ARPA: Tales of Robin Hood (part 4): The long view – social policies and the life cycle

John Hills Good Times, Bad Times: The Welfare Myth of Them and Us, Policy Press, Bristol, 2014 (336 pp). ISBN 9781447320036 (paperback) RRP $45.99.

The answer to the questions of who benefits from the welfare state and who pays depends on which data are assembled and how those data are presented and analysed. In the previous article in this series (Whiteford 2015a), I looked at Chapter 3 of John Hills’ Good Times, Bad Times, in which he examines the distribution of benefits and taxes across the life course. Both Hills’ findings for the United Kingdom, and my own for Australia, showed that the measured impact of the welfare state from a life course perspective was different from our analyses made at a point in time—the focus in an earlier instalment (Whiteford 2015b). But there is yet more to the story. In moving from a point in time to a life course perspective, there is necessarily a large number of intermediate steps, such as changes of fortune and circumstance experienced within any single year and from year to year. Rather than showing the life course effects on individuals and families, these perspectives show us the impact of risks that individuals and their families face.

IT’S COMPLICATED: HIGH FREQUENCY LIVING

In Chapter 4, Hills looks at changes in people’s circumstances within a single year. He points out that for middle class individuals and families, such as the (fictional) Osbornes—particularly those in full-time work—incomes are largely predictable. This predictability is largely explained by their stable employment, but is also reinforced by the fact that the UK income tax and national insurance systems are adjusted monthly, so that regular workers neither overpay taxes nor receive end of year tax refunds. In contrast, the financial circumstances of Hills’ fictional sole-parent family, the Ackroyds, are far less stable. Michelle Ackroyd’s working hours vary with the school term calendar, so that the family’s tax credits and Housing Benefit change significantly during the year, reflecting the changes in her earnings in different months.

Generalising from the stylised stories of the Osbornes and Ackroyds is difficult due to the lack of detailed data in the UK on these within-year transitions. However, the London School of Economics conducted a small scale survey (Hills, Smithies & McKnight 2006), which had followed 60 couples with children and lone parents receiving tax credits in 2002–03 over the course of the 2003–04 financial year. Nearly half of the 180 adults originally in the sample dropped out of the study over the course of the year, but there were 93 households for whom complete information on a weekly basis was available. Only seven of the 93 families had stable weekly incomes over the course of the year, with another 21 having ‘broadly stable’ incomes (staying within 15 per cent of the annual average for ten or more periods). Thirty-two families stayed within 15 per cent off the average (up or down) for ten or more periods, but had large ‘blips’ in other periods. Twenty-six families had erratic income patterns, of whom eight had highly erratic patterns, with their earnings varying by up to £1,000 per month over a four-week period, or in one case from a high of £2,500 in earnings to zero.

These variations reflect family and demographic changes (in partnership status or number of children) and labour market changes (such as starting, changing or stopping jobs). While changes in benefits and tax credits generally smoothed incomes—rising when earnings fell and vice versa—in some cases they did the opposite, amplifying income changes. Hills points out that these results imply that, among those in low paid work, there is much short-term variation in circumstances. This is sometimes called the ‘low pay, no pay’ cycle, which affects what Guy Standing (2011) has labelled the ‘new precariat’. The ‘low pay, no pay’ cycle also suggests that the image of those on benefits as an unchanging mass who are permanently out of work cannot be right. Labour market statistics show this to be correct—Hills points out that in a typical three-month period in the UK, about one million people stop working and about one million gain jobs—but the rate of inflow increases by about 100,000 during a recession and 50,000 fewer people gain jobs each quarter when the labour market turns down (p. 89).

These labour market flows are reflected in benefit flows. Of those who started a claim for Jobseeker’s Allowance (the equivalent to Australia’s Newstart) in April 2007, fewer than 45 per cent lasted two months, 84 per cent lasted no more than six months, 6 per cent lasted a year and only 0.3 per cent were still on benefits after three years. Other benefits such as those for parents caring for children or with long-term disability do have longer durations, but again there are significant flows in and out of benefit receipt; Hills cites figures that on average between the late 1990s and the late 2000s between 16 and 17 per cent of working age households were ‘jobless’ (either unemployed or out of the labour force), but in any quarter about one-sixth of these would stop being workless to be replaced by those newly workless. Overall about 3 per cent of all working age households become workless in a typical quarter and 3 per cent move back into work.

