Poverty Measurement in Ireland Brian Nolan UCD Second Peter Townsend Memorial Conference Bristol, Jan. 2011

Outline The evolution of poverty measurement in Ireland over the last 25 years Some trends in key poverty indicators Some lessons?

The Evolution of Poverty Measurement in Ireland In 1970s and 1980s, poverty discussed with reference to –relative income poverty rates –numbers on safety-net social security or below income thresholds derived from them –Numbers below adequacy standards proposed by official Commission on Social Welfare

The Evolution of Poverty Measurement in Ireland Survey-based research in ESRI in late 1980s/early 1990s included both income and deprivation measures, latter heavily influenced by Townsend Emphasised limitations of low income on its own in distinguishing those experiencing generalised deprivation Income did not distinguish those manifestly experiencing exclusion due to lack of resources –Significant proportion of low income households not relatively deprived –Significant proportion of those just above commonly-used relative thresholds were relatively highly deprived –For a variety of reasons Proposed combining low income vis-à-vis relative benchmarks with “basic” deprivation to measure “consistent poverty”

The Evolution of Poverty Measurement in Ireland 8 “basic deprivation” items originally used in constructing consistent poverty measure Unable to afford –new (not second-hand) clothes –two pairs of strong shoes –a meal with meat, chicken, fish every second day –warm overcoat –a roast once a week went without substantial meal went without heating during the last 12 months through lack of money debt problems in relation to ordinary living expenses

The Evolution of Poverty Measurement in Ireland These items selected as capturing “basic deprivation” on the basis of –Factor analysis distinguished these as distinct dimension of deprivation –This cluster had relatively strong relationship with income (compared with e.g. housing or neighbourhood-related items) –Most regarded as necessity by substantial majority - but this not applied as criterion –Validated with reference to socio-economic profile, and relationship with self-assessed economic stress

The Evolution of Poverty Measurement in Ireland Those ‘consistently poor’ distinctive in terms of socio-economic profile (far fewer farmers, self- employed than low income population, more unemployed, ill, lone parents) High levels of self-assessed economic stress Very few savings/liquid financial assets Low wealth Implications as much for profile of those affected and underlying causal processes as for overall scale

Poverty Measurement and Anti- Poverty Strategy Ireland adopted formal explicit national anti-poverty strategy (NAPS) in 1997 “People are living in poverty if their income and resources (material, cultural and social) are so inadequate as to preclude them from having a standard of living which is regarded as acceptable by Irish society generally. …excluded from participating in activities which are considered the norm for other people in society.” Original NAPS global target: reduce poverty by 2007 from (9-)15% to less than (5-)10% “as measured by the ESRI” –i.e. the numbers below (50% or) 60% relative income line and experiencing basic deprivation By 1999, clear this had already been achieved, target revised to < 5% by 2004 Then to < 2%, still based on original set of deprivation items

The Evolution of Poverty Measurement in Ireland In principle, clear from outset that indicators should be adapted over time as standards change Incomes rose very rapidly in second half of 1990s, levels of deprivation fell markedly, views about necessities also seen to change Change from LII/ECHP survey to EU-SILC 2001/2003 meant some changes in items available in survey Adapted set of 11 items, 6 from earlier index + 5 new items relating to involvement in family and social life.

The Evolution of Poverty Measurement in Ireland OLD ITEMS: Two pairs of strong shoes A warm waterproof coat New rather than second-hand clothes Meal with meat, chicken, fish (or vegetarian equivalent) every second day A roast joint (or its equivalent) once a week Went without heating during the last 12 months through lack of money [dropped “went without meal” and “debt problems”] NEW ITEMS: Able to afford to Give presents to family or friends at least once a year Keep the home adequately warm Replace any worn out furniture Have family or friends for a drink or meal once a month Have a morning, afternoon or evening out in the last fortnight, for entertainment

Evolution of Poverty Measurement in Ireland Consistent poverty now = below 60% of median equivalised income plus enforced absence of at least two items from 11-item deprivation scale Change from LII survey to EU-SILC also meant measured deprivation levels higher in 2003 Net result: level of consistent poverty in 2003 with new survey and measure similar to 2001 with original measure

Deprivation by Consistent Poverty, 2004

Relative Income Poverty

‘Consistent’ Poverty

Understanding the Trends Unemployment fell from 16% to 4% by 2000, and remained low to 2007 Social welfare rates lagged behind average income in early part of boom Real living standards rose for everyone, but elderly esp. fell behind (heavily reliant on flat-rate SW pensions) But from 2000 social welfare rates caught up Fall in ‘consistent’ poverty reflects sharp declines in deprivation levels

Understanding the Trends: “Bust” in 2008 led to sharp increase in unemployment, but also falling earnings/profits for those still in work Social welfare initially protected as incomes fell during recession Then cut for working-age recipients but not pensions Substantial direct tax increases, progressive So Gini down!

Profiles “Consistently poor” have markedly different profile to those below income lines Points towards longer-term unemployed, lone parents, some working families, disability as key priority groups for policy Elderly as a group have much lower rates of consistent poverty because of low deprivation But sub-set of those on means-tested pensions have higher rates

Lessons? No one indicator tells us all we want to know about poverty and exxclusion! Both income and deprivation are measured imprecisely Both living standards and relativities matter In the short term, improvements in living standards have an immediate and important impact on deprivation In the longer term, expectations adjust so distance from the median also matters for “participation in ordinary life of society”

A Tiered Approach? Three-tiered approach to monitoring progress suggested: Want to see: –1/ Real incomes rising and deprivation levels falling for those on low incomes –2/ Consistent poverty falling (with both fixed and slowly changing set of items) –3/ Relative income poverty falling Priority ordering as listed

Monitoring the Tiers at EU Level Tier 1: Numbers below income poverty thresholds anchored at a point in time; material deprivation indicator Tier 2: Could measure consistent poverty with common set of items and common or varying weights Tier 3: Numbers below relative income thresholds; numbers persistently below those thresholds; poverty gaps

Conclusions Measuring deprivation directly is invaluable Tiered approach better than sole focus on either relative income, “constant” income or consistent poverty in measuring progress Focus on –Real incomes and living standards –Consistent poverty –Relative income poverty ‘Consistent poverty’ helps identify a distinctive group experiencing generalised deprivation due to lack of resources, priority group for policy as well as teasing out processes