Thursday, July 30, 2020

The at-risk-of-poverty rate for children

The at-risk-of-poverty rate is an important indicator.  The chart below shows the share of children living in households who had an equivalised disposable income that was less than 60 per cent of the national median for the countries of the EU15 from 2004 to 2018.

EU15 SILC AROP Children 0-17 2004-2018

In 2018, the rate for Ireland was 15.8 per cent and puts it at its the lowest recorded level and was the fifth-lowest in the EU15.  Indeed if we look at the changes since 2004/05 we see that Ireland has seen the greatest reduction in the at-risk-of-poverty rate for children within this group of countries.

EU15 SILC AROP Children 0-17 Change 2004 to 2018

As the chart shows, the AROP rate for children aged under 18 has fallen by 7 percentage points in Ireland over the last 15 years (22.8 per cent to 15.8 per cent).  At the other end this compares to an increase of a similar magnitude for Sweden.

It could be that the first chart does not seem to fit with what we might expect.  Yes, there are reductions in periods of strong growth (2006-07 and 2017-18) but where is the crash of 2008 and the subsequent period of austerity?  For the ten years from 2008, Ireland’s at-risk-of-poverty rate for children was pretty much unchanged but this was a time of significant changes.

One of the reasons for this is that the at-risk-of-poverty rate is a relative measure: it is assessed against a moving target – the national median equivalised disposable income.  The threshold against which being at-risk-of-poverty is assessed will change based on how the national median income changes.

EU15 SILC AROP Threshold 2 2 Household 2005-2018

In 2008, for example, the at-risk-of-poverty threshold used by Eurostat for a two adult plus two children under 14 household in Ireland was around €29,000.  In the following years as the impact of the crash and austerity was felt virtually all incomes fell which meant that the median income, or midpoint of the income distribution, also fell. 

By 2011, the AROP threshold for a 2+2 household had fallen below €25,000.  This reduction in the threshold meant the AROP did not reflect the increased difficulties faced by many households.  The median income threshold began to rise in 2014 and by 2018 the threshold for a 2+2 household exceeded €31,000. 

This means deteriorations and improvements can be partly masked and not fully show in the at-risk-of-poverty rate and emphasizes that, while having poverty in it’s name, it is as much a measure of inequality.

We can get closer to a measure that reflects changes in absolute poverty by anchoring the threshold at a fixed point and examining the share of people which are below that fixed threshold (after adjusting for inflation).

EU15 SILC AROP Anchored Children 0-17 2004-2018

The pattern of the anchored at-risk-of-poverty rate for Ireland probably better reflects our prior expectations with a clear deterioration evident from 2009 to 2012.  Relative to its 2005 threshold adjusted for inflation no country has seen a larger reduction in its anchored at-risk-of-poverty rate

EU15 SILC AROP Children 0-17 Anchored Change 2004 to 2018

Greece went “off the scales” in the previous chart here we can see that its anchored AROP rate in 2018 was nearly 27 percentage points higher than it was in 2005.  Most countries show a reduction though for some it is relatively minor while no data on this measure is available for France.

An important consideration when assessing at-risk-of-poverty rates is the role of social transfers.  While Ireland in 2018 had an AROP rate for children that was significantly less than it was in 2005, if we look at the AROP rate before social transfers it has been at pretty the same rate for the past few years that it was from 2005 to 2008, i.e. in or around 40 per cent. 

EU15 SILC AROP before Transfers Children 0-17 2004-2018

Ireland’s AROP before social transfers for children has been close to the highest in what was the EU15.  Although it is at the level it was pre-2008 it has been on a fairly steady downward trend since 2011.  The changes in the previous chart are of a similar magnitude to the changes shown below for the share of children living in households where there is very little paid employment undertaken.

EU15 SILC VLWI Children 0-17 2004-2018

For every year for which data is available Ireland has had the highest share of children living in quasi-jobless households – households where the adults of working age are in paid employment for less than 20 per cent of the available time.

Eurostat also provide a measure of the at-risk-of-poverty rate after deducting housing costs from disposable income.  The threshold is left unchanged but the benchmark is assessed against the adjusted income of the household.

For Ireland this stood at 29.7 per cent in 2018 and has been showing a slight downward trend in recent years.

EU15 SILC AROP after Housing Costs Children 0-17 2004-2018

A related measure is the housing cost overburden rate.  This is the share of people living in households who face a total housing cost that is greater than 40 per cent of the household’s disposable income.  Here it is for children aged 0 to 17 years.

EU15 SILC Housing Cost Overburden Rate Children 0-17 2005-2018

Once again, Greece goes off the chart and in 2018 had a rate of 48 per cent which was almost three times greater than the second highest (the UK at 17 per cent).  The rate in Ireland in 2018 was 3.2 per cent which was the third-lowest in the EU15. 

It should also be noted that while mortgage interest payments are included by Eurostat in total housing costs for owner-occupiers mortgage principal repayments are excluded.  Of course, it may be that Ireland’s housing problems are preventing some from entering this category so it would be unwise to view Ireland’s position in a universally positive light.

And this may be evidenced when we look at the at-risk-of-poverty rate for young children:

EU15 SILC AROP Children 0-5 2004-2018

In 2018, Ireland had the lowest at-risk-of-poverty rate for children aged under six.  The sample size may be small so there may be a lack of precision in the estimates but it can be seen that the rate dropped from 17 per cent in 2016 to 9 per cent in 2018.

Now, we could interpret that as being the result of a very rapid rise in the incomes of households with young children.  From 2016 to 2018 the AROP threshold rose by 10 per cent so incomes would have to rise by that much just to match the rising threshold and it would take a much faster rise again to almost halve the AROP rate.

But maybe as well as the standard errors of the estimate could there also be a sample selection issue.  Maybe it is not that the incomes of households with young children are rising rapidly but that those households with young children have higher incomes.  Obviously, we can’t tell something like that from this aggregate data but with housing issues possibly delaying household formation and childcare issues resulting in high costs we should again caution against taking a universally positive view of Ireland’s position in the previous chart.

A hint that as is not as it might seem can be found by looking at the material and social deprivation rate.  This is the percentage of people in households experiencing at least five from a list of 13 items.  This is a relatively recent measure so a time series back to the early 2000s in not available.  Here it is for children aged less than six for the countries of the EU15 since 2014.

EU15 SILC Material and Social Deprivation Rate Children 0-5 2014-2019

So, while Ireland might have had lowest AROP for children under six in the EU15 in 2018, Ireland also had the fifth-highest rate of children in this age group living in housing experiencing material and social deprivation.

To conclude here is the persistent at-risk-of-poverty rate for children under under 18.  This is the share of children who are in an at-risk-of-poverty household this year who were also in this position for at least two of the previous three years.

EU15 SILC AROP Persistent Children 0-17 2007-2018

Again, some sample sizes affects precision and it can be seen that the estimates show a good deal of volatility.  In any given year, a maximum of 25 per cent of the sample from four years remain in the survey.  The survey design is such that a household remains in the survey for four years so one quarter of the sample is replaced each year.  Of course, the numbers exiting will be higher for a variety of reasons (household changes, non response etc.)

And for the above it is further limited to household who had children under 18 in the current year.  Still, recent estimates for Ireland are pretty steady and show that around 10 per cent of children are in households whose income is persistently below the relative at-risk-of-poverty threshold.

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