Not all poor children can become slumdog millionaires

shutterstock_410423725-1Today’s blog for Universal Children’s Day is by Olivier Thevenon and Alastair Wood of the OECD Directorate for Employment, Labour and Social Affairs

Some children are luckier than others. The story of Jamal Malik in the 2008 film Slumdog Millionaire is a rags to riches story of a young Indian boy from the slums of Mumbai. Living in extreme poverty, poorly educated, and turning to crime, Jamal’s childhood does not suggest that success is round the corner. But thanks to a rare combination of luck, coincidence and a significant amount of chutzpah he does go on to hit the jackpot as a contestant on Who Wants to Be a Millionaire?. Of course, in reality, such good fortune is extremely rare and disadvantaged children often struggle to turn their life around.

We know that childhood experience has a strong impact on opportunities later in life. In France, for example, 1 in 4 homeless people were in foster care as children[1], showing how crucial it is to support disadvantaged children from an early age. In developing countries, the situation is far worse: almost 385 million children were living in extreme poverty in 2013[2] –  meaning that household members were surviving on an average of US$1.90 a day or less per person. In OECD countries, 1 in 7 children are currently living in relative poverty, corresponding to about 45 million children – roughly the size of the population of Spain. Sadly, child poverty has also increased in two-thirds of OECD countries since the Great Recession.

Figure 1: 1 in 7 children on average in the OECD live relative poverty

child-poverty

Share (%) of the total population and of children (0-to-17) with an equivalised post-tax-and-transfer income of less than 50% of the national annual median equivalised post-tax and transfer income. Source: OECD Family database

Far too many children do not get the best possible start in life, and this has important consequences later on. Poor children are, for example, more likely to report poor health and/or be obese, are less likely to do well at school[3], and are more likely to live in deprived areas with higher levels of crime. In many developing or emerging economies, child poverty often means that children are coerced into the informal labour market. High levels of income inequality also reduce the capacity of the poorest population to invest in the education and skills of their children and in most OECD countries social spending devoted to children is actually lower than that for the retired population. All the evidence available suggests that inequalities start to develop early on, and that children will pay a high price for these rising inequalities throughout their life.

Greater investment is needed, but that’s not all. The challenge is daunting, but there are some broad, yet crucial, guidelines for countries in tackling such inequalities among children[[4]]:

  • A more comprehensive and holistic approach is needed, one that cuts across the different areas of child well-being (e.g. child support, education, health care, housing). Far too many countries do not have a child-centred policy strategy that addresses children’s diverse needs from the early years of life. Disparate approaches that focus on a single aspect of child well-being are unlikely to be effective if they do not address other barriers to child development.
  • Investment in children should start early and be sustained throughout childhood. Successful early-life interventions are so critical to the development of a range of cognitive (e.g. language and numerical skills) and social (e.g. self-confidence) skills, especially for disadvantaged children.
  • Policies should also adapt to the changing living environments of children. Most children still grow up with two parents; but more and more live in single-parent households or divide their time between the two households of their separated parents. A key challenge, therefore, is getting policies to meet the needs of these new family formats.

Society will reap the benefits of a better educated and healthier population in the future, with potentially less social support needed, lower health care costs as well as a greater capacity of individuals to reach their potential. Expanding policies towards children therefore offers a win-win opportunity for children, their parents and society as a whole and is a key element of an inclusive growth strategy. It is time for countries to take more affirmative action and adopt a more inclusive approach that encompasses all children. After all, only very few people are lucky enough to hit the jackpot and become a Slumdog Millionaire and we cannot rely on miracles to save children from lives in poverty and disadvantage. Policy action is needed now to ensure the best future possible and equal opportunities for children around the world.

Useful links

OECD Centre for Opportunity and Equality

OECD Family Database

[1] Placement dans l’enfance et précarité de la situation de logement

[2] UNICEF/World Bank (2016), Ending Extreme Poverty: a Focus on Children.

[3] How is life for Children?” in How is Life? 2015. OECD Publishing, Paris.

