[A.S: 91228 POVERTY, INEQUITY AND INEQUALITY IN NEW ZEALAND] Analyse a contemporary economic issue of special interest using economic concepts and models
Income Inequality generally refers to disposable income (the amount households have to spend after taxes) and is derived by looking at how unequal incomes are distributed across various economic participants. It is said to be a growing problem in today s society and is defined as the difference between individuals or populations in the distribution of their wealth, assets or income. A single person s income amount can have a huge influence on ones well-being and standard of living as not only does income determine a person s ability to afford the necessities in life, its absence in the amount earned which limits access to opportunities, experiences, security and participation in society. So when referring to economics, the inequality as seen clearly in New Zealand s economy over the past 30+ years is caused by equity, equality of opportunity, life expectancy, equality of outcome and is currently measured through a nationwide 4 yearly census-to gather data, a Lorenz Curve diagram and the main method is the National Gini Co-efficient. The Gini co-efficient provides information as to how equal or unequal a society is at that given time, corresponding the value 0 or 0% as the point of perfect equality NZ (when Gini all Co-efficient economic 1982-2012 participants have equal incomes/incomes have been distributed evenly) or the number 1, which is 100%; displaying complete inequality of income. As seen on the NZ Gini Co-efficient 1982-2012 graph to the side; this displays an almost double increase of the income inequality in NZ from 1982 to 2012, but also shows the rate and degree in which inequality is increasing supporting the assumptions of the effects of the amounts of NZ households stuck in a poverty cycle due to lack of education (tertiary, secondary or primary)and other ongoing effects, as seen to be increasing as supported by this Gini Co-efficient; as in 1986 the ratio of income inequality in NZ s population was 2.2 (a relatively equal society) compared to 2004 where the ratio was approx. 2.73, a steady, yet unwanted increase over a period of 18 years. Aside from the census; the Lorenz Curve illustrates inequality by using the same system to the Gini Coefficient; as 0% is also the line of perfect equality. The country s data is plotted on this graph as a curved line, therefore once the data is plotted (data- household s disposable income after regular income taxes), the more concave and further away from the line of proposed perfect equality (e.g: 50% of individuals earning 50% of the country s income) is; the more unequal a society is said to be, for example; as seen Gini Co-efficient- The most commonly used graph to measure inequality in any given country. The points on the graph, correspond with the stated data in the paragraph. on the diagram to the side, approx. 44% of individuals (just under half of NZ population) earn only 20% of the countries income (looking at income after tax-blue curve), whereas even as the number of individuals increase 60%/over half of the countries individuals, still earn less than 40% of NZ
income- approx. 44%, in this case it shows relative poverty as the majority of NZ households are unable to afford the basic necessities used in everyday living. Yet, without pin pointing certain percentages, the extreme curvature of the line for NZ clearly displays what percentage of NZ is in poverty, as over half of NZ doesn t earn above 50% of the country s total income, explaining why this 2008 Lorenz Curve is so concave and showing a rather unequal society due to the fact that a large portion of the individuals involved in NZ s economy earn below 50% negatively bending the curve out further as there is only a small percentage of individuals living on high incomes and there is still a percentage of under 10% of individuals living on 0% of the income/being unemployed. Unequal societies are dysfunctional, less cohesive and less economically sound than their more equal counterpart- if there is a weakness- it is felt widely. -Max Rashbrooke from The Inequality Debate To define equity is to decide what is fair involving everyone s individual circumstances; it becomes a matter of opinion and is usually a debated topic when discussing economics and possible governmental policies to tackle this issue. Therefore inequity means an instance of injustice or unfairness. Both are unable to be measured due to the fact that it is opinion based and differs from person to person, although equity can be categorized into Horizontal Equity: treating people in the same situation the same, e.g: all children under the age of 18 are eligible for free dental care and Vertical Equity: what is fair to people in different situations such as affirmative action or progressive taxation. Current examples of inequity in New Zealand s society is the increasing poverty rate, Maori/Pacific Peoples/Immigrant workforce discrimination and the limited opportunities which stem from poverty and discrimination that furthermore cause generations of adults and children being bought up in a poverty cycle, as statistics show that 45% of people in poverty in NZ are still in the same position 7 years later. A main example of inequity is the increasing poverty rate across the country which is potentially caused through poor quality housing (e.g: state housing) in which many low income/families