So do we find similar patterns in Australia? As far as I am aware there are no surveys that specifically track household income changes from week to week, but labour force data suggest that the short answer is yes, although there are some differences. Just as Australia and the UK are usually classified as ‘liberal’ welfare states, their labour market institutions are often seen as ‘flexible’, marked by relatively low levels of employment protection (Organisation for Economic Co-operation and Development [OECD] 2013). In a study of institutional and policy determinants of labour market flows, the OECD (2010) found that the share of workers dismissed each year was somewhat higher in Australia than in Great Britain, at just under 4 per cent of all dependent employees; although both had lower dismissal rates than the United States (around 5 per cent), but both were also higher than France or Germany (closer to 3 per cent).

Labour force data for Australia also suggest high levels of labour market flows. The most recent data from the ABS Labour Force Experience Survey (Australian Bureau of Statistics 2011) show that, in the twelve months to February 2011, more than four million people changed their labour force status. While the average number of unemployed persons in each month of 2011 was around 600,000, 1.7 million persons overall looked for work at some time during the year, but of these fewer than 150,000 (8 per cent) spent the whole year looking for work.

Of those persons who looked for work at some time during this twelve-month period, 16 per cent looked for work from one to under four weeks, 37 per cent looked for work from four to under thirteen weeks, 18 per cent looked for work from thirteen to under 26 weeks, 20 per cent looked for work from 26 to under 52 weeks and, as already noted, only 8 per cent looked for work the whole year. Indeed of this 1.7 million, 69 per cent also worked at some stage in the year. For the majority of these persons (75 per cent), the time spent looking for work during this twelve month period was over a single period or spell. That said, 11 per cent had two spells looking for work and 14 per cent had three or more spells looking for work.

The ABS Labour Mobility Survey (Australian Bureau of Statistics 2013) gives a complementary perspective on these labour market flows, looking at mobility between jobs. The most recent data are for February 2013, when 11.5 million people aged fifteen years and over were working. Of these, more than two million had worked for their employer for less than twelve months, with about half of these having changed their employer/business in the last twelve months. A further one million had not changed their employer because they either were not working twelve months earlier, or they were multiple jobholders, or temporary or seasonal workers.

Unsurprisingly, the degree of mobility is related to the type of job people held. The occupational groups most likely to have been with their current employer/business for ten years or more were managers (38 per cent), professionals (29 per cent) and clerical and administrative workers (28 per cent). Those with the highest proportion of people who had worked with their current employer/business for less than twelve months were generally lower paid and included sales workers, labourers, and community and personal service workers (all 25 per cent) and machinery operators and drivers (21 per cent).

The industries with the highest proportion of people who had been with their current employer/business for ten years or more were agriculture, forestry and fishing (53 per cent), public administration and safety (37 per cent) and education and training (37 per cent). In contrast, nearly one in three people working in accommodation and food services had been with their employer for less than twelve months as had 27 per cent of those working in administrative and support services.

Roughly 16 per cent of those who worked during the year ceased a job during the twelve months to February 2013. Nearly 40 per cent of these people left their last job involuntarily. People who involuntarily left a job that they had been working in for one year or more were most likely to have left that job due to being retrenched or their employer going out of business (56 per cent). As in the UK, a high proportion of those who lose their job find a new one. Over half of the Australian workers who had ceased a job in the previous twelve months were working again in February 2013 (52 per cent).

The overall picture, therefore, is one of very large labour market flows—in 2011 nearly three times as many people become unemployed within the year are as were unemployed on average each month (when the ‘snapshot’ of the unemployment rate is taken). And of the people who became unemployed, not much more than one in ten stayed unemployed for the whole year. Looking at the Labour Force Experience Survey over time shows that, between 1994 and 2011, the ratio of those ever experiencing unemployment in a year to the average monthly number of unemployed varied between 2.2 and 3.3, with this ratio rising as the unemployment rate fell.

What might this mean for patterns of benefit receipt? It is possible to estimate flows off selected payments in Australia from administrative data reported by the Department of Social Services. For example, using this data, it can be shown that 39 per cent of those who first claimed Newstart in 2012 were still receiving the payment a year later (Department of Social Services 2013, 2014). Recent data show that of the roughly 460,000 people who began receiving Newstart in the twelve months to December 2013, 24 per cent had stopped within three months and 63 per cent within twelve months. The proportion of people still on Newstart after a year has been roughly constant for some time: of those who claimed Newstart in 2007, 43 per cent were still on payments a year later.