[4] OECD (2016), “Enhancing Child Well-Being to Promote Inclusive Growth”, Meeting of the Council at Ministerial Level, 1-2 June 2016

Tax credits, child poverty and low wages

Yes, but do tax credits help?

Today’s post is from Matthew Whittaker, senior economist at the Resolution Foundation

Once a primarily Anglo-Saxon phenomenon, tax credits and in-work benefits designed to get people into employment and make work pay have been springing up across OECD countries over the last decade or so. In addition to the UK, US and Canada, work-related benefit systems are now in place in Belgium, Finland, France, Germany, the Netherlands and Sweden, with adoption taking place under parties on both the left and the right.

Their wide appeal reflects their apparent successes. International evidence suggests that the programmes have raised employment among target groups and helped tackle child poverty. Nevertheless, many have questioned the cost-effectiveness of the schemes. In particular, a suspicion persists that the credits have done little more than subsidise employers and disguise poverty.

There are two strands to this argument. First, that there is a general wage effect, with tax credits pushing down on earnings at the bottom by increasing the number of individuals prepared to work at low rates of pay. Second, that there is a relative wage effect. That is, recipients are discouraged from moving into higher paid work because of the loss in tax credits it entails, meaning that they tend to experience slower wage growth over time than (initially) low paid non-recipient workers.     

Assessments to date – though there have been few – have tended to support this hypothesis. However, new analysis published by the Resolution Foundation finds little evidence of either effect in the UK. Here, wages at the lower end of the earnings distribution appear not to have lost ground following the introduction of tax credits; instead the pay gap narrowed. As the chart below shows, nor have eligible workers (low-wage parents) recorded slower wage growth than their non-eligible peers (low-wage non-parents). If anything, parents fell behind in the pre-tax credit period, but subsequently recorded stronger wage growth. 

Click to see full size

The UK looks to have escaped the predicted wage effects for two reasons. First, the introduction of the National Minimum Wage has created a robust – and rising – earnings floor. Secondly, the UK’s credits extend much further up the earnings distribution than is the case with other systems of in-work support, helping to dilute any potential negative spill over.

Yet tax credits are being scaled back in the UK. In part this is down to financial realities, with the programme currently costing close to £30 billion a year, but it also reflects a shift in the political landscape. The coalition Government favours a more targeted family-based approach – with the new Universal Credit (UC) set to withdraw support more quickly as household earnings rise – aligned with a new emphasis on tax cuts for individual low to middle earners.

The system may help to maintain the UK’s downward trend in workless households. As the IFS has pointed out, UC will strengthen the incentive to work at all because it has a lower withdrawal rate and higher earnings disregards than the current out-of-work means-tested benefits. However, there is a trade-off. The Government has acknowledged that, in order to keep costs down, incentives for first earners have been given explicit priority over those for second earners under the new scheme, with around 2.5 million potential and existing second earners set to have their work incentives reduced.

While worklessness remains far too high in the UK, this approach risks compounding a new and worrying trend. Though the latest figures reported another decline in relative child poverty, the children who remain below the threshold – and there are around 2.3 million of them – increasingly live in working households. More specifically, they live in households with two parents but just one wage.

As the next chart shows, there is a specific problem for the traditional male breadwinner model. Workers at the 40th percentile of the hourly earnings distribution experienced real terms growth in their wage of around 17 per cent between 1994-95 and 2009-10. However, while mothers living in dual earning families who started at the same wage rate recorded an increase of almost 30 per cent over the period, fathers who are the sole earners in their family experienced zero growth. Perhaps most surprisingly, wage growth among single earner fathers also lagged that recorded among fathers with working partners.

Click to see full size

 

To some extent, this finding may reflect a selection bias. Increases in female employment mean that the population of single earner families looked somewhat different at the end of the period: further research is needed to get to the root of the problem. Whatever the cause however, the clear implication for families with children is that getting out of poverty and improving living standards more generally increasingly requires both parents to be in work.