on benefits occupy. Due to the statistic of 1 in 5 children living in a NZ family environment where there is an adult on a benefit, keeping in mind that NZ s total population equals to 4,000,000+, this amounts to a substantial group of people who cannot afford to heat their poorly designed and damp homes efficiently. This therefore leads to sicknesses within children; such as Rheumatic fever as the during winter months families cannot afford to sufficiently heat all rooms in their houses, causing one room to be heated with cheaper alternatives; e.g: gas heaters, that in turn leads to an increase in the amount of damp air as emitted by the heat and an increase in virus being spread more easily through all the people sleeping in the one room; the children being the most vulnerable and less developed in the ways of a healthy immune system. Situations similar to this are mainly seen in locations such as Gisborne & Kaitaia. Low incomes in these family s means that they cannot afford to send their children to the doctors in the early stages of illness, causing them to become hospitalized and having to take valuable time off school. The inequity of opportunities as seen in this case is then increased as pupils are unable to go to school and get a proper education which is the same as other students, from low or high income families. Over 25,000 children from low income households get admitted to hospital for 3-4 weeks and have a 20% chance of returning. We cannot separate opportunity from income, so for example high income families have better opportunities in life as they have the ability and monetary support to go to better equipped schools, rather than the contrast of children from low income families. As New Zealand s gap between the
rich and the poor widened faster than any other developing country between mid 1980 s-mid 2000 s, the current statistic of 170,000-265,000 children living in poverty can only be seen to be increasing, forever linking together the substantial difference in overall distribution of income from low to high income household s (as mentioned previously as income inequality) with the inequity of opportunities as caused by the income inequality/lack of income available to the bottom decile and lower income households. This then creates a cycle as income inequality and therefore increased societal inequity effects all households involved, whether you are low, middle or high income receiving, leading to a faster increasing degree of inequality and inequity over multiple generations; through these two aspects being linked. Causes of Inequality/poverty in New Zealand: Income inequality is common throughout any country within mixed racial groups and different genders. Although it may be argued that Income Inequality may be necessary for efficiency in some free-markets; the causes of this economic situation stretch nationwide and internationally, through all different sectors in a working economy and through all age groups and genders. 1) Education= NZ has between 170,000 and 265,000 children living in poverty and one of the world s worst records of child health and wellbeing, with alarming rates of preventable diseases amongst children. A child s and household s socio-economic status can influence a child s early development, cognitive thinking and ones readiness to learn. The family s living circumstances such as quality of neighbourhoods can influence the success of younger pupils attending primary school and therefore high school; poverty s affects such as; low incomes, therefore cheaper/damp housing (government state housing) or rooming with relatives, lack of income to buy necessities such as a jersey, shoes and food to sustain a decent period of time and a set of constrained choices when it comes to healthcare. As 1 in 5 children live in a household where at least one adult is on a benefit, these children are therefore provided with less because families are unable to afford the basic necessities, this in turn sees many children who live with relative poverty arriving to school hungry and/or with no food as its unaffordable which as mentioned by Sose Annadale (a school principle) that children cannot learn if they are hungry leading to a large proportion of pupils who begin primary school in a lower decile area, with a disadvantaged level of brain growth (at 3 ½ years of age) due to poverty, giving students a 0% chance of receiving NCEA later in life, putting emphasis of the degree of poverty and future generations, as a cycle is therefore created because tertiary qualifications allow for higher incomes, therefore a good level of education and a decent amount of financial credibility and wealth/savings is a requirement that many children living in poverty from a
