Are current poverty measures sufficient during recessionary times? A Case Study for Ireland Pamela Lafferty Marion McCann Central Statistics Office

Why should we consider a complementary measure? Internationally recognised at risk of poverty rate (60% of median income) –Calculation is straightforward and does not require many subjective decisions –Relative measure Not everyone’s income is variable – welfare dependent persons At times of economic growth the rate rises e.g rate =18.5% (GDP Growth = 6.2%) 2008 rate = 14.4% (GDP Growth = -3.0%) –Snapshot of household income in the year of the survey Short and long term fluctuations AMELI Conference on Poverty Measure Methodology 2

Alternative measures Alternative A: Expenditure based threshold –Establish a national equivalised expenditure based threshold (at 50%, 60% or 70%) and compare equivalised income with this threshold Alternative B: Composition specific thresholds –Set income (at 60% ) and expenditure (at 50%, 60% and 70%) thresholds for 8 household types and compare disposable household income with each threshold AMELI Conference on Poverty Measure Methodology 3

Alternative measures Why expenditure? –Expenditure maintained at a more constant level than income –Informs us of more permanent inequalities in welfare which income dispersion does not capture –Better representation of an individual’s average resources over their lifetime –Overcomes some of the difficulties of using relative measure based solely on income Limitations –Expenditure is recorded, in this study, in a two week diary and interview –Misreporting of expenditure e.g. alcohol and tobacco –Periods of high and low expenditure –Purchase of a durable item AMELI Conference on Poverty Measure Methodology 4

Data Sources –EU Survey on Income and Living Conditions (EU SILC) 2005 and 2008 –Household Budget Survey 2004/2005 (HBS) –Up-dated 2005 HBS expenditure data to 2008 using the Consumer Price Index AMELI Conference on Poverty Measure Methodology 5

Alternative A: Expenditure based threshold approach Compare two different distributions at national level –An income versus expenditure approach Equivalisation –Household expenditure is equivalised Results –Expenditure thresholds were set at 50%, 60% and 70% of median equivalised expenditure. –Income threshold is the standard threshold at 60% of national median equivalised income. –Equivalised disposable income is compared against the thresholds mentioned above to establish if an individual is at risk of poverty –See Table 1 for results. AMELI Conference on Poverty Measure Methodology 6

Table 1 - At risk of poverty threshold and rate by indicator and year AMELI Conference on Poverty Measure Methodology €%€% 60% Income % Expenditure % Expenditure % Expenditure Source SILC , HBS 2004/2005 7

AMELI Conference on Poverty Measure Methodology 8

Alternative B: Composition specific thresholds Why use composition specific thresholds? –Ideally a specific basket of goods for each household type –Expenditure patterns of households vary significantly according to composition e.g. Elderly household 30% of median expenditure is food; household with 2 adults and 1-3 children 19% of median expenditure is food. –Costly to measure a basket of goods for each household type –Expenditure thresholds serve as an alternative to the ‘basket of goods’ method –Calculate poverty rates at the household level using both income and expenditure thresholds –Compare households with the same composition e.g. elderly households are compared with other elderly households Limitations –Cannot compare income and expenditure of households across the 8 household types AMELI Conference on Poverty Measure Methodology 9

Alternative B: Composition specific thresholds Develop an income and expenditure based threshold for each of the 8 household types: 1.1 adult aged 65 or over, no children under adult aged less than 65, no children under adults, at least one aged 65 or over, no children under adults both aged less than 65, no children under or more adults, no children under adult with children under adults with 1-3 children under Other households with children under 18. AMELI Conference on Poverty Measure Methodology 10

Alternative B: Composition specific thresholds Median household income of households within a household type category –Threshold set at 60% of median household income Median household expenditure of households within a household type category –Threshold set at 50%, 60% and 70% of median household expenditure Disposable household income is compared against each threshold to establish the household poverty rate AMELI Conference on Poverty Measure Methodology 11

Table B - At risk of poverty rate by household composition, indicator and year Thresholds60% income50% expenditure 60% expenditure 70% expenditure Household Composition2005 % 2008 % 2005 % 2008 % 2005 % 2008 % 2005 % 2008 % 1 adult aged 65 or over adult aged less than adults, at least one aged < adults both aged < or more adults adult, 1 or more children adults, 1-3 children Other households with children

Table C - At risk of poverty threshold and rate for households with one adult of working age (aged <65) by indicator and year ThresholdPoverty rateThresholdPoverty rate €%€% 60% Income % Expenditure % Expenditure % Expenditure AMELI Conference on Poverty Measure Methodology 13 Source: SILC , HBS 2004/2005

Figure 2 - At risk of poverty rates for households with one adult of working age (aged < 65) by indicator and year, SILC and HBS 2004/2005 AMELI Conference on Poverty Measure Methodology 14

Conclusions Expenditure poverty rates (at 60% and 70% national thresholds) are significantly higher than the income poverty rate (60% national threshold) => individuals are frequently spending more than they earn =>source of extra income? Expenditure based measure is a supportive indicator => ability to capture aspects of the flow of individuals into and out of poverty Composition-specific threshold analysis highlighted household types that were more at risk =>e.g. households with one adult of working age (aged <65) and households with children AMELI Conference on Poverty Measure Methodology 15

Conclusions Are current poverty measures sufficient during recessionary times? =>Yes, to a degree. Income and expenditure based poverty rates show the same pattern over time but poverty rates calculated using the 60% or 70% expenditure threshold are significantly higher than the income based rates. =>Composition specific threshold analysis has the ability to add value to the body of indicators currently available, by giving more detail regarding the position of a household compared with households of the same composition in Ireland. =>Therefore,we recommend that the alternative measures discussed should be calculated to supplement the internationally recognised measure of poverty (60% of median equivalised income). AMELI Conference on Poverty Measure Methodology 16

Questions? AMELI Conference on Poverty Measure Methodology 17