Kieran Madden

By Kieran Madden - 19/12/2019

Kieran Madden

By Kieran Madden -

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Poverty related factors for families now and in the future

Poverty-related factors for families now – international evidence[1]

As New Zealand-based evidence is limited, we turn to the UK to round out and complement the domestic findings. The UK Department of Work and Pensions (DWP) summarised the extensive international literature, referencing over 300 academic and institutional sources on poverty now and in the future. Based on analysis of risk factors and trigger events, their findings on “factors making it harder to exit poverty now” are included below and evaluated using three criteria:[2]

  • Certainty: Does it have an effect? How clear is the causal relationship?
  • Strength: How large is the effect? How strong and direct is the impact?
  • Coverage: How many are affected? How widespread is the impact?

According to this evidence, Long-term worklessness and low earnings are the primary causes of persistent poverty for families now. Here, low earnings primarily refers to fewer hours worked through part-time or temporary work rather than low wages per se.[3] The causal link is clear and well-established: a family lacking work or on low earnings for an extended period leads to long spells of low income which is, in turn, associated with “multiple disadvantage.” Parental qualifications directly impact opportunities for work and potential for earnings, warranting their high influence across the criteria. Analysis of income dynamics using longitudinal panel data—trigger events in particular—sheds light on this question from a within-lifetimes perspective. Risk factors add texture to these findings.

Potential poverty-related causal pathways for families now

Figure 9 shows the potential causal pathways outlined in Table 8 above in more detail: low parental qualifications, drug and alcohol dependency, parental and child health problems, and family size and instability flow, to a greater or lesser extent, through to the parents’ ability to attain and keep a well-paid, stable job to provide for their family. The relative strength and coverage criteria are represented by the size of the arrows and dialogue boxes.

We see that the majority of the factors do not directly influence income; the factors on the left hand side of the figure are intermediate or indirect pathways and act through the wider economy. An intermediate pathway is like a link in the causal chain. Low parental education qualifications limit the number and quality of job opportunities. Family breakdown leads to fewer workers in the household and more sole parent families. Larger families have greater needs, and therefore, require more resources, and caring responsibilities may limit parents’ potential to work. Parental disability and ill health both limit opportunities to work and increase families’ needs. Drug and alcohol dependency significantly impacts a parent’s ability to gain and maintain work, although this affects a small number of families. The available evidence suggests that debt, poor housing, and neighbourhood factors are more likely to be indicators than causes of poverty.[4]

Summary of current poverty: within lifetimes

A synthesis of New Zealand and international evidence suggests that workless families are at great risk. While only around one in five of all New Zealand children live in workless families, around three-quarters of these children are poor. Children living in these families also constitute the majority of all children in poverty at 63 percent. In contrast, only 12 percent of children living in working families are poor. But just because children from working families are at lower risk doesn’t mean these families aren’t of concern. Because working families make up the vast majority of all households, an alarming 37 percent of children live in “working poor” households. This is why it is not just unemployment that is problematic, but low earnings or unreliable hours too.

Stability is important in both work and family domains. Long spells of unemployment are of particular concern because they increase barriers that block entry or reentry to work. Barriers include “skills loss, employer bias, and changes in individual attitudes to work.”[5] Returning to work after a long break can also lead to employment in low-skill, low-wage jobs, which potentially contribute to instability of earnings and lead to a recurrent poverty cycle.[6] Research from the UK finds that even temporary employment can make a positive difference—a couple household where one parent is employed from time to time is “around five times less likely to experience persistent poverty than a poor family where both parents are persistently out of work.”[7] Alongside stable employment, stable relationships help combat persistent poverty. Children continuously in sole parent households over a five-year period were just over twice as likely to not fall into poverty than children in families that moved into and out of sole parenthood during the same time period.[8]

Gaining a full-time worker is the surest route out of poverty, and holding a job is the best protection from poverty. Events that involve changes in work and income are much more likely than changes in family circumstances to trigger poverty transitions. While not as widespread, parental separation is much more likely than work events to be an entry to poverty, with around half of the children of recently-separated parents entering poverty. Sole parent families are over twice as likely as couple families to fall into poverty. Children of parents who have separated experience heightened short-term distress and likely longer-term negative impacts.[9] Some evidence that controls for income suggests that it is family functioning—mental health problems, parental conflict and poor parenting for example—rather than family structure itself that are the main factors.[10] This heightened risk is largely a function of fewer workers in the household and increased caring responsibilities. There is also evidence that a separation often leads sole parents to leave work if they were already working at the time.[11]