young age will not meet. As shown on the Annual Unemployment Rates by Qualification, NZ September 1987-2010 graph, the economic participants with Post school and School Qualifications have the lowest rate of unemployment, being reasonably even with only one peak in 1992 where unemployment increased to just above 6%, but when looking at the graph for No Qualification, they have the highest unemployment rate, being un predictable as to whether you will be employed and having some of the highest unemployment figures on the graph (approx. 16.2% unemployment rate) therefore showing an insight to the lives these children might live if they don t progress out of the poverty cycle at a suitable age. These very children who are brought up in an environment with a lack of sufficient funds and goods, could be the second generation to their parents who might have been brought up in the same lifestyle, hence the low income for their parents. Thus the families cultural values can influence the decisions made in everyday life; leading to children who leave school, have risk taking behaviour, become pregnant or have addictions as education might not be viewed as importantly, similar to the possession of material goods. These parent based educational values increase the unequal society and income distribution as children can become benefit dependant and have lower potential, carrying on the poverty cycle as due to income inequality, and inequity, no one starts on a level playing field, making it more difficult for most families living in poverty to move up into the middle class families, whereas higher decile and income families have a head start with wealth, income and assets. This lack of sufficient housing, high living costs and affordable healthy food as mentioned above also increases NZ s cases of sickness such as Rheumatic fever in minors. Families with lower incomes tend to occupy Government State Housing as it is relatively cheaper being built for this purpose. The poor design lay out and high heating costs, leaves healthcare for all members of the family to be put to the side in order to keep money to heat their homes, or just one room as it is still too expensive to do so on their income. During winter, sleeping in one room becomes essential, as a gas heater (cheaper alternative to heating) will only occupy this space. The damp air emitted from the heaters, plus the damp, mouldiness of the state housing and the accumulation of bodies in one room causes virus such as Rheumatic fever to pass through person to person, usually severely affecting the younger and less developed immune systems in children. Healthcare becomes many low income families opportunity cost as heating comes first, causing the level of valuable and useful education to decrease as children therefore have to take multiple days off school (3-4 weeks) and almost likely have to be hospitalized as going to the doctors in not an option. The child s development is then stunted and catching up becomes a big issue as 25,000 of the pupils with severe Rheumatic fever have a 20% chance of being
emitted again, creating a downward spiral for our economy and income inequality as lower decile family s don t have equal opportunities in education as higher income families relating inequity of opportunities to cause flow on effects such as less students gaining NCEA or a tertiary education. The graph above shows that as NZ is placed higher on the income inequality scale, as our incomes are poorly distributed and we have a multitude of families and people without employment or a decent living wage, our health care and social problems (such as education) are in the few of the worst, alongside much larger and bigger populated countries such as the USA and the UK. The very fact that our countries population of 4 million + people compared to USA s current population (from the 15/02/2015 at 4.22pm) of 324, 180,207 people displays just how bad our health problems in our children are and their social issues e.g: education values and gains, have become on a global scale, but most of all our poverty and income inequality when compared to a larger state with almost 81x our population is extreme. 2) Regional Differences= Geographical differences in regions can define the level of opportunities available for individuals. A 2006 NZ census and income data survey shows that areas around NZ with higher economic growth (Metro Politian Areas) such as; Auckland, Wellington and Taranaki (who benefitted from their resource boom) have the largest increase in income inequality gaps between high income families and the low income families since the mid 1980 s as caused by over population, lack of jobs, the increase in individuals skill bases and required university qualifications leading to a large amount of people on benefits or with lower class, factory working jobs, making them unable to gain a higher income due to current job requirements and the enormity of individuals applying. In contrast with rural areas; whose incomes and unemployment are relatively equal across the communities, although they experience high levels of unemployment, their society is relatively equal as income distribution is the same and there are minimal gaps between each household s wages. A disadvantage to this though; is the fact that the communities with concentrated poverty often lack good quality healthcare, schools, affordable healthy food and resource endowment adding to the poverty cycle and income inequality for future generations. 3) Inequality through Inequity- Work discrimination= Maori and Pacific ethnicities are the main groups of people in NZ working economy who are in poverty. But, even though 48% of working age Maori are unemployed, due to the larger population of European citizens in NZ, over half of the people caught in this mentioned poverty cycle are in fact European. Due to the lack of sufficient education among the Maori and Pacific ethnicities because of reasons mentioned in 1), their educational and skill base levels tend to be lower than other ethnicities that have higher opportunities. Pacific and Maori people are the most hard hit by the shutting down of factories and even though these very educational and skill levels are beginning to increase over the years, they remain in low paying sectors as the unemployment rates for Pacific people in the past 3 years has been consistently greater than that of the entire population. These ethnicities also experience structural discrimination in the work force such as; access to work and issue of rights, which in fact affects immigrants, long
