Tag Archives: inequality

Putting a $ value on life

In Malaysia last week, I happened to meet an Australian project manager working in Kuala Lumpur. He was horrified at the safety standards especially those covering migrant workers from Bangladesh. It turns out that when a company is liable for roughly $3500 USD if a Bangladeshi worker dies on site, the business case for acceptable safety standards becomes very hard to articulate.

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Peter Saunders from the Centre for Independent Studies releases not just one but two Issue Analysis papers on the St Vincent paper on inequality. For those interested, the papers can be found here and here.

This is a little late perhaps as it all took place last month but I’ve only just got around to putting it up for the sake of completeness seeing as I was writing about it a bit when St Vincent’s first published their paper.

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Ok, so the measurement and definition of poverty is a huge controversial field with scholars, politicians and social welfare groups disagreeing with each other about it.

The current measurement of poverty is the Henderson Poverty Line (HPL) which estimated the poverty line in 1973 for a family of two adults, two dependent children, one full-time wage earner on the basic wage including child benefits (or family allowances). Since then, that original dollar figure has been updated quarterly by the Melbourne Institute of Applied Economic and Social Research (MIESR) based on the movement of average weekly earnings over that time. The current weekly earnings figure for a family of four with one working person is $598 per week (including housing costs) disposable income which translates into $31,096 per year after tax. Assuming 20% is taken off by tax, this becomes $37,315 annual income (including family allowance). For a single person, this becomes $318.48 per week, $16,560.96 per year after tax, assuming 10% tax, $18,217.056.

I dont have a family so have no idea if that’s too little or too much but $318 a week after tax as the single person poverty line! Crickey! Luxury, that’s wot it is. Ok, I am notoriously tight but crikey!

The latest MIESR update can be found here.

So, it’s a relative measure based on data collected in 1979 then reasonably simple adjusted over that time. No investigation of underlying societal and economic changes. Interestingly enough, if the poverty line was adjusted based on CPI (which is more an absolute figure for purchasing power), the CPI adjusted poverty line would be on average 36% less than the current HPL measure.

I did find two interesting papers both by Prof Peter Saunders (director of the Social Policy Research Centre), one printed by the SPRC itself here and the other not quite as interesting or controversial making but still valuable one published by the ATO here.

The first is interesting in that he adjust the proportion of people below the HPL based on income, expenditure and hardship parameters (for example: Cannot afford a week’s holiday away from home each year). I wont bother repeating his findings here except using his adjusted values except that he finds the not surprising result of proportion of people below the poverty line falling remarkably. Whether his resulting figures are more accurate or not is hard to say.

The other thing of interest is that he finds the proportion of people below the poverty line more than halfed when he used half-median income as a new poverty line.

Anyway, it seems pretty clear to me that the HPL is inaccurate and needs to be modified. Poor and distrusted measurements result in the poverty question being swept under the rug with government finding it easy to say that people have become richer and opposition waving inflated poverty statisitcs. The question as to why, even though everyone seems to have criticised the HPL as a crap measure, a better measurement has not been created is mystifying to me.

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In a developed country like Australia, the issue of what constitutes poverty must be linked to expectations. Alain De Botton wrote a book called Status Anxiety a year ago which promptly sold like hotcakes not only in your more niche cultural elite bookshops but also in general bookshops pretty much everywhere. I’ve not read the book, just reviews of it and I’ve browsed through it a couple of times. It seemed ok, I’ll probably read it if I find a copy of it a local library but I’m more interested in what it says about our society that it was so popular.

It strikes me as the Gini coefficient of our country increases and I dont doubt that it has and will continue to do so, so too will status anxiety about where we are on that widening bell curve of earnings. Physical poverty at the bottom 10 percentile may not exist (and it is my contention that it does not when measured against developing countries) but status anxiety must. The ironic thing about that is that status anxiety cuts right across all percentiles. Regardless of income, people appear to be relentlessly comparing themselves with others and finding that what they do have is never enough. In that respect, we are all poor. In the longer term, this means that as a species we are more likely to consume more and more natural resources.

I have, in my opinion, a well paid job and have some assets, so I am conscious that it can be heartless to say that poverty, in Australia, is a relative state of mind. But I firmly believe that complete freedom from financial worry can be achieved in a more healthy and sustainable way by decreasing expenditure as opposed to increasing income. Measurements which focus on income inequality when overall in real terms income in every percentile have been increasing concerns me greatly because I think that emphasis can only lead to greater status anxiety.

