Knowable, but not known to me

By Eric Crampton 01/06/2013 7


In the futile hope that maybe, just maybe, folks’ views about welfare policy might just stand to be informed by data, here are a few testable hypotheses I’ve seen floating around. They posit things that are knowable, and I’m sure data exists to resolve things. Let’s walk through a few of them.

First, how do poor people use money? I tend to say we ought to just give money to poor people if we want to make poor people better off. Other folks think that they’ll just waste it on booze and cigarettes rather than helping their kids. I don’t discount that that’s also possible; it’s an empirical question.

Now why does this matter? If you think that parents will waste money given them, you might prefer in-kind benefits provided directly to the children of poor parents rather than cash transfers. School breakfast programmes can fall into that category, despite that they’re rather ineffective and largely go towards feeding kids who would have been fed anyway. I think that some of the support for wrecking the GST by exempting merit goods also comes from this kind of view, though I think this rather misguided: vouchers for merit goods could be a rather less ruinous way of achieving the desired end.

So, the test. Get household consumption survey data, look for some shock to benefit payments, and check the effects on different consumption categories. If extra money going to poor households disproportionately increases consumption of lotto tickets and booze, then the paternalists who want to make sure that money given to the poor is used for particular things are right in wishing for more in-kind benefits; if not, then the paternalists should back down on such assertions.

I can’t imagine that this empirical test has not been done by somebody somewhere; I just don’t know the results. I also don’t expect that it will change many minds. Paternalists will want paternalism for its own sake, and anti-paternalists won’t mind that poor people enjoy some consumption goods. I’m one of the anti-paternalists, but if the data showed little benefits to kids of cash transfers to families intended for kids, I’d shift towards preferring rather more in-kind benefits to kids. Any readers able to point to relevant NZ studies are welcome to do so in the comments.

Second, “can’t feed ’em, don’t breed ’em”. Twitter and the NZ blogs have a bunch of folks yelling at each other about whether the main problem in child poverty stems from poor people’s unwillingness to engage the prudential constraint or whether it’s bad luck. Those on the right note that if poor people stopped having kids they couldn’t afford, then child poverty would be less of an issue. People on the left instead remind those on the right that birth control can fail and that people in good financial circumstances can fall on hard times for reasons outside of their control and after they’ve set their family size.

So, a test. Start with DPB numbers. What is the current fertility rate of women receiving the Domestic Purposes Benefit, and how does it compare to the fertility rate of women of similar age and marital status who are not receiving government support for the raising of children? If the fertility rate among women on the Domestic Purposes Benefit is roughly what we would expect given known rates of contraception failure, then score a point for the left. If women on government support are instead choosing to have more children while in poverty, then score a point for the right. I would bet that the data shows rather more childbearing than would be expected from contraception failure alone, but less than the fertility rates among similar-aged women not on the DPB, but I’ve not seen the data.

Again, I’d be surprised if this kind of data didn’t exist somewhere. I expect that the data could actually potentially make some difference here, though it depends which way it goes. If current rates of childbearing by women in poverty are consistent with failure rates of reliable and available birth control methods, I don’t think many on the right would shift to demanding abstinence and abortion. But if current rates of childbearing by women in poverty are consistent with deliberate choice to bring more children into poor households, I expect that most on the left would shift to a fairness argument about that those in poverty shouldn’t be constrained against choosing to have more children. And then there’d be the obvious counterargument about how it’s a bit perverse that richer households deciding to have fewer children because of the costs are compelled to subsidise the fertility decisions of those happy to raise a kid in very bad circumstances; those on the right then might wish to advocate for that reliable birth control be a precondition of welfare receipt. Those are values-based arguments I can’t adjudicate, though I expect that if, for many, the point of social insurance is to insure against bad outcomes, and if there were reasonable evidence of that many on the DPB were choosing to have many more children, there could be reasonable support for that birth control be among the conditions of welfare receipt.