term or new, more as they suffer a poorer level of health care, education and employment than the average population if they are not originally better off before taking residency here. This portion of the population is also more affected by supply and demand in the economy, as these factors determine their wages and the likelihood of a future job/income, known as an example of inequity of market income. If the factory become redundant or cuts workers, the percentage of employees who were employed will then drop creating a larger statistic of people of benefits, or having little to no income, greatly moving the Lorenz curve for NZ as statistics will then change while income inequality increases. As shown in the Average Weekly Income according to Ethnic Group graph above, the Maori & Asian (possible immigrants), as well as Pacific people have the lowest incomes, for Pacific; sitting just under $500 for a weekly wage & Asian/Maori sitting just under $600 for a weekly wage, being some of the lowest wages across the board for all ethnic groups, displaying the economic issue of income inequality as the difference in wages can be hundreds of dollars and supporting the inequity through inequality as it can be seen as unfair to other economic citizens that the distribution difference is so extreme. Therefore, although European s account for a larger group in poverty, the discrimination as mentioned above can be seen through comparing the amounts of income received on this graph, a $200-100 difference and by taking into account living expenses and added family/living costs, the amount of Maori & Pacific people who end up not valuing education as much, or not being able to afford to go to tertiary education or even live in areas with higher decile schools is evident as it is simply not affordable. Lorenz Curve for NZ: A Lorenz Curve graph visually shows the full extent of income inequality and income distribution through the aimed line of perfect equality (black) and the distance away from this line/curvature of any other lines placed on the graph (blue). In an economy where perfect equality exists, all participants in this economy receive what is seen to be equitable and equally distributed according
to ones wages. For example; 50% of households will earn 50% of the countries income, or 10% of household will earn 10% of the countries income and so forth but when looking at the Lorenz Curve above for New Zealand, 50% of our households earn only 30% of the country s total income, where 10% of our household earn less than 5% demonstrating that our society, although being reasonably unequal, we are at a mid-point as there is still a large majority of people who are unemployed and on low-income benefits. This degree of inequality/income distribution is what negatively places NZ 29 th among the other 34 OECD countries for poverty/inequality. Due to the Global Financial Crisis, our Lorenz Curve has shown a more unequal society (curvature increased) because the mid to low income families which were struggling beforehand are now a part of the multitude of low income families who need more government support from loss in jobs and decreased wages, hence why we 50% of our households earn 30% of the national income, a low statistic when a perfect economy should show 50/50. The 50% of our households on 30% of NZ national income will be living on a relatively low income (mid-low income families), yet even worse; the 10% of households living on less than 5% will be struggling 10x more to be able to afford healthcare, proper schooling and even the basic necessities in life such as food, heating, even a simple thing like a pair of shoes in winter. The parents inability to properly support their children s and their own lifestyle will lead to poor health throughout the families because of the lack in healthy foods, which in turn causes valuable days off school, a poor education and students dropping out leading to little or no qualifications. This then causes a bad income or possible unemployment for the children as adults, a process which clearly displays that as shown on our Lorenz Curve for the past few years, the degree of our inequality is mainly due to the children that are caught in the poverty cycle and are unable to get out of it when older due to low resources, lack of education value from their upbringing in a poor/low decile suburb. Groups in today s economy are all affected differently by their level of income/how much they earn. Households/individuals which earn higher amounts from their jobs possibly due to the level of skills needed/qualifications are able to have a higher quality of life than others on low incomes because they are able to buy luxury goods, save more money, invest more and have more disposable income for their individual wants. New Zealand s poverty rates are on an average scale compared with other developed countries yet our social impacts are
