Why do some low-income households improve their situations while others are left behind? New research by the Reserve Bank of Australia provides some insights into economic mobility in Australia over the past decade and indicates that it occurs more often than many might expect.
The characteristics of the economically disadvantaged are often easy to identify, even if it is hard to quantify in the data. Typically, these households struggle to find employment, experience regular financial hardship and face significant housing instability. They are likely to have had less education, fewer skills and lower physical and mental health outcomes than the rest of the population.
The RBA defines economic disadvantage as households in the bottom quintiles of both the income and wealth distribution in the HILDA survey. They are people who have relatively low levels of income coming in and precious few assets to fall back on during times of need.
Those considered by the RBA to suffer economic disadvantage have annual incomes that are less than half the HILDA sample median. But wealth is where the difference really becomes apparent, with the median real household wealth of those considered economically disadvantaged less than 2 per cent of the median for the entire sample of households.
The income and wealth data paint a clear picture: job security is important. These are people with little to fall back on if they lose their jobs. Even brief periods of unemployment can be disastrous.
According to the RBA, economically disadvantaged households benefited from the relatively strong economic conditions in Australia between 2001 and 2008, with real incomes rising by an average of 3.5 per cent a year. The number of households seeking assistance from a community organisation fell by half over the same period and those reporting that they were experiencing financial difficulties fell by one third.
Not surprisingly, these results are apparent in the employment data, with employment among those considered economically disadvantaged rising over the past decade. In addition, their unemployment rate fell significantly over the same period, but spiked following the global financial crisis
Community organisations note that employment is an important (though not always sufficient) factor in enabling people to move out of poverty and disadvantage. Around half of all people considered disadvantaged in 2005/06 had moved out of disadvantage by 2011/12 -- likely much higher than many would have anticipated.
Around three-quarters of those who moved out of disadvantage between 2005/06 and 2011/12 had either obtained or retained a job over that period. Conversely, unemployment was the biggest factor determining who remained disadvantaged over both periods.
The evidence indicates that economic mobility is achievable, provided a person can get and maintain a job. But could it really be that easy?
Unfortunately, there are a range of barriers that make it more difficult for those suffering poverty to get in and then remain in the workforce.
Money breeds opportunity. The initial absence of income can restrict the options available to households and the barriers to employment for lower-income and wealth individuals are testament to this.
First, many people in this group have low skills and a lack of experience, but there is also declining opportunities for low-skilled employment. To some extent, the opportunities that may have existed in previous generations are no longer present.
Second, there are often large geographical distances between affordable housing and job markets. Economically disadvantaged individuals are often forced to take jobs that are available via public transport routes. Alternatively, many cannot afford either a car or lengthy public transport commutes.
Third, job-seeking has moved increasingly online, but many poorer households have limited access to technology. About half of those not in the workforce do not have an internet connection in their home. Some people cannot get a job because they do not know what opportunities exist.
Fourth, there is a higher prevalence of physical and mental disabilities among those considered economically disadvantaged. Though there have been recent improvements, there may still be some reluctance by employers to hire workers with a disability, which is mostly due to ignorance but also the belief that the business may incur additional costs.
Many people with physical disabilities find themselves in the unfortunate position where they need a job to pay for required equipment but cannot get a job without it. In addition, a mental disability -- a common characteristic among the homeless -- makes it more difficult to participate in or maintain employment.
Finally, some individuals may experience a low financial benefit to working. There are a range of additional costs that might make employment unappealing, such as childcare and after-school care and the high marginal effective rates of taxation in income at the point where welfare tapers off.
Economic mobility can largely be addressed via employment, particularly if maintained over a number of years. The problem is that there are a number of barriers to employment for those who are currently economically disadvantaged. Some are easy to fix (such as the technological issue), but others reflect ongoing economic trends, infrastructure issues or persisting social norms.
The data highlights the vast inequality between the average individual and those in low-income and wealth households, but it also indicates that the situation has improved somewhat, in contrast with some other measures of inequality. Perhaps the most surprising insight to the research is that economic mobility occurs more often than many might expect.