Tax credits have done much to support the living standards of low to middle income families in the UK. In a new economic and political environment, the challenge for the coming decade is to design complimentary policies that encourage and support further increases in female – and more particularly, mothers’ – employment.

Useful links

OECD Tax Policy Study No. 21: Taxation and Employment provides both a broad overview of the effects of taxation on employment and a detailed analysis of selected issues.

Taxing Wages provides unique information on the taxes paid on wages in OECD countries. It covers personal income taxes and social security contributions paid by employees, social security contributions and payroll taxes paid by employers and cash benefits paid to in-work families.

 

 

 

 

It’s a family affair

Click for press material and country notes

Remember what Tolstoy said about families? “All happy families are alike; each unhappy family is unhappy in its own way.” But what is it that makes a family happy or safeguards its well-being? A new OECD report, Doing Better for Families, provides some answers, and looks at what governments can do to support the family in a time of rapid social change.

The extent of that change is striking. In 1970, women in OECD countries had an average of 2.7 children; today that’s down to 1.7 children. Other changes: In 1970, the average age at which a woman had her first child was 24; by 2008 that had risen to 28. Also in 1970, just over 8 people in every 1000 got married in a given year; by 2009, the marriage rate was down to just 5 in a 1000. Over the same period, the divorce rate doubled to 2.4 divorces per 1000 people. 

Another change is that more women now work and have university qualifications than before. There’s a lot of variation between OECD countries, but on average more than 6 out of 10 mothers with children age 16 or under have some sort of job. On average, about 60% of families now have two breadwinners.

It’s perhaps a little surprising, then, that there’s been a rise – albeit fairly small – in the number of children living in poverty. Just around 12.7% of children in OECD countries are poor, i.e. living in a household with less than half the median income; this rises to 20% or more in a number of OECD countries, including Mexico, the United States and Poland. The problem can be especially acute for lone parents: Almost everywhere, poverty rates in families with a jobless single-parent are at least twice as high as among those who are working.

Can governments help? They already spend about 2.4% of GDP on average to support families. Some of this goes direct to families, through child allowances paid to parents, for example, and some is indirect, such as providing childcare. With budgets tightening in many countries, there’s a risk that this spending could face cuts. That could be a mistake, according to OECD Secretary-General Angel Gurría: “Family benefits need to be well designed to maintain work incentives, but they need to be effective in protecting the most vulnerable, otherwise we risk creating high, long-term social costs for future generations”

The report argues that governments may need to rethink when they spend money on families. For instance, researchers like Nobel laureate James Heckman have long argued that children – especially those in the poorest families – enjoy lifelong benefits most from investment in the preschool years. Yet, according to Doing Better for Families, “many countries wait at least six years before the main public intervention towards child development begins”. The result is that, by the time they go to school, children from the poorest families may already be at a disadvantage in terms of their development compared to children from better-off families. The report suggests that there may be a case for shifting public spending: At tertiary level, it says, “countries could envisage a greater role for private investment and a well-developed system of student loans. Freed-up public resources could then be spent on young children.”

The report suggests a number of other approaches that could make life better for families. For example, it says a business case can be made for more family-friendly workplaces, where employees enjoy more flexible working arrangements. The benefits include “improved retention rates (up to 99%) of female employees after taking maternity leave; reduced overhead costs through home-working and flexible contractual arrangements; and increased productivity and creativity of workers”.

Useful links

A Facebook chat on Doing Better for Families with Dominic Richardson, an OECD expert on child well-being and Willem Adema, a senior economist and expert on family policy at the OECD starts later today (27 April) at 3pm Paris time (that’s 2pm in London, 9am in New York, 10pm in Tokyo).  

OECD work on children and families and on preschool and school

Doing Better for Children

OECD Family Database

An age of opportunity?

Click to read the report

As Alphonse Allais pointed out, having money is a great help in coping with poverty. And there’s plenty of data to show that investing in basics like health and education pays dividends.

UNICEF’s 2011 State of the World’s Children Report shows progress across a whole range of indicators, including under-five mortality rates, access to clean water, and vaccinations.

