A Fair Economy is About More than Just Cash

Nat O'ConnorNat O’Connor, IRiSS, Ulster University

We all know that living on a low income is a daily challenge.

It’s not just about carefully planning the week’s spending—and deciding what things to do without—but it is a balancing act to deal with unexpected expenses: a medical emergency, a debt to be repaid or an extra cost for a child’s school trip.

And there is no point at which someone waves a magic wand and says here’s money that will clear your debts and allow you to patch up the fabric of your life. Most people won’t inherit money or be given a lump sum when they reach retirement age.

There can be a large difference between those on low incomes who have assets (wealth) and those who do not. Those with savings can deal with the ups and downs more easily, as can those with a reliable income and good credit rating. But there are families on similar incomes that are vulnerable to long-term debt from a sudden expense.

We also need to look more closely at the cost of living. Not only does this vary between households—for example, depending on the number and age of children—but many people have regular additional costs, such as extra transport costs associated with a mobility impairment. Public services or voluntary bodies can meet someone’s needs and therefore lower their need for cash income. And some people can achieve the same things for a lower cost than others—for example, basic cooking skills can really reduce the weekly cost of nutritious meals.

At the Social Policy Association annual conference in Belfast, 4-6 July 2016, I will be presenting a paper entitled ‘Economic Inequality, Social Policy and Complexity’. The basic idea is that we need to recognise that people’s position in the economy—the total level of “economic benefit” each household receives—is about a lot more than just their income level.

Yet most of the standard measures of economic inequality, especially in economics, are solely focused on income. The standard measurement of poverty is an arbitrary line, drawn at 50 or 60 per cent of the average income. The “Gini coefficient” is a single number that measures overall income inequality in a country, and various comparisons are made between income groups (so-called “quantile ratios”), such as the income of the top 10 per cent compared against the bottom 10%.

If we don’t see the role of wealth or cost of living, we might come away with the idea that while many people manage to survive on low incomes only some people do not. It is all too easy for some to then blame people on low incomes for not managing their money, whereas strong evidence suggests that almost everyone on a low income is extremely good at stretching their money as far as it will go. And where this is not the case, mental illness and addiction often play a role.

It also matters because major studies—like The Spirit Level and the Marmot Review, which show the negative social and health consequences of inequality—also tend to rely solely on income inequality. While these reports do show strong evidence, a more detailed understanding of economic inequality, including differences in wealth and cost of living, should provide us with deeper insights into how to address these problems.

One inspiration for my paper is the www.budgeting.ie website, which presents the facts and figures of what it costs for people to meet a minimum, but acceptable standard of living in the Republic of Ireland.

Budgeting.ie is all about the numbers. Not just the price of milk or bread, but family energy costs for a year, or how much per week does it cost even if they only replace the sofa once every fifteen years. (The sofa is about 80p a week in case you are wondering). By meticulously calculating every cost, a fuller picture emerges of the struggle to make ends meet, especially to replace durable goods over time.

But rather than focus on what people can afford on low incomes, Budgeting.ie is based on the idea of a Minimum Essential Standard of Living—what do people need to live a frugal, but decent life. This is the same idea behind the idea of a Living Wage. It is not a poverty standard, but enough to meet someone’s basic physical, psychological and social needs (as agreed by focus groups).

The second inspiration for my paper is the OECD’s integrated framework of income, consumption and wealth (ICW Framework). This statistical framework does recognize the importance of wealth and cost of living alongside income. It is a good start towards a more holistic measurement of economic inequality.

My paper brings these two perspectives together. The limit of the OECD’s ICW Framework is that is merely describes what people actually consume, rather than compare people’s resources with a Minimum Essential Standard of Living.

A much more comprehensive understanding of fairness in our economy would emerge if we knew who could afford this minimum standard and who could not. Studies of social policy more often reflect the nuances of inequality—for example, we also need to examine non-monetary barriers to living a decent life, like discrimination. Yet there is more to be done to provide hard facts about the cost of living and how it compares to typical household levels of income and wealth.

We know that our economies have become more unequal in recent decades, and this is reaching crisis point. If we could develop a more sophisticated understanding of economic inequality, this would move us beyond rather abstract debates about the arbitrary poverty line or the Gini coefficient, and instead put the focus on the personal skills, the public services and the assets that play the most important roles in making sure that everyone has the material conditions they need for a decent, minimum, standard of living.


 

If you enjoyed this blog post, you may also be interested to read Making the Case for the Welfare State by Peter Taylor-Gooby

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