My blog suggestion yesterday that ‘working couples with children’ deserve ‘much less’ welfare assistance attracted some questioning in the post’s comments. NPOV asks

is this from the starting point that you believe almost everyone deserves “less”, and couples with children deserve “much less” because they already get more than everyone else?

Certainly my starting point is the classical liberal one that people are entitled to keep their earnings unless there is some strong reason to tax it away from them. Among the reasons given for taxing, redistribution of cash to families seems to me to be among the weakest. It is not specifically aimed at meeting any need that is generally agreed upon, such as for education or healthcare. It is given to people with incomes that are well above average, who are quite capable of giving their children food, clothing and shelter without any outside help at all.

Though some family welfare meets genuine needs, much of it is redistribution between family types irrespective of need. Recent years have seen a significant improvement in the financial position of families relative to single people and couples without dependent children (though people in the latter still generally have the most to spend on themselves).
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In response to my implied criticism of Andrew Leigh for assuming that increases in inequality are bad and decreases good, but never specifying for what level of inequality would satisfy him, commenter Leopold responds:

one could turn the criticism around. Liberals believe in liberty - but how much liberty, exactly?

Leopold’s argument (I am paraphrasing here) is that preferences for greater equality or greater liberty are rules of thumb to be applied to specific circumstances, but there are cases where social democrats could accept less equality and liberals accept less liberty. We can’t always precisely calculate the final overall result of all these complex trade-offs to say what is the exactly right amount of equality or liberty. But this doesn’t invalidate the initial assumption that, all other things being equal, more equality or more liberty (depending on your philosophical position) is desirable.

I think Leopold’s point is reasonable. For example, I say that there should be less tax, and while I have clear pet hates among government spending programmes (eg FTB) that I think should be cut to reduce general tax rates, I never say exactly how much tax I think should be levied or what tax rates I would be happy with.

High-level political abstractions gives us intellectual tools that help organise our understanding of the world, but they don’t necessarily provide answers for specific problems. That requires far more detailed analysis.
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Using data from four surveys over a 40 year period, Andrew Leigh’s latest paper (pdf) argues that father-son intergenerational mobiliity is stable in Australia.

In his conclusion, as reported by The Australian, he says:

“On one view, the absence of any significant rise in inter-generational mobility might be regarded as surprising,” Dr Leigh says in the study report.

“Increases in healthcare coverage, the banning of racial discrimination, the abolition of up-front university tuition fees and an increase in the number of university places are among the policy reforms that might have been expected to increase inter-generational mobility.

“Yet there were also trends in the opposite direction.” These included rising unemployment during the study period and the removal of inheritance taxes in 1979. Dr Leigh said a rise in inequality had been well-documented with the distance between income groups greater in the early 2000s than in the mid-1960s.

I know conclusions are where they let academics off the referee’s leash, but some of this seems a bit odd to me. I’m not sure why improved healthcare coverage would make much difference; in any case claimed ‘disability’ is much higher than it used to be. Nor are bans on racial discrimination likely to have influenced the figures much; such laws are easily evaded and many migrant groups were doing fine long before discrimination was outlawed.

Inheritance taxes, as Andrew L’s own research shows (pdf), took only about 30% of the largest estates - something unlikely to affect the salary data he’s using (though it may affect investment income). And rising inequality is consistent with high mobility (if the poor and the rich swapped places each generation, ie complete mobility, inequality would be unchanged because it is a static, snapshot-in-time measure).
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Newspoll regularly asks voters whether, in the next six months, their standard of living will improve, stay the same, or get worse. Their results always show that supporters of the political party in opposition federally are more pessimistic than supporters of the governing party.

As I noted a couple of years ago, at most times the causes of this are hard to disentangle. Some of it is probably real. Living standards of opposition supporters may genuinely be negatively affected by the government’s policies - eg Labor supporters relying on handouts that may not be so readily available under the Coalition; Liberal supporters suffering from increased tax and regulation under Labor. And people whose living standards have declined may blame the government, and therefore appear as supporters of the opposition in the polls.

These factors are least likely to apply as a new government begins; voters cannot blame its past policies for their current problems, and the inevitably slow-moving machinery of government means that few objective changes are likely to occur within six months. But as a Newspoll conducted in mid-December, and reported in the Australian this morning, shows this doesn’t stop reversals in who feels optimistic about their future living standards and who feels pessimistic.
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I only lasted about half an hour with last night’s debate, but early on Kevin Rudd repeated his claim that people are feeling worse off due to rising costs, and the worm climbed to the top of the screen as he did so.

Is this a case of the objective statistics not capturing the subjective experience of the Australian electorate? There is nothing unusual about public perceptions being inconsistent with the facts. But this seems to be a case in which public perceptions are not matching what the same public tells pollsters when asked questions about their finances and standard of living.

For example, the Roy Morgan consumer confidence survey asks its respondents:

Would you say you and your family are better-off financially or worse off than you were at this time last year?

In the most recent survey, 40% said that they were better off and 21% said that they were worse off. The numbers have bounced around a little over the year (it’s a monthly survey), with an average of 36% saying they are better off and 25% worse off. The comparable numbers last year were 33% and 28.5%. This suggests that, compared to last year, more people perceive an improvement over the preceding 12 months and fewer perceive a decrease.

And nor do they seem to think that price increases are going to keep whacking them, with an average of 42% saying that they expect to be financially better off in twelve months time, and 12% expecting to be worse off.

Over a longer time period, a Galaxy poll reported in Saturday’s Herald Sun asked:
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During the week, the relentlessly on-message Kevin Rudd repeated his lines about ‘working families’:

The other big challenge is offering help to working families under financial pressure. Mr Howard just said he understood that, well that’s the same Mr Howard who said that working families had never been better off.