basically affecting our children, as our teenage pregnancy rates (a flow on effect of inequality is teenage pregnancy) see s NZ ranked 19 th out of 21 countries, this statistic also hinting to the amount of low qualifications as the teenagers who become pregnant tend to drop out of school. Not only are there socio-economic impacts but also physiological & social. Certain ethnicities such as the Pacific people group have lower resources and low incomes; $495 a week, this results negatively in poorer health, inadequate access to proper insulated housing and limited healthcare. This low income means that the people living in low decile (decile 1) areas with fewer resources and income has a life span which is 8.8 years shorter for men and 5.9 years shorter for women compared to those living in a higher decile area (e.g: decile 10) making NZ 24 th in all the worlds countries as shown on the table, giving the majority of men and women living in poverty a poorer quality of life, but also creating a crisis as the very few who are severely in poverty/third world poverty even though we are not a third world country, as too many households are living in appalling conditions without the income needed for the essentials of life (the 10% of households earning less than 5% of NZ national income-lorenz Curve). This inequality of incomes for the ethnicities like Pacific People means that to pay for housing they are spending 30% (2009 figures) of their approx. $495 income, which leaves factors of health, nutrition (food quality) and the housing they re their paying for being of lower quality and less accessible, such a Government State Housing. Inequality of incomes also negatively affects racial groups such as Maori and Pacific people by having less educational resources to have the same education as higher decile students. This lack of resources creates a decrease in participation earlier on in schooling which can possibly carry on into later education, leading to dropping out altogether. Although NZ is ranked 5 th out of all the countries for levels of Maths an Literacy (table above), there is still an alarming rate of people who have no qualifications; e.g: As shown on the Annual Unemployment Rates by Qualification, NZ September 1987-2010 graph, the economic participants with no qualifications in 2010 show a 10.5% of being unemployed, further justifying how the factor of education is a big reason for poverty and inequality and for future jobs. Poverty and inequality of incomes not only negatively affects Pacific People and Maori but also affects European and Asian percentages by creating a decrease in essential skills for employment, resulting in an increase of unemployed people and people on benefits or on tax credits such as the WFF (Working For Families benefit) which requires at least 20 hours a week of work to be completed in order to receive this payment. Due to the amount of people supported by the government on benefits, Taxes (GST) may go up on income/goods and services or our country may become more in debt than it already is affecting the people out of the poverty line or further putting more people
into the poverty line because they cannot afford the new prices. The increased negative impacts felt by lower income households, can also create the feeling of political isolation because low income earners may feel as though they don t generate enough income to have a substantial effect in the media. The large difference between income distribution such as some higher decile households having substantial wealth or assets when compared with lower decile households having little or no wealth and assets begins to link to increase a large increase in crimes, addictions from the lack of income to cover all costs and basic needs of living. The positive social impacts of inequality of poverty/income is that the people in the poverty line or zone now have an incentive/ innovation to get out there in New Zealand s workforce or now have an aim to better themselves and establish themselves in the This graph depicts that as equity of incomes increases (an increased fairness in income distribution), the greater decrease in efficiency. Middle-income household sectors. This inequality of income all across New Zealand also positively impacts employed citizens by giving the people with higher incomes a further incentive to work, creates entrepreneurship and means that there is more efficiency in production lines/ efficiency of resources and more income is available to be used as disposable income & be spent on luxury goods or saved and accumulated into a person s wealth (as depicted on the Equity Efficiency Trade Off Graph above).the disposable income created through, the increased efficiency and entrepreneurship causes the disposable income to be saved (possibly) causing an increase in investment as there is more funds available in financial sectors for high, top decile households. Therefore, hypothetically if every person in the country of New Zealand had an equal level or the same level of income due to equity or what was fair there would be less incentive to work harder resulting in a decrease in ones efficiency for the economy, yet a more equal economy being shown on the Lorenz Curve. Therefore, by having a certain degree of inequitable incomes it is not necessarily a negative thing for NZ s industry/economy as a portion of inequality is needed in free-market situations and as previously mentioned; for higher efficiency. Higher income households may also have surplus income that could be used to benefit the society through donating money to charities for good causes and possibly helping out the lower income families struggling.
