What is Poverty? Content

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1 What is Poverty? Content What is poverty? What are the terms used? How can we measure poverty? What is Consistent Poverty? What is Relative Income Poverty? What is the current data on poverty? Why have the measures diverged? Different measures, different results? What does the State do about poverty? Why are strategies needed? What is the National Anti-Poverty Strategy? (NAPS) What is the National Action Plan against Poverty and Social Exclusion (NAP/Inclusion)? Who are the vulnerable groups? What is poverty? The definition of poverty underpinning the National Anti-Poverty Strategy (NAPS) and the National Action Plan against Poverty and Social Exclusion (NAP/Inclusion) is: 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. As a result of inadequate income and other resources people may be excluded and marginalised from participating in activities, which are considered the norm for other people in society. What are the terms used? Many words within poverty and social inclusion are used interchangeably. However, they do have different meanings, as defined below:

2 Deprivation is defined as unmet basic human needs;, Poverty is deprivation due to a lack of resources, both material and non-material, e.g. income, housing, health, education, knowledge and culture. It requires a threshold to measure it; Social exclusion is being unable to participate in society because of a lack of resources that are customarily available to the general population. It can refer to both individuals, and communities in a broader framework, with linked problems such as low incomes, poor housing, high crime environments and family problems; Inequality is a comparative or relative concept. It does not measure deprivation or poverty and does not require a threshold. It is possible for inequality to exist with or without poverty. Similarly, poverty can exist with or without inequality; Resources can be personal, within the family, or within the society. How can we measure poverty? There is no one measure that will give a perfect picture of the situation regarding deprivation, poverty and social inclusion. This is particularly true for a country like Ireland that has experienced rapid economic growth over the last ten years. Therefore, a number of indicators are used to measure progress in achieving social inclusion: covering areas such as income before and after social transfers, persistent poverty, early school leavers, jobless households, long term unemployment, life expectancy etc. In general the focus on poverty and social inclusion continues to be on income poverty alone. Two main measures are used to measure poverty i.e. Consistent Poverty and Relative Income Poverty. What is Consistent Poverty? A major priority of Government has been to reduce the numbers who are most deprived. To identify those in that situation, the Economic and Social Research Institute (ESRI) developed an indicator for what is termed consistent poverty. Applying this indicator requires using relative income (in this case mean income which is the average of all incomes) to identify those who are at risk of poverty. It then involves identifying those suffering deprivation

3 using indicators of deprivation based on surveys of what Irish people consider are necessary to ensure a basically adequate standard of living e.g. New not second hand clothes Without heating in past year Debt problems Consistent poverty is the agreed measure for the key target in the NAPS, which is, by 2007, to reduce the numbers of those who are 'consistently poor' below 2per cent and, if possible, eliminate consistent poverty, under the current definition of consistent poverty. What is Relative Income Poverty? Relative income poverty defines those who are poor as being below a certain income threshold, usually 60 per cent of the median income. Median income is the figure that divides the income distribution in society into two equal parts, half having incomes above the median and half having incomes below the median. The EU refer to this as the risk of poverty rate. It should be noted that people below this income threshold are not necessarily in poverty. The EU refers to them instead as being at risk of poverty. Whether they are in poverty will depend on a number of factors. These include: The degree to which income is below the relevant thresholds; The length of time on this relatively low income a long such period can lead to real deprivation, as a person s assets run down and cannot be fully maintained or replaced; Possession and use of other assets, especially one s own home. What is the current data on poverty? Living in Ireland Survey The Living in Ireland Survey (LIIS), undertaken by the Economic and Social Research Institute (ESRI) between 1994 and 2001, was until recently, the source of all Irish data on poverty for both national and international fora. This indicated that both consistent poverty and relative poverty recorded significant changes, and had diverged greatly (based on 2001 survey data). There were major reductions in the numbers of people experiencing consistent poverty - falling from 15.1 per cent in 1994, to 9.7 per cent in 1997, and to

4 5.2per cent in Equally there was an encouraging drop in figures for consistent child poverty, again dropping from 15.3 per cent in 1997 to 6.5 per cent in In the same period, the number of those experiencing relative income poverty increased from 15.6 per cent in 1994, to 18.2 per cent in 1997, and to 21.9 per cent in These figures can be seen below: Relative Income Poverty and Consistent Poverty ( ) Source: ESRI, Monitoring Poverty Trends in Ireland 2001 EU Survey on Income and Living Conditions This LIIS has been replaced by the new EU Survey on Income and Living Conditions (EU-SILC). This will be an annual survey and it will thus be possible to have timely data available to allow for study and comparison. Common EU indicators will be collected for all EU countries which should facilitate cross country comparisons The Central Statistics Office (CSO) has responsibility for this new survey, and published Ireland s first results on 24 January 2005, based on data for the year For full details on EU-SILC go to the CSO website. The results show that hard data on incomes remain consistent with previous surveys - a small rise in the percentage of those at risk of poverty is recorded and it is now at 22.7% at the 60% median income threshold. However, results for the more subjective

