Issue link: https://maltatoday.uberflip.com/i/1019972
OPINION maltatoday | WEDNESDAY • 29 AUGUST 2018 8 POVERTY and social exclusion statistics probably capture the headlines as often as economic statistics. This is not surprising, given that the EU emphasises smart, sustainable and inclusive growth as much as economic growth objectives. The EU's 2020 strategy puts social con- cerns on an equal footing with strengthening the economy, as a way of preparing Europe's structure for the challenges of the next decade. It is no less so in Malta. In this article, I shall try to explain the European Statis- tics on Income and Living Conditions (EU-SILC) and how they are compiled, hope- fully making it easier for read- ers to take their own view on them. In Malta these statistics are usually published by the NSO in the third quarter of each year, and relate to income earned in the calendar year around 18 months previous- ly. So the statistics published a few weeks ago are, in fact, based on 2016 income data. Poverty and social exclu- sion can manifest themselves in various forms. Obviously, household income has a big impact on living standards. However, other aspects may prevent full participation in society. The latter may include mon- etary poverty, material depri- vation, and very low work in- tensity, which form the three components of the EU-SILC indicators. Moreover, these factors of- ten tend to overlap, so that people may be affected by two or even all three of these po- tential poverty or social exclu- sion factors, even though the same person is only counted once. First of all, one must note that monetary poverty statis- tics frequently diverge from the other two indicators. This is because, whilst mon- etary poverty is measured in relative terms, material dep- rivation and low work inten- sity are measured in absolute terms. Thus, the at-risk-of-poverty rate (ARP) component does not measure wealth or pover- ty, but a household or an indi- vidual's equivalised income in comparison to others in that country, which does not nec- essarily imply a low standard of living. ''... the at-risk-of-poverty rate (ARP) component does not measure wealth or pover- ty, but a household or an indi- vidual's equivalised income in comparison to others in that country...'' The ARP is, in effect, the share of people with an Equiv- alised Disposable Income (EDI) below the ARP thresh- old, which is arbitrarily set at 60% of the national median equivalised disposable income after social transfers (pen- sions and cash benefits). EDI is the total income of a household, after tax and other deductions, that is available for spending or saving, divid- ed by the number of house- hold members converted into equivalised adults (1.0 to the first adult; 0.5 to the second and each subsequent person aged 14 and over; and 0.3 to each child aged under 14). Thus for example, a family of two adults, one child aged 15 and one child aged 12 would constitute 2.3 equivalised adults in a household of 4. If their income were €20,000 in 2016, then the household equivalised income would be €8,695. Readers should also note that disposable income used for this purpose is the median or middle point of all incomes of the 430,643 people living in households in Malta in 2016. It is not the arithmetic aver- age, which would be the sum of all incomes of those people divided by the number of peo- ple in households. The median household dis- posable income based on 2016 data was €23,151, but the av- erage was €27,722. By com- parison, the Median National Equivalised Income (MNEI), or the median income of €23,151 adjusted for the num- ber of equivalised adults, was €14,496. Under the EU SILC meth- odology, the ARP rate (60% of the MNEI) was €8,698, based on 2016 income. There were 72,143 persons (16.9%) living below this relative equivalised threshold. This does not mean that all these lived in households earning less than €8,698 in 2016 as some have wrongly interpreted this particular statistic. The family mentioned above as an example would repre- sent four out of these 72,000 persons because their equiv- alised income (actual dispos- able income divided by 2.3) is €8,695, hence less than the es- tablished €8,698, despite the fact that their actual dispos- able income is of €20,000. A family of 4 (with two children over 14 years) would be con- sidered at risk of poverty as well if its income in 2016 did not exceed €21,745 (almost triple the minimum wage). Since the ARP rate is a rela- tive measure, the rate may remain stable or even rise when the average or median EDI increases. Paradoxically, the ARP rate tends to de- crease when the total dispos- able income decreases, that is 'income relative poverty' de- creases when on equivalised terms the whole population is 'poorer' and increases when the population is 'richer'. ' ' P a r o d i x i c a l l y . . . . ' i n c o m e relative poverty' decreases when on equivalised terms the whole population is 'poorer' and increases when the popu- lation is 'richer'. '' The latter is what happened in 2017 (based on 2016 data) where both the average and median EDI rose significantly by 5.6% and 7.4% respectively. As a statistical result, the ARP rate rose marginally by 0.3 percentage points (pp). This is because the mon- etary poverty threshold is set at a specific 60% of the MNEI, which means that if the me- dian income increases (as it did), the relative poverty threshold increases as well (as it did, by 6.8% or €555). And this in spite of that fact that statistically income inequality has slightly decreased. Since Malta has recently ex- perienced a rapid increase in total income earned by resi- dent families, the statistical practice behind the ARP rate tends to overstate monetary poverty. This is due to a moving goal- post caused by a strong in- crease in the threshold itself within a short period of time. One common method of overcoming this issue is by calculating the ARP rate using a fixed income threshold. Jude Darmanin of the Central Bank of Malta has shown that – fix- ing the threshold at 2008 lev- els gives a completely different picture of monetary poverty in Malta over the years, with the ARP rate declining steadi- ly to 9.3% by 2016 (2015 data). I calculate the 2017 rate (2016 data) would be around 8.7% (half that according to SILC 2017). Conversely, material depri- vation indicators reflecting a person's ability to afford basic goods are likely to improve during economic revivals, when people are generally fi- nancially better off. In fact, the material depri- vation index (showing house- holds that cannot afford at least three out of nine basic items) went down from 10.3% to 8% in 2017, whilst the se- vere material deprivation in- dex (cannot afford at least four out of nine items) fell from 4.4% to 3.3%. This is amongst the lowest in Europe. Material deprivation is now down by almost 12pp from the 2012 level, whilst severe material deprivation is down by 6pp over the same period. These are the lowest levels achieved ever since these in- dicators were recorded. Combining the ARP rate with the social exclusion rate yields what is known as the AROPE (the at risk of poverty or social exclusion) rate, which in 2017 measured 19.2%. This is a significant decrease from the rate of 24% in 2013 and again the lowest rate ever recorded. ''...the at risk of poverty or social exclusion rate....in 2017 measured 19.2%....this is the lowest rate ever recorded.'' One could delve into sta- tistics relating to particular households, age groups, gen- der, and employment status. In general, one could say that unemployed women (espe- cially single parents), elderly and young people, particular- ly if they have disabilities, as well as non-property owners and migrants are vulnerable to poverty and social exclu- sion; generally lack of work increases the risk of poverty or social exclusion; people with low educational attain- ment are significantly at risk; and risk of poverty or social exclusion due to low educa- tion is inter-generational. While these remain chal- lenges to be constantly ad- dressed, we should be very satisfied that with a number of innovative measures and several other policy changes in these last years, poverty and social exclusion in Malta declined markedly. Material deprivation indicators ref lecting a person's ability to afford basic goods are likely to improve during economic revivals, when people are generally f inancially better off Poverty and social exclusion statistics explained Mark Musu' Mark Musu' is Permanent Secretary within the Ministry for the Family, Children's Rights and Social Solidarity