Household Income Market Lorenz Curves 1982-2010 Has income inequality in NZ been improving or becoming worse? According to this graph, income inequality is improving; as it has been over the past 14 years, although before improving, it was getting worse. NZ government seemed to dictate the level of income inequality in NZ; as in the 1980 s when the Douglas/Lange Labour party was acting over the country, income inequality was relatively low until the 1990 s when National s Bolger/Richardson took over and income inequality increased largely, as seen on the Lorenz Curve as a shift to the right around the 1991-1996 curve. This clearly demonstrates the effects that income inequality has on people, as the low income families are at a further disadvantage, becoming poorer, yet the higher income families become richer (Global Financial Crisis for the Low income households). This Gini Co-efficient also shows this previously mentioned economic trend as the values seen on the graph increase during the period where National was in play (1990 s) therefore both graphs show a clear increase in the income inequality/distribution in NZ through government influences. As mentioned above, the poorer households who earn less, eg; 1982; 50% of households earned 20%, then dropped in the 1991-1996 period as this same 50% then earned approx. 15% of NZ national income. Whereas the higher decile households increased their earnings; becoming richer. A prime example of inequity among all economic participants. Yet, from 1996+ a decrease in inequality began to be seen through a shift of the Lorenz curve to the left and a decrease in values on the Gini Co-efficient as a new Labour government; Clark/Cullen put into place new policies such as the Working for Families benefit (WFF).
Different groups in today s society all with different incomes are going to be affected differently when it comes to employment and money available for things like healthcare, education, basic living needs & savings. According to the data collected from this graph you are able to see that when grouped into different ethnicities there is a significant gap between the median weekly incomes for each racial sector. From 1998-2008, the European households still remain with the largest amount of income over the other racial ethnicities ($320 in 1998 to $590 in 2008 weekly) which will allow them to have a better Income 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 Median Weekly Income for all People 1998 1999 2000 2001 2002 2003 Years 2004 2005 2006 2007 2008 European (wk) Maori (wk) Pacific peoples (wk) Other Ethnic groups (wk) quality in life and be able to collect wealth by having money left over for savings, possibly due to better education and degrees. Another set of groups which is affected by income is people with qualifications, degrees, masters, bachelors, NCEA Levels 1, 2 or 3 and no qualifications. The income shown in 2008 for Pacific Peoples links to the countries Lorenz Curve by showing how this income of $480 compared to the income for Europeans of $590 would significantly move the curve making it more unequal due to the large change in incomes for these two different households. Considering the fact that Europeans are a large percent of the population, this change in income for these Pacific People would display a curve which shows a high sense of inequality in society due to the dramatic decrease in income earned weekly by the two different racial groups. This table shows the amount of people with degrees in NZ from the 2006 census data. Although European are said to have higher incomes only 10.09% have a level 7 qualification or bachelor s degree compared with the 19.85% of Bachelor degree & Level 7 qualifications Post-grad & honours degree Masters degree Doctorate degree European 10.09% 2.01% 1.89% 0.62% Maori 4.9% 0.69% 0.61% 0.1% Pacific Peoples 3.92% 0.47% 0.45% 0.05% Asian 19.85% 2% 4.67% 0.67% Middle Eastern/Latin American/African Total people, other ethnicity 16.83% 2.6% 3.9% 1.65% 11.5% 1.93% 1.65% 0.44% Asian who have achieved this despite their low or high income. As said earlier, the percentage of Maori or Pacific People who drop out of school and develop bad learning and
participating techniques due to low incomes in their family environment is proved by these statistics of 4.9% Maori and even lower 3.92% of Pacific People getting a level 7 or bachelor s degree. These percentages also get smaller as you look at the data for the postgrads, master s degrees and doctorate degrees for Maori and Pacific People possibly due to the low resources and incomes allowing them to do this and pursue a goal such as this. These groups are significantly affected through their level of income earlier on in life which in the end doesn t allow them to be able to gain higher income in a job through being qualified, carrying on the poverty cycle then for their children too. People who are on the benefit and have lower qualifications or no qualifications or employment at all are further at risk to be affected by low income distribution because they will struggle the most with getting out of the poverty cycle due to the low education/means to get a well-paying job and the little resources that can be bought to begin to get somewhere and possibly study for qualifications such as post-grads or masters degrees when comparing to other groups in society. Linking back to the Median income weekly, the Maori and Pacific Peoples tend to earn less than the European group which can possibly be due to the fact that their education level % are lower when considering higher degrees and qualifications and the majority of the Maori/Pacific Peoples group are on benefits which keep their income received weekly lower than other groups, yet steadily rising over the years. This could be seen as inequity due to the huge income gap between these ethnicities ($460-pacific to the $590 European earns in 2008) because these lower income households are then struggling to cover basic costs with the money provided by the government if on a benefit or if on a low paying job. The lack of an education earlier on in life due to family values and parental poverty causes children to be caught in a poverty cycle with the lack of resources and education to get out, therefore this inequity of opportunities leads to this lower level of tertiary qualifications and therefore income for New Zealand s citizens. Groups which have higher incomes are less affected by unequal income distribution because they are able to afford the luxuries in life with their possible disposable income and can save money which in return accumulates individual wealth. The consumption possibility curve shows this. If a higher income family moved their spending on food & retail, down to $600 $900 $600 $ per week-spending CONSUMPTION POSSIBILITIES CURVE $300 : INCOME : WEALTH $ per week on saving Their decreased spending then allows the household to save $300 to put into accumulating their savings which therefore turns into wealth. The groups which have lower incomes, have a lower quality of life and a largely effected by unequal income distribution because simple things like tax increases can mean that they are unable to afford their basic housing/food costs.