A second test: what is the elasticity of childbearing among the poor to changes in benefit rates? Those on the right worry about paying women to have children they can’t afford and think that paying more to benefit existing poor kids does a lot to bring more poor children into the world; those on the left think that the elasticity is pretty low and that we need to focus on the potential first-order benefits of higher transfers to existing poor children. I don’t know if this elasticity is known, but it’s definitely knowable. Find some shock to the generosity of payments to poor children and see whether it has any effect on subsequent fertility decisions. If little to no effect, score a point for the left; if things are reasonably elastic, score one for the right.*

Again, those with data or studies that might help resolve the second question are welcome to provide pointers in the comments.

If this stuff turns out to be in the “knowable, but not known to anybody” category rather than just “not known to me”, file this under “future honours projects”.

* I’m on some orthogonal dimension where I reckon it’s good that more kids be brought into existence conditional on their enjoying their existence, even if they are poor. I worry instead about net effects when higher income people forbear from having their third child because of the income effects of the taxes taken from them to subsidise the bringing-into-being of a lower income person’s third child. And then we get into the empirical question of relative elasticities and some rather thorny questions about trade-offs.


7 Responses to “Knowable, but not known to me”

  • Two comments:

    Like you i would be interested in any data available; although I suspect that methodological and ideological biases would be a challenge. Which leads me to the next point. I doubt that any of these welfare issues are clear left/right ones; that smacks of false dichotomy to me. We need full, sensible discussion and many points of view. I seriously doubt that New Zealand’s social welfare system is generous enough that many happily malinger (for those who want to label me “left”) and I would like the system to max out at two children, so we don’t catch bigger families in a welfare trap (for those who want to label me “right”). Lets deal with the complexity not labels.

  • From here:
    http://statistical-report-2010.msd.govt.nz/the+statistical+report+2010

    DPB: In 2010 there were 112,383 DPB receivers. This includes all combinations, solo mum,dad, couples, single etc. It is about 3.6% of “working age” people aged 18 to 64. I can’t seem to find a table of the gender of the solo parents.

    Maximum annual number on the DPB was 113,329. This was in 1998. Tsk, the last year of Shipley and the Nats.

    The total cost of the DPB was $1,464 billion in 2010.

    However, gender is not lost in the tables. Overall 61% of all main benefit receivers were women. I seriously doubt that “only” 60% of the DPB is paid to solo women recipients. The vast majority of the DPB is given to those with children.

    21,469 dependents with children under 4 were granted a DPB in 2010. Out of 35,874 in total granted main benefits in 2010. About 30,000 seems to be the number going onto the DPB each year. 34,483 cancelled the DPB in 2010.

    But wait there is more. No doubt there are bludgers on the benefit. So lets see how much was got back off them – no doubt some will say, of only those that were caught. In 2010 there were 2996 which totaled $39,336,133 in “overpayments”.

    Compared to $4,114 Billion (total cost of all “main benefits”) this is a princely sum as opposed to a Kings Ransom of a total of (Thank you http://www.interest.co.nz) $3.112 Billion out of total funds of $9.290 Billion deposited into the finance companies that have collapsed since 2006. Not bad for “only” 67 entities.

    The DPB system reaches 112,000 and they are about 1/10 of the total of total benefit cost.

    Methinks, Eric, it is you who is bludg(en)ing). With the usual sledge hammer. Also, the implied “fault” of females being the breeders and the cause of all this trouble and strife is not lost.

    Forced vasectomy of boys at age 13 and reversing it when they reach 25 on the offer of free tertiary education would be an equivalent exercise to incentivising the childbearers to take on the contraceptive pill.

    The numbers going on and coming off the DPB leads one to surmise that it is a (very) rolling population and that is doing more for our children than practically any other intervention this country provides.

    • Ross, none of those stats hit the questions I’ve asked.
      1. What proportion of those on the DPB have children while on the DPB, and how does that fertility rate compare to the known rates of contraceptive failure and to the known fertility rates for other women of similar age?
      2. What happens to the spending patterns of families on benefits when benefit levels change – how is extra money used?