Benefit receipt follows similar mobility and persistence patterns to income. Over half of those on Jobseeker Support have been receiving the benefit for one or more years. Close to four out of five sole parents are in the same situation.[12] Benefit receipt is, for obvious reasons, strongly associated with worklessness. While some research shows benefit receipt is associated with a range of poor outcomes and the association persists even after controlling for income, it is likely that the same things that cause people to be on a benefit in the first place also cause the poor outcomes.[13]

Armed with these findings around the factors that push families into poverty now and keep them there, we will now turn our focus to the factors that cause intergenerational poverty, or poverty in the future. Today’s children will form the families of the future. If worklessness in families now is the major causal pathway for persistent poverty, it follows that whichever family background factors and early life circumstances that influence children’s chances at a well-paid and stable job in the future will also influence whether they will be protected from or fall into poverty when they grow up. The pathways and factors will be related, yet different, and we turn to them now.

Poverty-related factors for families in the future – International Evidence

We now turn to findings from the UK DWP on the relative influence of factors and causal pathways for future poverty to complement and put into conversation with the New Zealand evidence. It is worth reiterating that this evidence is UK-based, and if additional research was undertaken here the relative influence of factors may differ.[14] Based on analysis of cohort studies and investigation into potential causal links, their findings on “factors making some poor children more likely to become poor adults” are included below and are evaluated using three criteria:[15]

  • Certainty: Does it have an effect? How clear is the causal relationship?
  • Strength: How large is the effect? How strong and direct is the impact?
  • Coverage: How many are affected? How widespread is the impact?

Looking at the three criteria together helps add texture and nuance to the findings. Drug and alcohol dependence, for example, is strongly associated with low family income in the future as the regressions picked up, but the impact is limited to a small proportion of families, and the evidence supporting the causal relationship across generations is limited as well.

Potential poverty-related causal pathways for families in the future

Figure 11 shows the potential causal pathways: how low parental qualifications, home environment and parenting styles and aspirations, non-cognitive development, poor parental health, and childhood poverty itself flow, to a greater or lesser extent, through the child’s potential for educational attainment. Education improves the chances of future employment for children when they grow up, leading to the benefits described in the within lifetimes section.

We see that the majority of the factors do not directly influence future income; the factors on the left hand side of the figure are intermediate or indirect pathways and act through the child’s experience of the educational system. An intermediate pathway is like a link in the causal chain. Low parental qualifications influence the children’s home learning environment[16]. A rich home learning environment (including parenting styles and aspirations) improves children’s cognitive ability and non-cognitive skills.[17] Parental ill health, particularly psychological, can negatively influence the home environment. Childhood poverty limits parents’ ability to invest time and money into their children resulting in a negative cumulative effect on a number of hardships and social and cultural capital. These pathways are related, yet distinct from the within lifetimes process.

Educational achievement and intergenerational poverty

The intermediate pathway between childhood poverty and educational achievement later in life is, however, contested and worth discussing. Being brought up in a poor family does appear to negatively impact children’s future educational success independent of their intelligence or family background. New Zealand evidence found that while “[s]ocio-economic status at birth was strongly linked to later economic resources, there was no direct pathway from economic resources to later educational achievement.”[18] Instead, the primary explanatory factors from this study were individual cognitive ability, child behavio[u]r, and family aspirations.[19]

The home environment

These explanatory factors depend largely on the nature of the home environment. Families fulfil several roles in the home: they care, nurture and support; manage resources; provide socialisation and guidance, and provide identity and sense of belonging.[20] It is critically important for a child’s development that their parents can perform these roles well. When it comes to education, research suggests that parenting explains somewhere between a third and a half of the school readiness gap between children in low and high-income families.[21] Parenting includes both parenting style, where maternal sensitivity and nurturing is of particular importance, and a rich home learning environment, where quality time, educational resources, and teaching behaviours help boost children’s development.

