High income mobility but one in five households have chronic low income

A new study by the University of Otago, Wellington shows how the problem of chronic low income for a significant number of New Zealand households co-exists with high income mobility for the rest.

The ‘Dynamics of Income and Deprivation’ study details that 21% of respondents had an average (before tax) household income below $27,000 over the seven year period between 2002 and 2009. These chronic low income rates are higher for Māori, households where there are children and people aged over 65 years.

The research shows New Zealand is characterized by high annual income mobility, both up and down the scale. Gross household income can fluctuate markedly over a number of years, with 50% of families and households in the middle income group moving up or down income groups (quintiles) each year.

The study is based on an analysis of data on 18,000 people from the annual Survey of Family, Income and Employment (SoFIE) administered by Statistics New Zealand.

It looks at seven years or ‘waves’ of annual survey data between 2002 and 2009, investigating the degree of change or dynamics in gross household income over that period, adjusted for household size.

The study by Dr Kristie Carter and Dr Fiona Imlach Gunasekara from the Department of Public Health at UOW is a working paper aimed at providing information for policy discussions on poverty.

“As this is a longitudinal study over a number of years it provides a range of new and revealing information about the duration and persistence of low household income and deprivation in New Zealand,” says Dr Carter. Low income is defined as a household income below 60% of the median household income (between $25,800 and $33,950 from 2002 to 2009).

“For instance, it shows that about 50% of the 18,000 people surveyed experienced one of more years of low income at some stage between 2002 and 2009. This compares to ‘point-in-time’ snapshots of low income of around 23-25% per year.”

Dr Carter also says that approximately two-thirds of people with a low income at any one point-in-time, are chronically in low income, having a household income below $27,000 over the seven year period.

The study also shows that there is high persistence and recurrence of low income in New Zealand. For example, of those households who are initially on low income, 65% remain in low income in the next year.

“There’s a large proportion of the population who is moving into and out of low income over the study period. We need to do more research looking at what’s causing people’s income to change, and why these people are dipping below the low income line.”

The study also looks at a measure of individual deprivation where people are defined as deprived if they report three out of eight deprivation criteria; such as receiving help (money or clothes) from a community organization, or using food banks in the last 12 months.

“We found a strong correlation between the length of time households spent in low income and levels of deprivation; that is to say more years in low income results in higher levels of deprivation.” This was much more pronounced in Māori households or those with children.

The report and summary can be accessed from the University of Otago Wellington website.

This study was conducted as part of the Health Inequalities Research Programme and was funded by the Health Research Council.