      Like you, I also worry about the disincentives created when the whole burden falls on women when men do have to be a part of the process. Note, though, that final choice on whether to have a child always stays with the mother: if the father wants the child and the mother doesn’t, she can access an abortion without his consent; if he does not want the child and she does, he cannot compel one. Further, identifying the father can sometimes be a problem – especially where women have some incentive in the system to refuse to identify the father so that he cannot be chased for official support (and instead provide support informally while the mother accesses benefits). I’m not sure what the right answer is in that mess.

      I also worry that the stats you cite miss that many of the women rolling onto DPB will be on a repeat spell. Were this a “transition into it once, then never return”, it would be a rather different problem than “transition into it many times during childbearing years”.

      Finally, I really don’t get why you want to contrast this with finance company bailouts. Those were a really bad idea too.

  • You are right. I haven’t got the data to answer the questions you put up. However I hope the response on the DPB may indicate certain unhappiness about what the point behind the questions may be. That is, what are those people nefariously doing with all that ‘free” money the govt “hands out”.

    You agree the disincentives need to be addressed. And you are dead right. It is a mess. You say to the problem of the nameless father: “Further, identifying the father can sometimes be a problem – especially where women have some incentive in the system to refuse to identify the father”. Why should they tell? After all, they will then spend their next 18 years assisting the authorities tracking him. The other nasty part of getting the father to pay is that he is now burdened with an 18 year debt which must affect any future relationship (and children) he may form. We have merely shifted the problem to another family. Naming the father and the many futile years of searching, demanding and administrating the chase is well known to be costly.

    You ask what the point of comparing it to the finance company collapses –and the subsequent bailouts – which you agree are bad. I didn’t mention the bailout. All I mentioned was the loss to the depositors. Some (most?) got money back from the bailout which on the face of it is an even bigger whammy than the poor getting more than they deserve. We paid $1.8 Billion on the bailout. Not a bad return to 67 entities.

    The Receivers and other corpse strippers are desperately trying to scrape some of the funds back off the finance companies and their directors but it is chicken feed. Likewise the attempts to stamp out fraud in the welfare system has produced little in the way of “returns”. Those fighting this so called epidemic of fraud should be focusing their attention on how to prevent it.

    Muriel Newman’s piece on the 2013 budget under the guise of the NZ Centre for Political Research is here http://www.scoop.co.nz/stories/PO1305/S00320/muriel-newman-budget-2013.htm and continues to promote, with rabid anecdote, attacks on welfare recipients: “There were endless stories of people abusing the system: workers who had tired of their jobs cruised onto sickness benefits or the dole, and unskilled young women – many still girls at school – all too casually ended up on the Domestic Purposes Benefit instead of in employment.

    Thankfully, the reforms have created disincentives, making the transition into taxpayer funded dependency more difficult – but still not difficult enough. Over time welfare should only provide support for those in genuine need – long term security for those who cannot work for a living, and shorter term support for those who are able bodied and looking for a job.”

    “Looking for a job”. This is the crux of the matter. Along with a decent education, Article 23 of the Universal Declaration of Human Rights” has it in a nutshell.

    (1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
    (2) Everyone, without any discrimination, has the right to equal pay for equal work.
    (3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
    (4) Everyone has the right to form and to join trade unions for the protection of his interests.

    We are failing on all four counts. Chasing welfare recipients is the easy way to stuff the jobs issue under the axminster. We can do better and I believe your profession has the wherewithal to sort out an ideologically free economic and social plan to uphold those rights and move NZ towards a more equal society.

  • @ Ross

    While we possibly stand on the same side in this argument, I didn’t take the inference that you did from Eric’s comments.

    The questions he asks are quite even-handed as they could potentially provide an answer that backs a more “leftist” approach. All he is asking is, where’s the evidence?

    The bailouts of banks etc is galling, but either the DPB argument stands on its own merits or it doesn’t. Comparisons to another iniquitous situation don’t improve the argument for tax-funded welfare via the DPB.

    Requoting Ms Newman either in support of or in opposition to an argument is always futile. She has more in common with a religious discussion than an economic one.

    • Agree that there are problems in accessing abortions in some parts of the country. But I’ve never heard that veto-by-would-be-father was anywhere allowed. Is it?