Latest CASE Papers

How best to measure pension adequacy

Aaron George Grech

CASE/172. April 2013.
Though the main benchmark used to assess pension reforms continues to be the expected resulting fall in future government spending, the impact of policy changes on pension adequacy is increasingly coming to the fore. As yet, there does not seem to be a broad consensus in policymaking circles and academic literature on what constitutes the best measure of pension adequacy. While various indicators have been developed and utilised, no single measure appears to offer a clear indication of the extent to which reforms will impact on the achievement of pension system goals. Many indicators appear ill-suited to study the effective impact of reforms, particularly those that change the nature of the pension system from defined benefit to defined contribution. Existing measures are frequently hard to interpret as they do not have an underlying benchmark which allows their current or projected value to be assessed as adequate or inadequate. Currently used pension adequacy indicators tend to be point-in-time measures which ignore the impact of benefit indexation rules. They also are unaffected by very important factors, such as changes in the pension age and in life expectancy. This tends to make existing indicators minimise the impact of systemic reforms on the poverty alleviation and income replacement functions of pension systems. The emphasis on assumptions which are very unrepresentative of real-life labour market conditions also makes current indicators deceptive, particularly in relation to outcomes for women and those on low incomes. This paper posits that these defects can be remedied by using adequacy indicators based on estimates of pension wealth (i.e. the total projected flow of pension benefits through retirement) calculated using more realistic labour market assumptions. These measures are used to give a better indication of the effective impact of pension reforms enacted since the 1990s in ten major European countries. They suggest that these reforms have decreased generosity significantly, but that the poverty alleviation function remains strong in those countries where minimum pensions were improved. However, moves to link benefits to contributions have raised clear adequacy concerns for women and for those on low incomes which policymakers should consider and tackle.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/casepaper172.pdf

A question of quality: Do children from disadvantaged backgrounds receive lower quality early years education and care in England?

Ludovica Gambaro, Kitty Stewart, Jane Waldfogel

CASE/171. March 2013.
This paper examines how the quality of formal early childhood education and care is associated with children’s background. By using different indicators of quality, the research also explored how the relationship varies depending on the way quality is measured. The analysis combines information from three administrative datasets – the Early Years Census, the Schools Census and the Office for Standards in Education, Children’s Services and Skills (Ofsted) dataset on inspections (2010-11). The results suggest that children from disadvantaged background have access to better qualified staff. However, services catering for more disadvantaged children are more segregated and receive poorer quality ratings from Ofsted, the national inspectorate.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper171.pdf

What Gives? Household Consumption Patterns and the 'Big Trade Off' with Public Consumption

Francesca Bastagli, John Hills

CASE/170. March 2013.
At the centre of politics in Britain and other countries is what is sometimes called 'the big trade-off'- where to strike the balance between private consumption and collective goods and social spending – and hence the sacrifices that would be entailed by the higher taxation required to fund otherwise desirable forms of social provision. In this paper we use aggregate national accounts data to compare the composition of household consumption between otherwise similar countries with higher and lower levels of public consumption. We concentrate in particular on spending patterns in ten countries where ‘total potential consumption’ (the sum of public and household consumption and household saving) is similar to that in the UK, using data from 2005. While the strengths of the inferences that can be drawn from a small number of countries are limited, overall these results suggest that there is a hierarchy in the forms of consumption that citizens of different countries sacrifice when they have greater government consumption (and so higher taxes). The trade-off at the margin is not with all kinds of consumption equally, but particularly with consumption of particular kinds – such as spending on restaurants and hotels, vehicle purchase, household furnishings, or clothing and footwear. But there are also items, such as education, where government spending may act as a substitute for what private households would have to spend. Such findings could colour our views of what the ‘big trade-off’ between public and private consumption really entails.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper170.pdf

The relationship between EU indicators of persistent and current poverty

Stephen P Jenkins, Philippe Van Kerm

CASE/169. March 2013.
The current poverty rate and the persistent poverty rate are both included in the EU’s portfolio of primary indicators of social inclusion. We show that there is a near-linear relationship between these two indicators across EU countries drawing on empirical analysis of EU-SILC and ECHP data. Using a prototypical model of poverty dynamics, we explain how the near-linear relationship arises and show how the model can be used to predict persistent poverty rates from current poverty information. In the light of the results, we discuss whether the EU’s persistent poverty measure and the design of EU-SILC longitudinal data collection require modification.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper169.pdf