Parental educational attainment is one of the greatest predictors of a child’s educational outcomes. Of the 7 percent of children living in households with no formal qualifications, just over half of these households are in poverty. In a New Zealand-based longitudinal study, economist Tim Maloney concluded that “family income still matters for determining whether a youth leaves education without a qualification, but the direct effect of parental qualifications is considerably more important for this outcome.”[22] The magnitude of the impact is significant too. “Having school-qualified parents,” writes Maloney, “has the equivalent impact on the probability of the subject having a qualification of an increase in mean family income of $38,000 (an increase that would almost double the mean income of the cohort members).[23] The probability that this child will end up unqualified is also reduced by 13.3 percentage points.

Cognitive and non-cognitive skills

The prominent focus on educational attainment can tend to “disguise” the critical role of cognitive ability and non-cognitive skills in the transmission of income across generations—a process largely dependent on an enriched home environment with healthy, well-functioning parents.[24] Cognitive skills like literacy and numeracy have been shown to be associated with higher earnings regardless of educational attainment.[25] Non-cognitive skills (sometimes called character skills) include self-control, inter-personal skills, and perceptions of self-worth and control over life. Cognitive skills tend to be better predictors for educational and economic success than non-cognitive skills, yet both are important.[26] Recent studies attribute around a third of the differences in educational attainment to non-cognitive factors.[27] Non-cognitive skills are critical because they have the capacity to foster cognitive skills like memory, language, and problem-solving (usually approximated by IQ), potentially leading to cumulative educational and economic advantages.[28] Studies suggest that they also seem to matter more for those in lower incomes than those higher on the income distribution.[29] Because it is difficult to define and measure these skills, there is still a long way to go before definitive findings will arise from the research, but regardless, it remains a promising area worthy of further exploration.[30]

Summary

Poverty scars across generations. Evidence presented in this section has underscored just how deep an inheritance parents leave their children. New Zealand’s overall intergenerational mobility is around the OECD average, though it is likely that there is a worrying persistence across generations at the bottom of the income distribution, meaning that someone who experienced poverty during childhood will be likely to experience poverty in the future.

We have examined evidence on whether poverty in childhood causes adverse outcomes—including poverty—in the future. While much of the evidence is mixed on this relationship, as Brooks-Gunn and Duncan concluded from their early research: “income effects are probably not due to some unmeasured characteristics of low-income families, family income, in and of itself, does seem to matter.”[31] The effect also appears to be causal and its relative importance appears to be increasing as time goes on.[32] But while a causal relationship exists between poverty in childhood and later outcomes, the effect size of childhood income is small to modest— other factors like the quality of parenting appears to play a more significant role. D’Addio writes that the effect of income “is less important than that of a wider set of parental characteristics…[t]hese include the home and social environment where the children are raised and where their beliefs, attitudes and values are shaped.”[33] Both family environment and genetic inheritance are equally important for the transmission process.[34] Education plays a significant role as a transmission mechanism.

Much of this evidence is based on statistical analysis rather than experiments following interventions, which means we must be cautious when making strong causal conclusions. The unexplained proportion is also significant, but going beyond mere correlation has shown the relative importance of income and other factors. More experimental studies would be of great benefit in New Zealand and overseas.[36]


This is an extract from Kieran’s research series “The Heart of Poverty | Uncovering Pathways into and out of Disadvantage in New Zealand” Discussion Paper. (Released 2016) 

READ MORE IN THIS SERIES

READ THE WHOLE PAPER

 

ENDNOTES: 

