is a fairly rough and ready measure, with some people not in hardship being placed below the line and other people who are in hardship being placed above the line.

This is an inevitable consequence of the poverty rate not being a measure of material wellbeing itself (i.e. not being a "direct" measure) but rather an "income proxy". One of the consequences of relying purely on an income proxy measure is that it is not possible, within the confines of that framework, to examine the extent to which material wellbeing is affected by factors other than income and thus to provide data helpful in developing and assessing multi-faceted assistance policies (including those reflecting a "wrap-around" approach). A more fully developed understanding of the causes of hardship creates an impetus for adopting a policy approach in which income assistance is just one element along with measures directed at ameliorating other forms of disadvantage that are contributing to a family's difficulties.

The first goal of the Ministry of Social Development's living standards programme was to ascertain whether it was possible, using a particular measurement approach favoured by the researchers, to produce a measure that would overcome those limitations. Specifically, the goal was to meet the requirement for (a) a full-range measure (i.e. one that discriminated across the living standard continuum, from high to low) and (b) a direct (outcome-based) measure. The feasibility of producing such a measure was examined using data collected by means of a large, purpose-designed, national representative survey carried out in 2000. The conclusion reached was that it was indeed possible to produce such a measure that met appropriate statistical conditions.

The theoretical approach was grounded in the body of a multi-item measurement theory that has developed around psychometric and sociometric measurement. Following initial work to select the item set, the primary form of the measure was specified using structural equations modelling. That specification was then used to produce a "general use form", which retained the essential properties of the measure but was simpler and more "user friendly". The latter form was called the Economic Living Standard Index (usually abbreviated to "ELSI"). An extended account of the theoretical basis of the scale and its development is given in Direct Measurement of Living Standards: The New Zealand ELSI Scale (Jensen et al. 2002).

The first application of the new scale was in the descriptive analysis reported in New Zealand Living Standards 2000 (Krishnan et al. 2002). A second large national survey was carried out in 2004. (5) As noted above, the latter survey covered an expanded range of variables, added because they were hypothesised to be predictive of living standards. The 2004 survey is the primary source of data for the present paper.

Overview of the ELSI Measure

Before examining results based on ELSI, it is helpful to review how the measure is specified. It makes use of 40 distinct indicator items, which are of four types. The approach relies on the conclusion, reached from a large body of scaling theory and research, that a sensitive and robust measure can be obtained from individually "noisy" items if they are sufficient in number and meet tests required to establish that they are individually valid and reflect a single, uni-dimensional underlying construct (or latent variable). The scale was developed in a way that was intended to achieve compliance with these conditions and then tested to confirm that the conditions had indeed been met. Issues of the validity of an instrument such as ELSI require continued scrutiny, but the extensive tests that have been made give support for the conclusion that it is valid, reliable, versatile (being able to be used in a wide range of contexts and for a variety of purposes) and robust (permitting, for example, valid comparisons between sub-populations distinguished on the basis of age, parenting status and ethnicity). (6)

Briefly, the measurement set constitutes a carefully developed suite of items relating primarily to things people have and do that reflect their living standards in various ways, together with three items that are self assessments of aspects of living standards. The content of the items is indicated by Table 1.

Information on the 40 items is combined by means of a standard procedure to give a numerical score for each respondent. (7) For...

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