Accounting for cross-country differences in wealth inequality

Frank A Cowell, Eleni Karagiannaki, Abigail McKnight

CASE/168. March 2013.
This paper adopts a counterfactual decomposition analysis to analyse cross-country differences in the size of household wealth and levels of household wealth inequality. The findings of the paper suggest that the biggest share of cross-country differences is not due to differences in the distribution of household demographic and economic characteristics but rather reflect strong unobserved country effects.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper168.pdf

On 'Consistent' Poverty

Rod Hick

CASE/167. December 2012.
The measurement of poverty as ‘consistent’ poverty offers a solution to one of the primary problems of poverty measurement within Social Policy of the last three decades. Often treated as if they were synonymous, ‘indirect’ measures of poverty, such as low income measures, and ‘direct’ measures, such as indices of material deprivation, identify surprisingly different people as being poor. In response to this mismatch, a team of Irish researchers put forward a measure which identified respondents in as being in poverty when they experienced both a low standard of living, as measured by deprivation indicators, and a lack of resources, as measured by a low income line. Importantly, they argued that the two measures required an equal weight. In this paper, I present a reconsideration of the consistent poverty measure from both conceptual and empirical perspectives. In particular, I examine the claim that low income and material deprivation measures should be given an ‘equal weight’. I argue that, from a conceptual perspective, the nature of the indicators at hand means that a deprivation-led measurement approach might be understood to align with the definition of poverty which Nolan and Whelan outline and, from an empirical perspective, that it is the material deprivation measure – and not the low income measure – which is particularly effective in identifying individuals at risk of multiple forms of deprivation.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper167.pdf

Wealth accumulation in Great Britain 1995-2005: The role of house prices and the life cycle

Francesca Bastagli, John Hills

CASE/166. December 2012.
This paper examines trends in the distribution of household wealth in Great Britain from 1995 to 2005 using the British Household Panel Survey (BHPS). The data show that wealth is very unevenly distributed and reveal a widening absolute gap over the period between wealthier households and those with no or negative wealth. However, in relative terms, wealth grew fastest for households in the middle of the distribution and inequality measured by the Gini coefficient decreased. This mainly reflected housing wealth becoming a greater share of total net worth, more equally distributed, and the highest percentage increase in housing wealth taking place in the middle of the distribution. To estimate the distributional impact of the remarkable rise in house prices which defined this period, we simulate the distribution of net 2005 wealth in the hypothetical scenario in which house prices remained at their 1995 levels in real terms and find that the reduction in wealth inequality is almost entirely accounted for by changes in house prices. The paper also finds that, controlling for factors such as age, households that gained most from the house price boom were mortgagors, in particular those that were initially wealthier, and were advantaged in other ways such as by level of educational qualification.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper166.pdf

Mapping and measuring the distribution of household wealth: A cross-country analysis

Frank A Cowell, Eleni Karagiannaki, Abigail McKnight

CASE/165. November 2012.
In this paper we compare the level, composition and distribution of household wealth in five industrial countries: the UK, US, Italy, Finland and Sweden. We exploit the harmonized data within the Luxembourg Wealth Study, which we have extended to allow us to examine trends in the UK and the US between the mid-1990s and the mid-2000s. Remaining differences between surveys, variable definitions and coverage are highlighted to the extent that they impact on cross-country comparisons. We find that the Nordic countries have lower average wealth holdings, smaller absolute gaps between low wealth and high wealth households but high relative measures of wealth inequality. Italian households hold very little debt and are much more likely to own their homes outright, leading to relatively high median levels of wealth. In contrast American households tend to hold much more housing debt well into retirement. Increases in owner occupation and house prices 2000-05 in the UK has led to substantial increases in wealth, particularly median wealth holdings and this had led to falls in relative measures of wealth inequality such as the Gini coefficient even though absolute gaps between high and low wealth households have grown substantially. We show that there are underlying country differences in terms of distributions of age, household composition, educational attainment and income as well as wealth and debt portfolios. Educational loans are increasing in their size and prevalence in some countries and look set to create some marked differences in the distribution of wealth for different age cohorts.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper165.pdf