5 consistent poverty measure (which measures relative income and deprivation) are not comparable to the previous surveys and the CSO state that no conclusions can therefore be drawn regarding the direction or scale of any real changes in this measure between 2001 and The consistent poverty measure for individuals in EU- SILC is now at 9.4% at the 60% of median income threshold. Statistical Differences Both CSO and ESRI do not consider, from a statistical perspective, that the level of difference between the two surveys is unusual, nor does the question of one being more correct than the other arise. Differences of this order of magnitude are not unusual between surveys and they are not peculiar to the Irish situation. Differences cited by these bodies which may explain the variations include: Variations in the question format and the way in which some questions were posed: It is estimated that close to half the overall difference between the two survey results may be accounted for by these questionnaire changes. Different surveys give different results the ESRI survey was a panel survey, CSO a cross-sectional one: independent evidence suggests that panel effects account for differences in the way people respond. This could account for most of the remaining differences. The subjective and sensitive nature of the questions asked to measure levels of deprivation. Key Message Regardless of the statistical differences, the key messages which must be taken from both surveys are that certain groups of people are at a higher risk of poverty. Both surveys support one another in that both point to the consistently poor as being a subset of those below relative income thresholds, and identify the same groups as being at above-average risk of poverty and deprivation e.g. families with children, especially lone parents and large families on low incomes, people with disabilities, the long term unemployed and the elderly, especially those living alone. It is important to note that the data also tells us that real improvements are being made. This is apparent in another indicator quoted in EU-SILC which measures the gap in income for those who fall below the 60% median income. This indicator, called the

6 relative at risk of poverty gap compares the median income of those below the poverty line relative to the overall 60% median income line. In other words, it tells us how far people are from the overall threshold, and has been described as a measure of how poor the poor are. The EU-SILC indicates that the median income of people at risk of poverty is now 16.3 per cent below the threshold in 2003, which is a significant improvement on the 20.7 per cent of people below the threshold in This is the type of outcome to be expected and to be welcomed from the major increases in real terms in social welfare payments and in employment participation. Another important indicator is the one that measures the impact of social welfare payments, referred to as the risk of poverty before and after social transfers. This indicator tells us what the risk of poverty rate would be if social transfers (old age, survivors and all other social transfers) did not exist. This is shown in the graph below for all age groups, and we can see that State pensions are particularly important for the older age group who rely on the oldage pension as a major part of their income. Government Response In responding to the EU-SILC figures, the Minister for Social and Family Affairs Seamus Brennan T.D. confirmed that resources will continue to be targeted at those most in need. He pointed out that, between 2001 and 2005 spending on social welfare increased from 7.8 billion euro to 12.2 billion euro. During the same period the lowest social welfare rates have increased by 40 per cent while the

7 Consumer Price Index has increased by just over 13 per cent. As a result of Budget 2005, welfare payments have increased by three times the expected rate of inflation. For the Minister s Press Release on EU-SILC, go to 02.rtf Why have the measures diverged? The main explanation for this divergence is the growth in employment and the way in which real incomes rose in Ireland, due to rapid economic growth between 1994 and 2001: with the 60 per cent median income threshold rising from just over 83 in 1994 to 164 in While both social welfare incomes and wages rose in real terms, the rise in wages together with tax reforms was far greater. This resulted in a shift in poverty from the active (i.e., employed or unemployed) to the inactive population. When one examines poverty by household composition; 41 per cent of those at risk in 1994 were unemployed compared to 7 per cent today, and they have largely been replaced by inactive people. Therefore, those who were dependent on social welfare experienced a decline in their incomes relative to those in employment. This particularly affected the elderly, people with disabilities, and those on home duties. An example of this is that just one in twenty of the elderly were at risk of poverty in 1994 compared to nearly one in two by However, it is important to note that the growth in all incomes did increase the living standards of all groups and this is reflected in the decline of the consistent poverty measure in the same period. The ESRI have noted that, unlike the relative income measure, the consistent poverty measure does not reflect the changing relativities in levels of incomes and so divergent trends become apparent. They also note that both measures, taken together, provide a coherent set of underlying trends and that these diverging trends represent