This low income group also has poorer health, shorter life expectancy, poor education, cold damp housing generally is unemployed or on the benefit. All these factors mentioned make it hard for the parents to find jobs and pull themselves and their family out of the poverty zone but also affects the children s quality of life by hindering their education due to sickness (we are 3 rd to the bottom for child health for OECD countries along with Mexico and Turkey), a lack of resources but also their own well-being and future for 1 in 5 kids live in poverty in NZ. These groups are also unable to save their income because the majority of their income is spent of the necessities/basic living needs leaving less or no income that is able to be put away and saved meaning that these lower income households are unable to become wealthy like their counterparts. Inequity is classed as what is unfair (it is a matter of opinion). Therefore the governments opinions/decision to do things such as increase tax (GST) on goods or services or income would impact on the lower income families by leaving them with little or no income to cover their basic needs of living, or causing middle income households to drop into the poverty line. This decision was the governments perception of fair of what needed to be done, further creating society to be more unequal. Another example of inequity creating inequality is free healthcare for lower decile areas such as Gisborne or Kaitaia. Recently the government has chosen to take away health service such as dental care and nurses from schools which highly disadvantages the children whose families are in poverty and ceases the ability to stop and prevent respiratory and skin diseases such as Rheumatic Fever in the early stages (NZ is 29 th in the OECD rankings for childcare-2 nd to bottom). By doing so, school ages kids are having poor health and are catching these illnesses leading to hospitalization and inequality of opportunities if not treated early enough. State housing in New Zealand is cheap and allows families on low incomes a home to live in, yet what shows inequity in these buildings is the lack of sufficient heating, insulation and cheaper techniques to stop mould developing. When temperatures decrease in winter months families are forced to sleep in one room to keep warm because they cannot afford to heat the whole house. This then leads to the quicker spread of sicknesses which then creates inequality/poverty in the children and shows inequality through the amount of income provided on benefits which is in-sufficient for basic living needs and wellbeing. Regional differences show inequity as some larger towns have separated the higher income families
from the lower income families, creating a divide in the deciles and creating inequity of opportunity. Consumption Possibility Curve- Wealth/Income: The link between Income and Wealth as shown on a consumption possibility curve is that if a consumer earns enough weekly, they can choose to invest their savings (surplus income) in income-producing assets such as; shares, gold, rental properties etc. As the consumers income increases due to assets, they will generate long term wealth through invest more income as their wages increase. Point A shows a consumer who is earning only enough money to buy the necessities and a car or mode of transport (a single asset) for everyday living, although this single asset is not a long term wealth generating asset as the value depreciates over time, as the consumer is unable to make any profit off it. Point A is a resemblance to the economic participants in NZ who have to spend all of their income on necessities to be able to survive and live sufficiently whereas, the Point B is all of the higher income consumers who are able to save their surplus income as the earn more weekly, allowing them to financially invest in assets creating income generating long term wealth. The Consumption Possibility Curve then displays income inequality by showing that the rich get richer and earn higher, whereas the poor get poorer, earning less, the same as what is displayed on the Lorenz Curve. When relating to NZ, the Pacific, Maori and MELA ethnic groups earn the lowest average weekly incomes, Point A; represents them. They have to use all of their income to survive
