Expectations


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.

Income


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.

Inequality


Underlying concerns with income inequality generally come from concerns of fairness.

To start with an easy scenario working up to less easy ones:

– It is fair to reward effort. So, the more hours one works, the more one should be rewarded in total.
– It is fair to reward skill and ability. So the better one is at doing one’s job (or the more specialised one is at a particular job), the more one should be rewarded.
– It is fair to reward risk taking. So the more one has at risk, the more one should be rewarded if one succeeds.

Regardless of which system one operates under, if we accept these scenarios as fair, then we will have inequality even if everyone started of on the same level. This is purely because of natural differences in people. Some will work harder, some will work better and some will risk what they have in order to see their ideas come to fruition.

How one judges skill and risk taking is a more difficult problem. In our current system for most people, reward is in terms of income and income is determined by the process of negotiation, information gathering and shopping around that we call the market. One could argue there are better ways of determining who should or should not be rewarded especially in the last two categories but I havent been able to come up with a better alternative than a properly functioning liberal democracy, a reasonable welfare safety net and an open market with targetted regulation.

So on the whole, for those reasons of fairness, I have no problems with income inequality so long as the lowest income earners are not poor and that there is equality of opportunity.

There are problems of course in our system that can be easily summed up as follows:
– It is fair to reward inherited wealth. The more one starts out with, the more one should be rewarded.
– It is fair to reward personal networks. The more connections one has, the more one should be rewarded.

But our system does try to address those problems – at least by having some notions of redistribution and inheritance taxes. And I would argue that personal networks is always going to be there anyway and should be regarded as part of skill, ability and risk taking.

An argument I do tend to hear and have struggled with in the past is the fairness of CEO salaries especially in the US where a CEO earns in excess of a hundred times an ordinary waged employee. In the US, I think this is unfair because your ordinary waged employee very likely falls into the category of the working poor (and this should be addressed by the State). But if that was not the case, I’d say that if the board of the company can fool the shareholders into risking their investments for an overpaid figurehead, then all power to them. Sure, regulation should and does exist for cases of outright fraud but in the end it is purely a private matter of fools and their money.

Inequality


The society of St Vincent de Paul has released a social policy issue paper which shows that income inequality is rising in Australia. Our gini coefficient has gone up from 0.296 to 0.309 in 5 years between 97 and 03. A more recent UN Human Development report lists our Gini cofficient as 0.352, higher even than India. On the face of it, that’s a pretty shocking statistic.

However, the thing about income inequality measurements such as the Gini coefficient is that it measures exactly what it purports to measure, the relative income of the lowest earning people compared to the highest earning people. What it doesnt measure is how relatively poor those from one country (for eg Australia) are when compared to those of another country (for eg india) and also how much effort the lowest income earners in one country have to exert to make the income that they do when compared to other countries. More controversially, it doesnt measure why these people have such low incomes.

First, I’m going to preface this entry with a statement that my argument following does not include indigenous australians especially those in the remotest areas of australia as I believe that merits a seperate focus outside of mainstream community issues.

Given that, there are three different issues that I can see:
– what are the factors behind the lowest income earners earning as little as they do?
– how much effort is required for the lowest income earners to earn as much (or as little) as they do?
– what are the living conditions of low income earners?

The first issue is one of cause. I think it is useful to see that low income comes from a combination of external and internal factors.

External factors are such things as systemic factors in the system with high entrance costs like education fees or business startup costs so that the poor are unable irregardless of talent or hardwork to break out of the poverty trap. The working poor, those forced to work such long hours that they cannot afford the time to improve themselves through further training are prime examples. These are factors that are definately the duty of the state to address. Ensuring equality of oppurtunity is essential.

Internal factors are such things as lack of ability, training, will and motivation perhaps complicated by alcohol and drug issues. Such internal factors can only be influenced indirectly if the dignity and freedom of an individual to make their own choices (and mistakes) are respected. Education (again that old liberal solution) may play a part and a better health system can certainly work but direct intervention even with the best of intentions are often morally repugnant and have severe consequences. A good case in point is the type of strategies the commonwealth government used to put in place to address aboriginal poverty back in the 50s, 60s and 70s.

As well, internal factors include different lifestyle choices. There are retirees, nomads, self-sufficient cashless communities and downshifters out there who have a home but pull the occasional beer for a living. Such people who have choosen to have a lower income than most should not be considered poor. The St Vincent De Paul report which measure household income does not make any such distintinction.

Secondly, how much effort is required for low income earners?

In a country with a social welfare system like Australia which covers the unemployed and sets a minimum wage, arguably the amount of effort for the very lowest paid is not much greater than the higher paid. I admit I do not have the statistics, and certainly I am concerned about the working poor and exploited outworkers in sweatshops. So this in one area that I’m certainly interested in – how many hours do the lowest ten percent of earners work?

Finally, what are the living conditions of the lowest income earners? With the social welfare system, provided you obey the admittedly facistic centrelink people, unemployment benefits can pay for shelter, clothes and food. Internal factors especially if drug related or involving a chronic inability to postpone gratification can certainly blow a large hole in the dole. But these are internal factors which again should be considered differently.

This brings me to the crux of my argument. I believe that a large proportion of the reasons for poverty in Australia are due to internal factors and that these are predominantly health issues and should be considered as such as opposed to ideological or economical or poltical issues. In general, people are poor in Australia because they have mental health, drug and alcohol and systemic cultural issues, not because they do not have the opportunity and certainly not because Australian society is intentionally unjust. I believe that this should be the focus when we talk about poverty and it should not be confused with a different issue such as income inequality.

Also, this is about expectations. Where is the line drawn between low income and poverty? Can low income earners in Australia be considered poor? If not, is income inequality then a problem?