Welfare, Work and Kids
There have been a number of postings over the Blogosphere following Judy Turner's press release on children born to parents on benefits. The usual suspects DPF (with lots of comments), NZPundit and Genius predictably support Judy Turner's position while NRT (no less predictably) takes the opposing view. Since Judy Turner is the United Future social services spokeswoman I thought I'd take a look from the middle-of-the-road, common-sense, pro-family perspective.
The objections to beneficiaries having children seem to be that
(1) They are turning the benefit into a lifestyle choice.
(2) They are exposing their children to poverty.
(3) They are bringing up children who will be a net liability to NZ as a whole.
The first objection is based on the "child allowance" component of the benefit. This is slightly under $3000 per child whether on DPB or unemployment benefit (somewhat less in real terms than the old universal family benefit which was set at 1 pound per week in 1946). This amount is however paid to low and middle income earners (with children) as well as beneficiaries. It cannot therefore incentivise a parent with existing children to go on a benefit. Nor does an additional child reduce the financial incentive for a beneficiary parent to find work. The child allowance reduces the financial disincentive for beneficiaries or low-income wage earners to have children but it does not make it financially advantageous.
In NZ we try to minimise child poverty and benefits (particularly for families) are set at a level designed to achieve that. The circumstances of low-income working families are little different to beneficiaries so any objection to beneficiaries having children should, to be consistent, also apply to low-income working families. This point is strengthened by considering that many working families may, in fact, be classified as beneficiaries. Consider a single-income two-parent family with two children paying $200 pw rent in Napier. If they earn $560 per week they will still be eligible (just) for an unemployment benefit of about $7 per week (plus accommodation supplement and family support). They would have a disposable income (after rent, tax and benefits) of $359 pw but would be classed as beneficiaries (if they bothered to apply or were already on it). On the minimum wage ($320 per week?) the unemployment benefit would be $175 per week and the disposable income $329 pw. With incomes of $80 pw or less the benefit is unabated at $343 pw and the disposable income will range from $246-299. Single-income two-parent beneficiary families with two children, living in secondary centres and paying $200 pw accommodation costs, therefore have weekly disposable incomes in he range $246 - 359 (with most over $300). On the average wage ($40,000 py) the disposable income increases to only $414. Hardly enough to define the difference between poverty and plenty.
Similarly with the argument that it is desirable (from a national perspective) to limit the fraction of the next generation born to the lower socio-economic groups. Leaving aside the dodgy historical ancestry of eugenics, any reduction in births in one group must be offset by an increase in other groups or lead to an overall reduction in the birth rate. NZ's birth rate is already below replacement and there is no evidence of a baby boom amongst the rich. Nor is there any practical policy I can imagine (much less accept)that might promote such a boom. Given our current demographics our children are our future and the solution to child poverty is to get rid of the poverty not the child.
Most families make decisions about family size and spacing based on a complex mix of health, social and financial issues including the optimum age for the mother to give birth, closeness of age of children, age of parents when children are grown up, magnitude of generation gap between parents and teenage children, relative preferences for permanent (vasectomy, tubal ligation) and temporary contraception and minimising the period of maximum economic sacrifice (when youngest child is under 5). Most of theses considerations are just as valid for beneficiaries as for wage and salary earners and there seems little reason to expect the minimal difference in disposable income between "beneficiaries and low-middle wage earners" to be a dominant consideration.
If we consider our couple in Napier again but assumed they started off as a young two-income couple earning (say) $480 and $360 pw and paying rent of $120 pw for a small flat. When the wife became pregnant they used their savings to put a deposit on a house taking out a fixed-rate interest-only mortgage for most of the price. Suppose the husband's income remains steady at $480 pw and his wife stays at home bearing two more children at two year intervals but finally returns to work (part-time earning $200 pw) when the youngest child starts school. The couple will have achieved the Kiwi goal of home ownership and successfully raised a family of three children but will have been eligible for (and presumably received) an unemployment benefit of between $42 and $64 per week. All 3 children will have been born on the benefit. The weekly disposable income for the family drops from $566 before they buy the house and the mother leaves work to have the first child to $320 immediatlely after. The disposable income (while on a partial benefit) rises to $323, $355 and $389 with the birth of the three children. When the mother returns to part-time work their disposable income rises to $467, enabling them to convert to a table mortgage and have their house debt-free well before retirement. It would be absurd to suggest that they should have deferred having the second and third child until they were off the benefit as this would mean waiting till each child turned five before "starting" the next one. This would have increased the total period of benefit eligibility (and depressed disposable incomes) from 9 to 15 years.