[1] UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 6.
[2] UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 6.
[3] UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 21-22, 57. This is because defining and measuring “low wages” is fraught with difficulty, so number of hours or part-time/contract work are usually used in the literature as a proxy indicator. The authors note that the sources used in the UK Department of Work and Pensions report tended “to refer to the impact of working a lower number of hours (or part time) on the risk of experiencing poverty, rather than the impact of low-paid work per se.” The number of “working poor” in New Zealand suggests that low wages in conjunction with low hours is a problem here.
[4] UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 30-35.
[5] UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 58, citing Arulampalan et al.
[6] Tracy Shildrick et al., The low-pay, no-pay cycle: Understanding recurrent poverty (Joseph Rowntree Foundation, 2010).
[7] UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 21.
[8] Laura Adelman, Sue Middleton, and Karl Ashworth, Britain’s poorest children: severe & persistent poverty and social exclusion (2003) cited in UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 26.
[9] Lester Coleman and Fiona Glenn, “The varied impact of couple relationship breakdown on children: implications for practice and policy” Children & Society 24, no. 3 (2010): 238-249.
[10] Stock et al., Personal Relationships and Poverty: An Evidence and Policy Review (2014), 28.
[11] Jenkins, Changing Fortunes.
[12] Ministry of Social Development, “Benefit Fact Sheets,” accessed September 20 2015. https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/ statistics/benefit/index.html.
[13] Mayer, The influence of parental income on children’s outcomes, 66.
[14] Housing, for example, may be a more significant factor in New Zealand, with families spending comparatively significant proportions of their income on housing costs. For more on housing and child poverty, see Boston and Chapple, Child Poverty in New Zealand, 181-201.
[15] UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 6.
[16] Black and Devereux, Recent developments in intergenerational mobility.
[17] UK Department of Work and Pensions, An evidence review of the drivers of child poverty for families in poverty now and for poor children growing up to be poor adults, 91.
[18] David M., Fergusson, L. John Horwood, and Joseph M. Boden, “The transmission of social inequality: Examination of the linkages between family socioeconomic status in childhood and educational achievement in young adulthood,” Research in Social Stratification and Mobility 26, no. 3 (2008): 290. The authors noted that the unexplained proportion of the relationship might be the result of the cumulative effect that income has on a number of outcomes.
[19] Fergusson, Horwood and Boden, “The transmission of social inequality: Examination of the linkages between family socioeconomic status in childhood and educational achievement in young adulthood.”
[20] Superu, Families and Whanāu Status Report.
[21] School readiness constitutes cognitive skills such as literacy, maths, and language. This particular study also included behavioural factors like conduct and attention. Jane Waldfogel and Elizabeth Washbrook, Income-Related Gaps in School Readiness in the United States and the United Kingdom (Russell Sage Foundation, 2011).
[22] Maloney, “Are the outcomes of young adults linked to the family income experienced in childhood?” 74-5.
[23] Maloney, “Are the outcomes of young adults linked to the family income experienced in childhood?” 74.
[24] Jo Blanden, Paul Gregg and Lindsey Macmillan, “Accounting for Intergenerational Income Persistence,” 17.
[25] Catalina Gutierrez et al., “Does Employment Generation really matter for poverty reduction?: World Bank Policy Research Working Paper Series” (2007).
[26] Kathryn Duckworth et al., The relative importance of adolescent skills and behaviors for adult earnings: A cross-national study: Department of Quantitative Social Science Working Paper (2012), 2.
[27] Flavio Cunha, James Heckman and Susanne Schennach, “Estimating the technology of cognitive and noncognitive skill formation,” Econometrica 78, no. 3 (2010): 883-931.
[28] Cunha, Heckman and Schennach, “Estimating the technology of cognitive and noncognitive skill formation.”
[29] Duckworth et al (2012) The relative importance of adolescent skills and behaviors for adult earnings: A cross-national study, 2.
[30] For more on the conceptual difficulties in this literature, or as the auther puts it, “scholarship on “non-cognitive factors” is a mess,” see Richard V. Reeves, “JingleJangle Fallacies for Non-Cognitive Factors,” accessed September 12 2015, http://www.brookings.edu/blogs/social-mobility-memos/posts/2014/12/19-jinglejangle-fallacies-noncognitive-factors-reeves.
[31] Brooks-Gunn and Duncan, “The effects of poverty on children.” Løken, Mogstad and Matthew Wiswall note that “While the IV estimates reported in Oreopoulos et al. (2005), Dahl and Lochner (2008) and Milligan and Stabile (2007) suggest some positive effects of family income on children’s (short-run) outcomes, Shea (2000) and Løken (2010) find little, if any, impact of family income. Using FE estimation, both Duncan et al. (1998) and Levy and Duncan (2000) find that family income is important for children’s educational attainment, whereas Blau (1999) and Dooley and Stewart (2004) find a small effect of family income on child outcomes.” “What linear estimators miss,” 1.
[32] Gibbons and Blanden, The persistence of poverty across generations, 33. Evidence from the UK that compared two different cohorts separated by around twenty years suggested that the relative importance of childhood poverty on future outcomes has risen over time.
[33] d’Addio, Intergenerational transmission of disadvantage, 26.
[34] Samuel Bowles et al., Unequal Chances: Family Background and Economic Success (2005) cited in d’Addio, Intergenerational transmission of disadvantage, 26.
[35] Boston and Chapple, Child Poverty in New Zealand, 55.

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