These figures appear to be much higher than the corresponding figures in the UK, where only 6 per cent of those claiming Jobseeker’s Allowance in 2007 were still on payments a year later. It seems likely that the greater persistence on benefits in Australia reflects the significant difference in how benefits are structured in the two countries. As discussed in earlier articles in this series, disregarding Housing Benefit, Australian benefit levels are higher than British benefits, and we do not have the distinction between in-work and out-of-work payments. Thus, 18 per cent of Youth Allowance (Other) recipients and 21 per cent of Newstart recipients have incomes in addition to their payments, whereas in the UK, most people with additional earnings would be receiving in-work tax credits rather than income support payments. Indeed, the level of earnings that would make a person ineligible for income support benefits in the UK is only slightly higher than the ‘free area’ in Australia, at which a beneficiary would be still receiving the maximum level of payment.

GOOD YEARS, BAD YEARS: REACTING TO CHANGE

In Chapter 5, Hills looks at how people’s incomes and circumstances change over the medium term. The income of the older Osbornes fluctuated between 2001 and 2010, reflecting changes such as their daughter moving back into the family home and the (more significant) health problems that led to heart surgery. As a result, their net income in 2010 terms varied between nearly £2,600 per week and just over £1,500 per week, but this simply meant that they moved between the top 1 per cent and 2 per cent of the national income distribution.

In contrast, the older Ackroyds saw more frequent changes in household composition, starting with three children at home, their adult children then starting work, their daughter Michelle (who we met as the sole parent head of the younger Ackroyd household earlier) moving back home with her child when her relationship broke up, and then the older Ackroyds ending as ‘empty nesters’. As a result, their cash income varied between £300 per week and over £700 per week over this period, but their position in the national (equivalised) income distribution varied from just above the bottom tenth of the population (when the main wage earner was unemployed) to be being better-off than nearly 60 per cent of the population (as empty nesters, but in work).

Hills then uses a range of data from the British Household Panel Survey (BHPS), which started in early 1991, to generalise from his fictional case studies to the national population. Hills quotes Jenkins (2011) to point out that identifying patterns underlying people’s lives is like ‘untangling cooked spaghetti’. Hills (p. 116) then quotes a study by Rigg and Sefton (2006) of the first ten years of the BHPS, which characterises people’s life trajectories over this ten-year period as either flat (self-explanatory), flat with blips, rising over the period, falling over the period, fluctuating (at least three substantive movements up or down the income distribution over a ten-year period), or other (everything else).

So what can we say about Australia? Australian longitudinal data have been available from the Household Income and Labour Dynamics in Australia (HILDA) survey since 2001, so we cannot observe changes over so long a period as in the UK. Even so, the HILDA data show that very large numbers of people both ascend and descend the income ladder (Wilkins 2013). People rise up the income distribution because they leave study and get jobs or because they are promoted at work or because they marry or because their children leave home. People fall down the income distribution because they retire or become unemployed, become sick or disabled or separate from partners, or because they start to have children.

Overall, between 2001 and 2010, only 2.2 per cent of the Australian population stayed at exactly the same percentile of the income distribution; around 21 per cent went up more than two deciles (through two bands made up of 10 per cent of income earners), close to 30 per cent went up by less than two deciles, 27 per cent went down by less than two deciles and 21 per cent went down by more than two deciles. In fact, only around 47 per cent of those who were among the poorest 20 per cent of the population in 2001 were still there in 2010, with the same percentage of those in the richest 20 per cent in 2001 still there in 2010. Mobility is greater in middle income groups because it is possible for them to experience both rises or falls in income, whereas if you start at the top you can only go down, and if you start at the bottom you can only go up. As a result, only a quarter of those in the middle 20 per cent of households in 2001 were still in the same income group in 2010, with a third being in a lower income group and close to 40 per cent being in a higher income group.

Partly as a consequence, as Figure 1 shows, 65.7 per cent of working-age Australians lived in a household where someone received welfare at some time between 2001 and 2009 (Whiteford 2013). In any one year during that decade, between 5 and 7 per cent of working-age Australians received 90 per cent or more of their income from welfare payments (not including family payments); and at some stage in the period, fully 15 per cent of the population was in that position (although only 1.2 per cent were reliant for all nine years).