The raw numbers quoted by Judy Turner are difficult to put in any sort of perspective. That 26,000 women currently on a (major?) benefit have (at some time in the past) had children while on a benefit does not give much of an idea of how many beneficiaries are getting pregnant at any given time. There is also the question of definitions alluded to earlier. A person with a dependent family may be employed full-time (and not necessarily at sweatshop rates) and still be eligible for an (abated) unemployment benefit or DPB. Such families are presumably included in Judy Turner's figures although we would not normally consider them beneficiaries.
The 2003 Labour Force Survey gives a breakdown of employment type versus number of dependent children and by the age of the youngest dependent child.
This shows that
(1) About 83% of all families with dependent children have at least one working adult
(2) Single parent families account for about 28% of all families with dependent children but 77% of non-working families (neither or sole parent not working).
(3) two-parent households have similar numbers of dependent children (on average) regardless of employment status (both employed=1.82, one employed=1.90, neither employed 1.93)
(4) unemployed single-parent families have a similar number of dependent children to two-income families (1.80) but employed single-parent families have significantly smaller families (1.50).
I have done some further analyses on these figures which you can view in this spreadsheet. This suggest that
(5) two-parent families have high (94-96%) "Primary Employment Rates" (at least one parent working) regardless of the age of the youngest child or number of children. Families with very high numbers of "dependendent children" may be an exception but the numbers of such families are low and may include (eg) retired families.
(6) "Secondary employments rates" (both parents working) are lower (~75%) for families with youngest child over 5 and much lower (47%) for families with any child under 5. There is a specific preference for families with exactly one parent working where the youngest child is under 5 but an aversion for such families where the youngst child is 5 or over. This may reflect current financial incentives for two-income families combined with practical obstacles to providing full time childcare (for pre-school children) when both parents work.
(7) "Employment rates" for single parent families increase consistently with the age of the youngest child and decrease consistently with the number of dependents. The actual rates are usually lower than the secondary rates for two-parent families and approach them in inly the most favourable cases (1 child, or youngest child between 15 and 18). This probably reflects reduced financial incentives (compared to two-income families) and reduced options for sharing childcare with partner.
In a society where the two-income family is the norm single-income (whether one or two-parent) families will naturally tend to be relatively poor. But not too poor to give their children a loving home, a decent education and caring values. Ever since Rob Muldoon discovered that you could buy more votes with age care than child care (and fund it on the never never), NZ has made disproportionate public provision for the dependent aged compared to the dependent young. The "working for families" package will help restore some of the balance (at least it converts the poverty trap to a "reasonably comfortably off trap"). United Future's income-splitting policy would also help but only a complete move to a universal "basic income" system will restore complete fairness to families (and others). Such a move would have the interesting side effect of eliminating the (increasingly artificial) distinction between beneficiaries and workers thereby making Judy Turner's press release and this posting impossible.
[Greyshade signs off in a puff of logic]
(1) Some of the figures in my original example used the wrong rental value. I've corrected the values now. The differences weren't material but my apologies.
(2)Sage has posted referring to this item. He suggests that I have come to conclusions at variance with the evidence I present. I'm not quite sure what conclusions that would be. I certainly don't endorse the current compressed incentives for low-middle income families to work. FWIW the examples I quoted are based on current (ie fy2005) tax and benefit rates. The working for families package will improve the margins as they come in over the next three years. The respective "disposable incomes" for the example family I gave ($200 pw rent, etc) on annual earnings of $4160 and $40,000 will increase to $370 and $554 respectively compared to 299 and 414 at present but the marginal "effective tax rate" is still 75% (compared to 84%). Note also that the example I gave of a "beneficiary family" earning $560 a week before tax and benefits was for one parent working full time (and one caring for children) fulltime. Having raised my own family that way (and paying an AVERAGE 40% tax at the same time) I can assure you that this is no "hammock road".
I don't accept that the problem has been caused by "successive governments pushing up the base benefit levels because this simply hasn't happened. This reference gives a good background to historical changes in NZ Social Welfare policy and it's quite clear (eg from Fig 3 P23) that the net benefit for a sole parent with one child is much the same now as it was in 1950. The biggest change in NZ society has been the move from single-income to two-income families as the norm.
Many families wish to invest at least one "Full-time parent equivalent" in childcare at least while the youngest child is under 5 and that seems a perfectly reasonable choice. But it creates a relatively limited time of economic vulnerability for that family (unless they have particularly high earning potential). The case for a universal benefit over this period seems at least as strong as that for people aged over 65.