How do you measure success: reported well being, poverty and GDP

The Employment Retention and Advancement (ERA) project was a scheme piloted across the country with a randomised controlled trial. The scheme essentially gave people advice and support for gaining work and advancing further within that work as well as providing bonuses for getting work, staying in work or advancing further in work. The results from the pilot have been very positive especially among certain groups. It increased earnings even after the scheme was finished. However new research (unfortunately not published yet) has suggested that whilst income increased reported wellbeing decreased. Before seeing this new research I had supported the implementation of the ERA into policy because of its wonderful support in evidence. I hate to be the person that supports evidence based policy but then objects to a bit of evidence that disagrees with a policy they like but I think there is something to be said here. The fact the policy intervention decreased reported well being doesn’t necessarily mean it shouldn’t be implemented. This is something worth looking at beyond just the ERA and fits into the wider GDPvs well being debate. I believe that as things currently stand there are good reasons to argue for reported well being not being the final arbiter of policy. Some of these arguments are applicable to the ERA but some are not due to the fact that there it causes only a small increase in earnings and a very small decrease in reported well being.

Reported well being is not a perfect measure of utility. You might have noticed that I keep saying reported well being instead of simply well being. This is because that’s exactly what it is. It is based on a series of questions asking a person how they feel now and about the future. This method of assessing well being has some support as being an effective measure and is relatively stable. However it doesn’t necessarily represent the overall happiness of the person surveyed. By tweaking the questions slightly you can massively change the results. Whilst there has been some settling on reliable questions to ask this weakness to fiddling provides a hint of the soft nature of the results. As obvious as it sounds it’s worth saying that there is no way of going into someone’s brain and finding out how happy they are. When compared to the study of how having more or less money effects people’s lives this measure looks very weak.

There on the other hand several morally relevant things which we know are strongly linked to a lack of money. We know poverty causes a lower life expectancy, fewer life chances, less life stability and many other things. As far as I have seen the links with reported wellbeing and these things have not been shown to be as strong or as well supported with evidence. It seems reasonable that we should increase want to increase these positive effect even if it does create a decrease in well being. One does not simply overrule the other but there is good reason to say that a small decrease in well being is worth it if there is an increase in these other positive effects. This could be rendered pointless if further research into wellbeing showed a stronger link with life expectancy etc but for now it’s still a point worth considering.

If an intervention is cost saving, like the ERA is in certain groups, then reported wellbeing of those directly effect is not the only relevant wellbeing. The ERA was shown to save the government money because of reduced benefit spending compared to the costs of the program. This means that this money could have been spent on other goods or services (e.g. raising other benefits). Therefore any loss of wellbeing resulting from this intervention would need to be offset against the potential for it to be raised elsewhere. When looking at how to make savings in government a program like this should be obviously preferred over a simple spending cut elsewhere.

How poor is poor: relative poverty and minimum income standards

There is a persistent problem in addressing poverty in developed country. People often cannot agree on where we should draw the line between poverty and an acceptable standard of living. This is one of the core issues behind discussions of redefining poverty, benefit levels and work incentives.  Everyone agrees that people in destitution are in poverty and, asylum seekers aside, our benefit system mostly prevents that. However once we go beyond destitution there can be massive amounts of disagreement about who is experiencing “actual poverty” and consequently who must be helped. Some people view destitution as synonymous with poverty whilst others would say that those who do not have an acceptable standard of living are in poverty.

The Labour government in 2010 introduced the Child Poverty Act which included three definitions of poverty: those who have less than 60% of the median net household income this year, those who have less than 60% of the median household income of a fixed base year, and those who experience material deprivation. These definitions suggest many of the people on the benefits system in poverty, especially those who do not work. This definition flies directly in the face of stories repeatedly reported in large swathes of the mainstream media that benefit claimants have a comparatively high standard of living. It also contradicts many people’s personal experience who report to have lived on lower amounts than the official poverty figures without feeling deprived instead feeling that they “managed to get by”. Whilst some of this reporting can be explained by a time lag (many of those reporting will be looking at the current poverty line and comparing it with earnings which their family had in an earlier period) and rising cost of living, this comment shouldn’t be simply dismissed. If people feel that the level of poverty defined by the government and charities is above what they consider poverty then it may diminish support for action to fight poverty.

This has lead to a large amount of criticism of the relative definition of poverty (60% of the median). The suggestion is that this measures inequality rather than poverty itself. Whilst some of this criticism comes from a misunderstanding of averages confusing the median with the mean, there is a certain amount of truth to this. For example poverty officially fell in the year 2010/11 and this is partly explained by the fact that the median household income fell. This produces the jarring fact that poverty fell whilst standard of living for all involved decreased.  In response the government have proposed to redefine how we measure poverty but none of the measures they have mentioned are decent measures of poverty (I may explain why in another post but it’s too long for this one).

Another approach would be to look at what a person would need and working out the level of income needed to achieve that. This is the approach taken by the JRF in their Minimum Income Standard research which they have just updated today. Their research is based upon focus groups of the wider public looking at what is needed to have an acceptable standard of living. You can see how the budget works out here. As you can see from this it advocates a larger budget than the relative poverty line and a lot more than the level of benefits. It doesn’t measure the bread line as much as it measures the bread, butter and jam line. But looking through the research you can see that by cutting down different budget elements you decrease the overall amount but also gradually decrease the standard of living. It’s also important to remember if you remove elements such as the amount spent on household goods then when these items break (as they do) a family may have to take out a high interest loan to replace or repair them which greatly damages their budgeting.

A breadline isn’t easy to spot from the JRF research. Whilst it’s a great piece of research it doesn’t provide a simple answer to the welfare policy problem (nor does it intend to).  If the benefits system were to provide a standard of living equal to the minimum income standard it would be far more expensive than it currently is. This is the case even if the aim was only to support those on full time minimum wage to that standard. But it does show that what we call poverty at the moment is well below an acceptable standard of living when people are asked to define one. 

Previous work

Until last Friday I worked for the Joint Public Issues Team of the Methodist Church and whilst there I wrote a  series of blog post about public policy. I enjoyed it so much that I started this blog to continue writing on the same kind of issues now in a personal capacity. Here are some links to previous blogs I wrote whilst I was there:

A blog on Universal Credit and the Government's Digital First approach (24/10/11).

A blog on Disabled Living Allowance reform (11/1/12).

A blog the Daily Mail's reporting of material deprivation across Europe (9/2/12).

A blog on Workfare and work experience (24/2/12/).

A blog on worklessness, unemployment, the use of language and disability (26/3/12).

A blog on low turnout at local elections (4/5/12).

Two blogs on David Cameron's proposed changes to the welfare system. One focusing on the propsal to remove housing benefit from those under 25 (26/6/12). One looking at the issue of perverse incentives in the welfare system (27/6/12).

I hope to improve upon what I've written so far and will probably continue to discuss similar topics. However, I will no longer have someone proof reading my work so there may be more grammatical errors from here on out.