Swings and Roundabouts Lone mothers and the Australian Welfare System R G Gregory Australian National University

► Provides income to individuals of workforce age, subject to income tests and without time limits, if the individual is  Unemployed and actively seeking work  A lone parent caring for a dependent child  A parent caring for a child whose partner is disabled or unemployed  A person with a disability ► We focus on lone parents The Australian Welfare System

► One in five Australian children live with one parent. ► Ninety per cent of these parents (mothers) rely on the welfare system for income ► Their average welfare income is about 70 per cent of that of a full-time employed single woman The key lone parent facts

► These facts were thought not to pose a problem because the government asked the wrong question ► The government used longitudinal administrative data and calculated that the average completed spell on the lone parent welfare program was three years. ► More sophisticated duration analysis of an inflow group derived a similar answer ► It was concluded that long stayers on welfare did not pose a substantial policy problem. ► This was the wrong conclusion based on the wrong choice of research question ► If they had understood the system they would not have made this mistake Asking the wrong question

► We show that lone parents stay on welfare system is not three years but for a substantial part of their life, ► A single spell is not typical and hence of limited interest ► Lone parents often find partners and leave the lone parent welfare program only to enter into another welfare program. ► For single mothers movements from one welfare program to another is more important than movements to and from the labour market ► These findings changed policy What is the right question?: Main findings

How women use the welfare system

► There are no welfare time limits. A young woman could  (i) begin as unemployed and receive welfare without time limit (unemployment benefits), then  (ii) become a lone parent and receive welfare without time limit (Parenting Payment Single (PPS)), then  (iii) partner an unemployed man and receive welfare without time limit (Parenting Payment Partnered (PPP)), then  (iv) when the child is no longer dependent receive a disability pension without time limit.  (v) then retire on an old age pension Welfare life-cycle?

Welfare history: Female 1995 PPS and PPP Inflow Proportion of Average Duration** Share of Total Income Support 1995 Inflow on Program Income Support (percent) (years) (percent) PPSPPPPPSPPPPPSPPP Leave after One Spell Continue on One Spell Multiple Same spell type Multiple Mixed spell types* Total*** Proportion of PPS who have a PPP31.0 Proportion of PPP who have a PPS32.5 * The more important other spell type is Newstart. ** Duration is a mixture of complete and incomplete spells. *** The average potential time for income support is five years because the 1995 inflow extends from January to December The end of the data window is June, 2000.

► 1/5 of mothers leave welfare after one spell. ► 1/5 continue their initial spell for five and a half years ► 3/5 have multiple spells. ► Majority of multiple spells are across programs ► It is common for single mothers to partner with a welfare recipient and change her welfare program

► A single spell consist of three groups  one spell and leave welfare not to return,  one spell and leave welfare and later return to the lone parent program  one spell and move to another welfare program. ► These three groups should be treated differently in a duration analysis. Lessons

► To see the relevance of single and multiple spells consider the following diagram.

Welfare Support Patterns 1995 lone parent Inflow Fortnights since Entry Date on Initial PPS Spell Percent Income Support - First PPS Spell Continuing Income Support - Multiple Spells Not on Income Support - One PPS Spell Only A B C Not on Income Support - Multiple Spells

► After the first spell the time spent on welfare depends on  How soon the individual returns to welfare and  How long the subsequent spells last. ► The next figure shows that the survival functions for the three main programs that lone parents enter are different:  Lone parents  Partner parents  Unemployed

Survival Fnctn. for Initial PPS and 2nd Income Support Spells Fortnights Percent PPP UB Second PPS Initial PPS

► But the most interesting issue is the time gap between leaving a welfare program and returning to the welfare system ► These results are really surprising and had not been known

Second Income Support Spell Destination Elapse time between first and second spell PPSUBPPPOtherTotal Destination of Second Spell40%14%42%4%100% %%% Elapse time between first and second spell One month Two months Three months Six months Note: 81% of those who leave a first PPS spell return for a second spell of income support.

► We can summarize the time spent on the first lone parent welfare spell and the time spent on all welfare programs in the next figure.

Female 1995 PPS Inflow to July Fortnights since Entry Date on Initial PPS Spell Percent A Completed First PPS Spell E1 Aggregate Time Spent on Income Support for 5.4yrs E2 Aggregate Time Spent on Income Support for 8.5yrs M N1 A E1 E2 N2

► Remember the key point is that multiple spells are the norm and a single spell may not contain that much information. ► The first spell a researcher observes is often not the first but a second or subsequent spell ► This is illustrated in the next figure which takes an inflow group to see whether they had a previous spell

Female PPS Inflow Percent who have a Pre-Income Support Experience Fortnights before PPS spell in Percent On Income Support On Income Support at Least Once F G

► A focus on a single spell misses most of the key issues. ► The Australian welfare must be modeled as a general equilibrium system with special attention given to movements across programs and multiple spells ► Most flows occur within the system and not between an individual welfare programs and employment ► Partnership formation is more important than employment as a means of leaving the lone parent welfare program ► Lone mothers remain on welfare for long periods of time. Consequently welfare programs are about long term income support and not short run insurance ► Policy is now directed toward reducing lifetime dependence on welfare. The understanding of the nature of the welfare system has changed Summary

► Who are the mothers who experience a long time on welfare? ► Could easily be those who have a short spell in the initial inflow?

► Key Issues ► Why are lone mothers on welfare so long? ► What is the role of multiple spells? ► What is the role of different survival functions for different programs? ► What is the role of program changes? ► Most inflows are not new inflows but returnees. Hence a survival function is not about new inflows.