I believe that focus should be maintained where it belongs: are the lowest income earners of our society making enough to have a comfortable physical existence? Are the Lathamite ladders of oppurtunity in place and functioning? Are our health and education systems able to care for those who are unable to look after themselves? If so, then some overeducated sod who is working 100 hours a week for the pleasure of 150k a year is not my concern.

In the end, I am convinced that it is the duty of a mature and wealthy State to provide a level of safety net which fulfills the lowest tier of Maslow’s hierarchy of needs for all of its citizens, beyond that it is up to the individual.

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The lowest earners in Australia are pretty much divided into the following categories:
– those on the State allowance
– those on the minimum wage with conditions as determined by the State (Federal or State)
– those working for cash in the so called black economy or working in workplaces that are non-compliant to minimal condition legislation
– those who have slipped through the safety net entirely

These categories are not entirely seperate, people can and do belong in more than one category which makes things a little complicated.

However, I’m pretty much only interested in the first two categories especially wrt how the allowance and minimum wage is determined as I believe that the majority of low income earners fall into those categories. Also, I’m interested as to whether people in those two categories can be considered poor and if so at what proportion and why.

This is not to say that cash workers and the fallen are not poor – in fact – they are likely to be so, but the issues there are more to do with bringing them back into the system and the effectiveness of our bureaucracy and or legal system.

In the our present system, in order to encourage people to work, the minimum wage is set higher than the State allowance for those on unemployment benefits while others such as pensioners who are deemed unable to work have a higher allowance. This has now been expanded to include single mothers and disabled capable of some work so that their benefits are now cut down. While I have a problem with who should be considered on the pension or unemployed, I have no basic problem with the system.

The current method the minimum wage is set appears to be based on submissions to the independent AIRC from employees, employers, unions, social work organisations and other interested parties including the government. The AIRC then makes a decision as to whether to approve the increase or not. Howard’s new reform will create something called the Australian Fair Pay Commission which will set the minimum wage based on parameters defined in legislation. The details of these parameters are still unclear and I’m looking forward to hearing them.

Currently, in Victoria (which had handed over its most of its IR responsibilities to the Commonwealth) the AIRC makes its minimum wage increase decisions on the following parameters:
(a) the needs of workers and their families (taking into account the general level of wages in Victoria), the cost of living, social security benefits and the relative living standards of other social groups; and
(b) economic factors, including the requirements of economic development, levels of productivity and the desirability attaining and maintaining a high level of employment.

I find the “relative living standards of other social groups” clause quite interesting and wonder how much weight that is actually given during full bench considerations. Anyway, an example of the way the full bench of the AIRC bases its decisions can be seen here.

The way State allowances are set is a little less transparent. These are set every budget of course but I think the process of doing this involves consultations with and submissions from welfare groups and research bodies.

Regardless, the way the minimum wage and State allowances are set do go through a reasonably vigorous process with the interests of all groups (including the politicians) taken into consideration. Now whether this results in sufficient income that our lowest earners are poor or not is still in doubt because with business groups usually saying no and welfare groups usually saying yes. As for those on the minimum wage or state allowances, it would seem reasonable to assume that for them a little bit more money never goes astray.

I’ve only just started to read a little more about how we structure this so my own analysis is immature but I’ll give it a shot anyway.

I think that our welfare system assumes a level of minimal life-skill competency and responsibility on the part of the receipient. It assumes an ability to budget, to make reasonable choices in so far as looking after oneself, to postpone gratification, to know what government services are available and an ability to represent oneself to those services. I think that the State is right to make these assumptions so long as it also recognises that many on welfare are not competent to that level. For those who are not lifeskill competent, my instinctive feel is that any increased amount of allowance will never be enough. Hence my argument that this sector of the lower income earners should be taken out of the welfare income argument and placed into a health and education context where either greater intervention is mandated and expected (along with associated problems due to trespass of personal rights and freedoms) or we as a society agree to wear the cost of a true underclass.

The minimum wage level is something else again. It seems to me that the current process is actually quite good with welfare groups, unions and business groups all presenting their arguments to an independent body who is tasked with the difficult job of balancing both sides. Once again however, I believe that focussing on the minimum wage level conflates poverty with minimum wage while obscuring issues such as individual factors and access to opportunity. So long as the State can ensure minimum wage does not translate into poverty (which I believe it does at this time) and ensure equality of opportunity, then income inequality is ok.

There are standard neo-con economic arguments against any minimum wage setting as it can create inflation, it can reduce employment and it is a purely private matter between two individuals as to how much one should be paid or not. These days, i’m tending to think those arguments hold little water for the absolute bottom of the market wrt income. But that’s another entry for a later time.

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