The position for young people is even more striking. The 2013 HILDA report found that 80 per cent of people who were aged eighteen to 24 in 2001 received a welfare payment at some time between 2001 and 2011, but only 0.3 per cent of these people received 90 per cent of their income from welfare for all eleven years (Wilkins 2013). In other words, people of working age who are ‘welfare dependent’ for long periods are only a tiny percentage of the population, while many highly or very highly paid individuals face substantial risks of large income drops, associated particularly with health changes but also with changes in employment and family status.

In summary, as in the UK, the picture over a longer period is that many more Australians than is commonly thought need to call upon welfare state support at some time in their working lives, due to risks associated with labour market change and developments in family life as well as the prevalence of risks of sickness and disability. While the Australian welfare state appears less oriented to redistribution across the life course than the British welfare state, some of these risks for working age households may be more common in Australia. This would be consistent with the observation in earlier articles in this series that the Australian social security system redistributes more between working age households than between the working aged and the retired. In turn, these findings have implications for the myth of ‘them’ and ‘us’, the core argument of Hills’ book, and the topic of future articles in this series. Before turning to these myths, however, the next instalment will consider the transmission of advantage and disadvantage across generations.

REFERENCES

Australian Bureau of Statistics 2013, Labour Mobility, Australia, Cat. no. 6209.0, Australian Bureau of Statistics, Canberra [Online], Available: http://www.abs.gov.au/ausstats/abs@.nsf/mf/6209.0/ [2015, Oct 4].

Jenkins, S.P., 2011, Changing Fortunes: Income Mobility and Poverty Dynamics in Britain, Oxford University Press, Oxford.

OECD 2010, ‘Institutional and policy determinants of labour market flows’, OECD Employment Outlook 2013, Organisation for Economic Co-operation and Development, Paris. doi: 10.1787/empl_outlook-2010-4-en.

OECD 2013, ‘Protecting jobs, enhancing flexibility: A new look at employment protection legislation’, OECD Employment Outlook 2013, Organisation for Economic Co-operation and Development, Paris. doi: 10.1787/empl_outlook-2013-en.

Rigg, J. & Sefton, T. 2006, ‘Income dynamics and the life cycle’, Journal of Social Policy, vol. 35, no. 3, pp. 411–435.

Standing, G. 2011, The Precariat: The New Dangerous Class, Bloomsbury Academic, London.

Whiteford, P. 2015b, ‘Tales of Robin Hood (part 2): Are the poor too expensive? Redistribution and the welfare state’, Australian Review of Public Affairs [Online], Available: http://www.australianreview.net/digest/2015/09/whiteford2.html [2015, Oct 4].

Wilkins, R. (ed.) 2012, Families, Incomes and Jobs, Volume 7: A Statistical Report on Waves 1 to 9 of the Household, Income and Labour Dynamics in Australia Survey, Melbourne Institute of Applied Economic and Social Research, Melbourne [Online], Available: https://www.melbourneinstitute.com/downloads/hilda/Stat_Report/statreport-v7-2012.pdf [2015, Oct 4].

Wilkins, R. (ed.) 2013, Families, Incomes and Jobs, Volume 8: A Statistical Report on Waves 1 to 10 of the Household, Income and Labour Dynamics in Australia Survey, Melbourne Institute of Applied Economic and Social Research, Melbourne [Online], Available: https://www.melbourneinstitute.com/downloads/hilda/Stat_Report/statreport-v8-2013.pdf [2015, Oct 4].

Peter Whiteford is a Professor in the Crawford School of Public Policy at The Australian National University, Canberra. He has researched child poverty, family assistance policies, welfare reform, and other aspects of social policy, particularly ways of supporting the balance between work and family life over several decades.

View other articles in this series by Peter Whiteford:

Tales of Robin Hood (Part 3): The Long View – Social Policies and the Life Cycle (Digest, Oct 2015)
Tales of Robin Hood (Part 2): Are the Poor Too Expensive? Redistribution and the Welfare State (Digest, Sep 2015)
Tales of Robin Hood (Part 1): Welfare Myths and Realities in the United Kingdom and Australia (Digest, Sep 2015)

Tales of Robin Hood (part 4): Social security and risk over the short and medium terms

IT’S COMPLICATED: HIGH FREQUENCY LIVING

GOOD YEARS, BAD YEARS: REACTING TO CHANGE

REFERENCES