The second decade of life has received less attention though, and without sustained efforts, the gains made in early childhood can be wiped out.

The 2011 report gives statistics showing that in Brazil for instance, the lives of 26,000 babies aged 12 months and under were saved over 1998-2008 thanks to various programmes.

Over the same period, 81,000 15-19 year-olds were murdered.

Global net attendance  for secondary school is roughly one third lower than for  primary school. Worldwide, one third of all new HIV cases  involve people aged 15–24. And in the developing  world, excluding China, 1 in every 3 girls gets married  before the age of 18.

The report also quotes figures suggesting that around 1 adolescent in 5 suffers from a mental health or behavioural problem.

Other, less dramatic, statistics reveal widespread problems. With 81 million young people out of work globally in 2009, youth unemployment remains a concern almost everywhere. An increasingly technological labour market requires skills that many young people don’t have, and in many countries, large teenage populations are a unique demographic asset that is often overlooked.

Yet, the report argues, investing in adolescent education and training can produce a large and productive workforce, helping the young people themselves, and can contribute significantly to the growth of national economies.

However, in Off to a Good Start? Jobs for Youth the OECD says that young people are more than twice as likely to be unemployed as the average worker, yet few governments are taking proactive steps to boost youth employment.

Useful links

OECD work on education and training

OECD work on employment

OECD work on health

Are there no prisons? Are there no workhouses?

“They were a boy and a girl. Yellow, meagre, ragged, scowling, wolfish; but prostrate, too, in their humility… a stale and shrivelled hand, like that of age, had pinched, and twisted them, and pulled them into shreds. Where angels might have sat enthroned, devils lurked, and glared out menacing. No change, no degradation, no perversion of humanity, in any grade… has monsters half so horrible and dread. Scrooge started back, appalled.”

The reader is appalled too. Nothing in the tedious sentimentality of A Christmas Carol prepares you for Dickens’ sudden, shocking denunciation of child poverty, personified as a boy called Ignorance and girl called Want.

Dickens was writing from personal experience. He went to work in a factory making shoe polish when he was 12, after his father was jailed for debt (the rest of the family joined him, apart from Charles). Here, and later as a reporter, he saw the conditions we sometimes still refer to as “Dickensian”.

What about today? According to UNICEF, an estimated 158 million children aged 5-14 are engaged in child labour – one in six children in the world. Often they are exposed to dangerous chemicals and machinery, and various forms of physical and psychological abuse.

Children in rural areas and girls are the worst off, especially girls working as servants.

Lack of education helps condemn children to poverty. Dickens even saw it as the worse of the two conditions, with the Ghost warning Scrooge “…most of all beware this boy [Ignorance], for on his brow I see that written which is Doom, unless the writing be erased.”

Erasing that writing is the second of the UN Millennium Goals “Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling”.

However, according to the latest UN update (from 2008, before the recession) 58 out of the 86 countries that have not yet reached universal primary education will not achieve it by 2015. And as for child labour, the children most likely to drop out of school or to not attend at all are girls, those from poorer households or children living in rural areas.

Almost all of these children are in developing countries, but UNICEF also looks at the well-being of children in 21 OECD countries (not enough comparable data is available to include the others).

The countries are ranked according to six dimensions: material well-being; health and safety; education; peer and family relationships; behaviours and risks; and young people’s own subjective sense of well-being, giving a total of 40 separate indicators.

The Netherlands heads the table of overall child wellbeing, ranking in the top 10 for all dimensions. However, no country features in the top third of the rankings for all six dimensions (though the Netherlands and Sweden come close).

Research featured on yesterday’s OECD Factblog suggests that child poverty is increasing in OECD countries, but isn’t receiving the policy attention it deserves. We’ve moved on from the days when Scrooge could point out that there were prisons and workhouses to tackle the problem of poverty, but with a combined GDP of forty trillion dollars for the OECD countries, we could do much better.

Useful links

Growing Unequal: Income distribution and poverty in OECD countries

Society at a glance 2009 contains data on poverty among children

A Christmas Carol e-text