and afford the basic necessities in life, so these groups become stuck in the poverty cycle as they are unable to generate any useful, income generating assets. Whereas the Europeans and others catagories earn a larger income and are represented by Point B. These groups are able to invest their surplus income as financial investments in assets creating long term wealth. Therefore as their income increases through investment so too does their wealth as they inject more money into assets, equalling a larger return/profit. Hence the gap between the high income families and the low, as the rich get richer through assets and the poor get poorer as they are unable to. The higher income groups such as the Europeans and others are seen as more secure and can save for their futures, whereas the lower incomes cannot due to their means to survive so therefore the low income groups tend to stay on low incomes as they cannot save and invest surplus income. What has been described above see s the Lorenz Curve shift to the right as the gap between the rich and poor increases, increasing the degree in income inequality and distribution, this very situation may be seen as inequitable as future generations start out with wealth, and therefore they have a head start in life unlike the low income families. Government Policies to help inequality: -Progressive Taxation is a policy affecting tax which means that the higher earning households are taxed more than the lower, therefore moving the Lorenz income curve inwards towards the line of perfect equality. By doing this, it also improves equity in my opinion because both the low and high earners groups are getting taxed according to their income allowing suitable money for the lower income households to be able to pay for things such as healthcare and resources. Although this improves equality, the motivation to work harder for higher income will decrease due to the fact that you will be taxed more, also creating decreased efficiency. In the long term, progressive taxation improve a nation equality as a whole but also increases the countries well-being and individuals happiness and is said to increase ones satisfaction with public goods such as education. To measure this government policy, the Gini-Co efficient can be used by using statistics from income and wealth distribution of a country. Although education would become more available to lower income households due to increased affordability by this tax regime, the motivation to use this education wisely could decrease because of the higher taxes for higher paying employment. -Working For Families (WFF Benefit) is suitable for families living in or around the poverty line which are in the middle or low income range. This benefit stably keeps up with the changing consumer prices, always making things easier for the families to survive, this money is also paid according to the income coming in & the amount of children living with the adult. The supervisor/caregiver also has to work for 20+ hours to be able to qualify for this benefit. By creating this, children have better housing, food and healthcare; all factors which help get children out of the poverty cycle as they go through schooling and allows the extra income to give them further opportunity s, such as accessibilty to better quality learning tools similar to high decile household s. This also allows children to develop in an
education based, healthy environment with sufficient heating, food and money for healthcare, all whilst also moving the income Lorenz curve inwards creating a more equal society for the majority of the families in poverty. Although it s quite a positive scheme for families, some motivation may also decrease for fear of not want to leave the benefit and let go of the extra government support therefore also decreasing efficiency in our economy. Poverty therefore decreases because this 48% of working age Maori residents who are unemployed, then push themselves to become employed so that they are eligible to receive this payment, lowering NZ s un employment rate and evening out our countries inequality through incomes being received. -Better insulation, heating in state housing would be a good policy to ensure that heating costs for middle-low income earning families would be able to keep the costs down to ensure that there is more income able to be spent on other things such as schooling, food or healthcare. This would also decrease sicknesses which would create better equality of opportunity among all students attending schools, helping these children get out of the poverty cycle as they develop, putting a stop to the trend of 25,000 young kids who are out of school for 3-4 weeks and have a 20% chance of returning to hospital due to the lack of insulation causing sicknesses such as Rheumatic fever. Therefore the income Lorenz curve would move inwards over time due to the children gaining higher paying jobs, qualifications and not dropping out of school because of lack of participation and resources. By having subsidised modifications on state houses for insulation and heating, low income families would get a better quality of living and be able to increase their opportunities to get out of the poverty cycle. Although it could have negative effects on the price of rent for these families though, due to new heating systems further back tracking progress for these households. Children attending school and getting a better learning age than 3 ½ years (as mentioned earlier) will then be equal to other students in higher decile areas, creating further equality of opportunity and a lot less poverty among families (old and new) in New Zealand.