8 different aspects of the complex realities associated with this unprecedented period of economic and social change (2004). Different measures, different results? Two Views of Irish Poverty Trends In order to ensure comparability across nations, most comparative databases, such as the Luxembourg Income Study (LIS, measure poverty on a relative basis. For point in time comparisons across higher income countries, this is the most informative approach. But when countries experience rapid economic growth as in the case of Ireland in the late 1990 s relative poverty measures on their own can sometimes be misleading. Below we present two different time series of poverty in Ireland, from : Ireland 50% of median 60% of median Relative Poverty Line Anchored Poverty Line Relative Poverty Line Anchored Poverty Line Percentage Change By the 60 percent of the annual median relative poverty line, the European Union measure, poverty rose 11.4 percent over this period in Ireland. But if we set the poverty line at 60 percent of the 1994 median and increase the poverty line only by consumer prices

9 -the anchored poverty line approach - Irish poverty falls by 55.9 percent! Much the same story is evident for the 50 percent of median line favored by most international analysts of poverty (Figure 1). Here poverty rates of 11.9 percent in1994 bifurcate to 16.5 percent on a relative basis, while falling to only 3.5 percent using the anchored approach. Figure 1. Trend in poverty rate in the second half of the 1990's in Ireland The moral of the story is that when economic conditions change rapidly, relative poverty trends are not always giving a complete picture of the way that economic change affects people s lives. The relative trends suggest that not all incomes in Ireland grew at the same rate and that low incomes grew at a slower rate than did higher incomes (or relative poverty would also have fallen). But even so, lower incomes grew enough to reduce the anchored poverty by almost half. In particular, social transfers rose substantially in real terms, so pensioners for example, saw their living standards improve markedly but still lagged behind rapidlyrising incomes from employment and profits. Judging whether this represents pro-poor economic growth should be left to the reader. But both sides of the poverty story should also be told. The information in this answer was prepared by

10 Brain Nolan, ESRI Ireland Teresa Munzi and Tim Smeeding, LIS, Luxembourg What does the State do about poverty? Having a job with good pay is one of the best routes out of poverty. The primary aim of the State is to ensure that more and better jobs are provided. It also supports people in getting these jobs through providing education and training and making lifelong learning possible. For those who do not have a job or who cannot work, the State normally provides a weekly Social Welfare payment, with extra benefits and allowances for children. It also aims to ensure that all residents have access to essential services such as education, health, care, housing, transport, culture and sports. Why are strategies needed? Joined up multi-policy strategies or plans, with clear objectives and targets, are needed to effectively combat the many causes of poverty and social exclusion. The main ones are: National Anti- Poverty Strategy and What is the National Action Plan against Poverty and Social Exclusion (NAP/Inclusion). What is the National Anti-Poverty Strategy? (NAPS) The National Anti-Poverty Strategy (NAPS), originally published in 1997, is a ten-year Government plan to reduce poverty. The current plan, Building an Inclusive Society was launched in 2002 and is a revision of the 1997 plan. The NAPS sets: An objective of reducing and ideally eliminating poverty in Ireland A specific target of eliminating long term unemployment A new benchmark for the lowest social welfare payments of Eur150 by 2007 (in 2002 terms)

11 What is the National Action Plan against Poverty and Social Exclusion (NAP/Inclusion)? The Government's second National Action Plan against Poverty and Social Exclusion (NAP/Inclusion) was more recently launched in 2003 as part of an EU- wide effort to make a decisive impact on poverty by Each EU member state has published a NAP/Inclusion. Both NAPS and the NAP/Inclusion were developed in consultation with the social partners - representatives of business, trade unions, community and voluntary sector and farmers. The NAP/Inclusion incorporates NAPS commitments and relevant social inclusion commitments from Sustaining Progress, the current social partnership agreement. The keys areas identified for action in the revised NAPS (2002) and NAP/Inclusion (2003) are: unemployment income adequacy educational disadvantage health housing disadvantaged rural and urban areas. These policies contain targets under the various themes (outlined above) and take account of the following groups at risk of poverty: older people, children, women, people with disabilities and new and emerging groups such as migrants and ethnic minorities. Who are the vulnerable groups in the National Action Plan ? The vulnerable groups identified in the NAP/inclusion are 1. Women 2. Children and young people 3. Older People 4. People with Disabilities 5. Travellers

12 6. Prisioners and ex-prisioners 7. Urban poverty and rural disadvantage Also listed as "Areas of special attention" 1. Gender 2. Migrants and Ethnic Minorities