And the ACNielsen poll at the end of the week suggests that the public believes him, with 59% agreeing with the proposition that ‘John Howard has lost touch with working families’.

It’s not often that I agree with Clive Hamilton, or he with John Howard, but the Australia Institute has published some interesting ABS and HILDA-based research on just how well ‘working families’ are doing (as usual with Hamilton’s work, it gets a good report in Fairfax papers).

On average, the real disposable income of couples with kids went up 40% in real terms between 1994-95 and 2005-06, considerably more than the 28% increase recorded across the whole population. There were above-average increases across all the income quintiles for couples with kids, with the lowest gain of 35% in the second-highest quintile. General prosperity and very generous family benefits from the ‘out of touch’ Howard mean that, financially at least, families never have had it so good.

The working families doing-it-tough message is, I think, the key mistake of the Labor campaign. Not that it will harm the ALP’s immediate electoral prospects - to the contrary, it will probably add seats to their likely victory - but it is creating expectations that cannot be met, not even with the me-too tax cuts. Though ‘working families’ will almost certainly on average be even more affluent in three years than they are now, Rudd is fanning such an inflated sense of entitlement that ‘working families’ will be disappointed with their gains.

In The Sunday Age yesterday, there was another article about private school students struggling at university. It was based on the numerous studies (I mention a couple here) which have found that, for a given ENTER score, kids from private schools, and also selective government schools where they have been examined, average slightly lower first-year university marks than kids who have been to government schools.

Though this finding has been repeated frequently enough for it to be regarded as a valid social science generalisation, it is also widely misunderstood as saying that private school students get lower grades at university. I haven’t seen that question specifically answered in research, but given that private school students have much higher median ENTERs that is unlikely to be the case. Though private school students are not as academically prepared as government school students who get the same grades as they do, disproportionately few government school students actually get those matching grades at the end of Year 12.

There is also the problem that the studies are all of first year students. It would not be surprising if the differences narrowed in subsequent years, as private school students adjust to the more self-directed study style at university and learn that university life doesn’t offer quite the same freedom compared to school at they might have first thought.

As an ACER study I blogged on in April found, private school students have a higher rate of actually completing university, though once starting ENTER scores are taken into account there are no significant differences betweens school sectors.

One issue we don’t know much about is the differences between government and private school students after university. I have been trying to do a little research on this using the 2005 Australian Survey of Social Attitudes.
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The Age’s take on yesterday’s ABS Household Income and Income Distribution 2005-06 was predictable: ‘Rich are richer, while the have-less struggle’ read its headline. Yet what was more interesting was how little impact on overall inequality the growing number of high-income households is having.

Since 1994-95 the number of households in Australia has increased by 21%. But the number of those households with gross household incomes exceeding $3,000 a week, after adjusting for inflation, is up by 172%. The proportion of households in this group has gone from 2.6% to 5.9% (though the earlier figure will be understated somewhat, as salary sacrifices are now included).

Yet the Gini coefficient is not changing much. It is a measure of inequality, where 0 would indicate every household has the same income and 1 would indicate a single household has all the income. Over the 1994-95 to 2005-06 time period the Gini coefficient has only gone from 0.302 to 0.307.

One reason is that the number of poor households, with weekly incomes below $400, is dropping. Read the rest of this entry »

The people who write Graduate Careers Australia’s starting salaries report must love their time series of graduate salaries as a percentage of average weekly earnings, because they keep highlighting it in their report and in their media release, even though they are coming close to admitting is is meaningless statistical junk.

I can see why they want to keep it - it goes back nearly 30 years, to 1977 (the data in the report released yesterday is for people employed in early 2006). On surprisingly few topics do we have consistent data going back that far. And for people considering the costs and benefits of university study, it is useful to know their likely earnings compared to the alternatives. But as the Graduate Salaries 2006 report says:

…it is important to note that average weekly earnings may be positively affected over time as more and more graduates enter the workforce. As their careers progress their salaries grow, overall average weekly earnings are pushed up.

The only thing wrong with that is the ‘may’. They have a table showing full-time workers with a diploma and above going from 19.7% in 1998 to 27.8% in 2006. Using only bachelor and above and all workers, ABS Education and Work shows an increase from 14.5% in 1994 to 23.9% in 2006. I’m not sure what proportion of workers had degrees in 1977, but we’ve gone from graduates having a small impact on male average weekly earnings to a large impact - nearly a quarter of all earners. As bachelor degree graduates typically earn half as much again as people with Year 12 qualifications only, the statistical effect is not trivial.

This isn’t the only problem. Read the rest of this entry »

The Age this morning led with a story about record mortgage and rental ’stress’:

THE number of Australians under financial stress from housing costs has soared to a historic high, with more than a million households now spending at least 30 per cent of their income on loan repayments or rent.

Adding fuel to a potentially explosive election issue, census figures show that the number of households officially declared under “mortgage stress” has almost doubled in five years — to 547,054. At the same time, the number of households above the “rental stress” threshold — spending more than 30 per cent of their income in rent — has climbed to 520,598. (emphasis added)

According to an ALP press release (seemingly the source of this story) that’s equivalent to 27% of households with mortgages.

It is of course unsuprising that high property prices are flowing through to people spending more of their income on housing. But ’stress’ in this context is a subjective rather than objective indicator, so it is not clear that we can really say that spending 30% of income on mortgage or rent payments is an ‘official’ indicator of financial stress.

Other measures of financial stress, for example, come up with lower estimates of financial problems among households with mortgages. The 2006 General Social Survey found that 16.5% of households with mortgages had experienced a cash flow problem in the previous 12 months (defined as not being able to pay a bill on time), which was slightly lower than the national average.

So where does the 30% of income figure come from? Read the rest of this entry »