POVERTY, INEQUALITY

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POVERTY, INEQUALITY WELFARE

• ECONOMIC THINKING POLITICAL FEASIBILITY
• Bruce Headey
• Melbourne Institute
• Univ. of Melbourne

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OVERVIEW

• Contents quite a lot about poverty, a bit about
  inequality.mostly about welfare policy
• Themes questions economic thinking stresses
  efficiency in welfare policy (targetting,
  minimise work disincentives) but this is only one
  perspective. My training is in pol. sci. more
  than economics, so
• Political feasibility coalition building also
  critical. Is poverty any longer sellable??
• Comprehensive reform vs incremental
  category-based reforms

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POVERTY DEBATED CONCEPTS

• Absolute relative poverty some say only
  absolute poverty should count, but is there any
  such thing? (cf. Amer. pov. line).
• Relative poverty cant participate in mainstream
  lifestyle. Surveys show that below 50 of median
  income is widely considered poor.
• Relative poverty often said to be impossible to
  abolish not true (15 billion would do the job
  in Oz). but is it sellable?
• The Aussie battle over relative standards
  Saunders ( Harding) of the Left vs Saunders of
  the Right

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RELATIVE POVERTY SOCIAL EXCLUSION

• 2 widely used relative poverty lines 50 of
  median national disposable income (old OECD
  line) 60 of median (approxmean) which is new
  EU/OECD line. Netherlands and UK have adopted the
  latter line BUT.
• Social Exclusion is the current trendy approach
  to selling relative poverty in Europe. Many
  echoes in the McClure Report in Oz, though
  marginalisation and mutual obligation more
  favoured.

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WHAT DOES SOCIAL EXCLUSION MEAN?

• Social exclusion same basic idea as relative
  poverty.involuntary exclusion from mainstream
  lifestyle
• Academics debate meanings and measures does
  ending exclusion mean abolishing multiple
  deprivation OR ensuring that all level of
  living standards are met (Swedish approach)
• Politicians seem to have in mind specific
  excluded groups single parents, unemployed,
  disabled, immigrants. Politically, it helps to
  add groups whom you want to assist e.g. casual
  workers, pre-old pensioners.

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AUSSIE TRADITIONS CONCEPTS

• N.B. No Aussie Gov has ever adopted an official
  poverty line, although FACS does see poverty
  alleviation as one of its central objectives.
• Motto the poor are those whom we are willing
  to help (Simmel).
• This viewpoint leads to distinctions between the
  deserving and undeserving poor, to
  categorical programs and, historically, to a
  sharp distinction between pensions and benefits.
• Benefits (undeserving poor) only set at safety
  net/social protection levels.

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AUSSIE TRADITIONS CONCEPTS (contd)

• Australia as the working mans welfare state
  (Frank Castles). Hence
• A decent wage importance of the labour market
  arbitration system - Harvester Judgment,
  Henderson poverty line an attempt to extend this
  idea to non-workers
• Peter Saunders (SPRC) recent study of adequate
  and modest budget standards done for the ACTU
  and the minimum wage case
• BUT decent wage idea almost defunct shot down
  by economists on efficiency/productivity grounds.
  Neither party wants to revive it (?)

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ECONOMIC ANALYSES OF POVERTY - advances

• Two key research findings to incorporate in
  Aussie policy debates
• Is poverty mainly long term or short term?
• The Michigan panel (PSID) results only 1 were
  poor for 10 years running but..
• HILDA just starting in Oz
• Need to measure consumption as well as income to
  know if a family is poor some who are income
  poor are not consumption poor

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INEQUALITY

• Key distinction (in)equality of outcomes/results
  and (in)equality of opportunity (equal on the
  starting line give everyone a good start a
  chance to develop abilities).
• No Aussie Gov has aimed to achieve equality of
  outcomes. Requires unpopular interventions like
  wage solidarity and positive discrimination.
• In Oz, education policy is main vehicle for
  equality of opportunity recent e.g. is Lathams
  proposal of free books for babies.

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Measures of Inequality

• Equality of outcomes/results
• Gini coefficient
• Decile ratio (90/10 ratio)
• Equality of opportunity
• low income/low SES students attending
  universities
• rates of occupational mobility/social mobility

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SOCIAL (WELFARE) POLICY

• Now the most important topic policy reform
• Before discussing economists ideas/prejudices
  about social policy, I want to highlight two
  contrasting approaches to policy reform

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SOCIAL (WELFARE) POLICYContrasting approaches
to reform

• Comprehensive reform
• Academics and poverty reform/welfare reform
  commissions usually favour comprehensive reform
  (e.g. GMI guarenteed minimum income)
• Categorical/incremental reforms
• .whereas on political feasibility grounds almost
  all reforms which get through the system are
  categorical and incremental

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FEATURES OF COMPREHENSIVE vs CATEGORICAL REFORM

• Universal coverage
• e.g. all of the poor
• non-deserving at least partly included
• Cash benefits
• Targetting no spillover to non-poor

• Specific target groups
• e.g. the disabled large families
• non-deserving excluded e.g. singles
• Benefits in kind as well as cash
• Lots of spillover helps political feasibility

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ECONOMISTS IDEAS/PREJUDICES ABOUT SOCIAL POLICY
REFORM

• We are now in a better position to evaluate
  economists ideas about reform. Economists tend
  to favour
• Targetting Beckermans concept of an efficient
  poverty program. Australia has easily the most
  targetted welfare programs in OECD. Arguably,
  this endangers long term support for the welfare
  state
• The leaky bucket experiment (Arthur M. Okun)

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MORE IDEAS/PREJUDICES

• Work disincentives avoid at all costs!
• No idea has so dominated the Australian
  American policy debates as this one. Reform MUST
  avoid and preferably reduce work disincentives.
• The operating concept is effective marginal tax
  rates (EMTRs)
• A question how credible is this line of
  argument??

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IDEAS with SOME SUPPORT AMONG ECONOMISTS

• lumpy investments might be a good thing
  (contrast with drip-feed welfare). See
  Blair/Latham proposals about child endowments and
  Lathams ideas about allowing people to use their
  super, or social security bank accounts, for
  investment purposes. But efficiency concerns..
• Contracts based on mutual incentives might be a
  good thing. Hence support for activity tests and
  mutual obligation provisions. But, again,
  efficiency concerns..

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SOURCES

• Bertelsmann Foundation International Reform
  Monitor. Published 2x a year. Covers social
  policy, labour market policy ind. relats.
  Policy
• Office of Social Exclusion, Cabinet Office, UK
• Aussie sources Social Policy Research Centre
  (SPRC), NATSEM, Australian Inst. Of Health
  Welfare, Melbourne Institute (MI)

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WORKSHOPS/DISCUSSION

• Is poverty a sellable idea? If not, what is?
• Will social exclusion have legs in Oz?
• Can categorical/incremental reform do the job?
  i.e. can existing programs be extended and
  improved sufficiently?
• Can economists ideas/prejudices about targetting
  and work disincentives, which have dominated
  recent welfare reform, be countered?