The effect of parental wealth on children’s outcomes in early adulthood

Eleni Karagiannaki

CASE/164. August 2012.
This paper presents the first UK estimates of the association between parental wealth during adolescence and a range of children’s outcomes in early adulthood. Parental wealth is positively associated with all outcomes examined (which include educational attainment, employment, earnings and homeownership). The estimated associations are found to operate over and above parental education and income and in many cases are stronger than them. For labour market outcomes a small share of the association reflects the indirect effect of parental wealth on children’s education whereas for homeownership the estimated association appear to mainly reflect the effect of parental wealth transfers. Further analysis by wealth component shows that degree attainment is more strongly associated with housing wealth than financial wealth. However, important effects are also estimated for financial wealth indicating the existence of financial constraints for low wealth-financial indebted households. For homeownership and earnings the estimated association are stronger for financial wealth.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper164.pdf

Migrants, Landlords and their Uneven Experiences of the Beijing Olympic Games

Bingqin Li, Hyun Bang Shin

CASE/163. July 2012.
Hosting of mega-events such as the Olympic Games tends to be accompanied by voluminous media coverage on the negative social impact of the Games, and the people in the affected areas are often considered to be one victim group sharing similar experiences. The research in this paper tries to unpack the heterogeneous groups in a particular sector of the housing market, and gain a better understanding of how the Olympic Games affects different resident groups. We take the example of the Beijing Summer Olympic Games and resort to empirical findings in an attempt to critically examine the experience of migrant tenants and Beijing citizens (landlords in particular) in ‘villages-in-the-city’ (known as cheongzhongcun) by delivering their own first-hand accounts of city-wide preparation for the 2008 Beijing Summer Olympiad and the pervasive demolition threats to their neighbourhoods. The paper argues that the Beijing Summer Olympiad produced uneven, often exclusionary, Games experiences for a certain segment of urban population.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper163.pdf

Using play to help families learn: Evaluation of Trafford Hall’s Playing 2 Learn Programme 2008-11

Laura Lane, Liz Richardson

CASE/162. August 2012.
The report describes the results of a three-year evaluation by LSE Housing and Communities of a family learning programme called Playing 2 Learn. The Playing 2 Learn programme was open to vulnerable families from low income communities across England. It was delivered by a charity, Trafford Hall, home of the National Communities Resource Centre between 2008 and 2011. It consisted of 26 residential weekend events with 795 adult and child family members from a total of 205 families attending. The weekends used creative, low cost play activities to promote play-based learning. The evaluation used baseline data collected by the programme, self-reported short-, medium- and longer-term outcomes based on written feedback from 62% of participating families, in-depth interviews with the purposive sample of 20 families, assessments from referral agencies, interviews with delivery staff, and observations of the residential events. It finds that the families participating in the programme experienced a series of pressures that undermined their ability to engage positively and spend time with their children at home, including family breakdown and formation, pressures of low-incomes, health and behavioural issues. Outcomes for families from the programme were assessed under four themes. First, there was improved family interaction over the short-, medium- and longer-terms, for example reading together and doing messy play. Second, parents’ and carers’ attitudes towards and input into children’s opportunities for play were also improved, including getting new ideas for affordable play activities and continuing to use them up to two years after attending the weekends. To the extent that the evaluation was able to measure, the impacts on younger children’s ability to learn were much more limited. Fourthly, there were positive impacts on parents’ and carers’ participation in the community for around a quarter of respondents, and wider impacts on parents’ and carers’ self-esteem and confidence, primarily through the support of meeting other families in similar situations. The report concludes that the value of the residential setting was to help families to experience new challenges. The experiential hands-on approach helped to generate long-lasting impacts. Many of the families on the programme were going through tough times that play alone could not resolve. The Programme succeeded in its goals to be a ‘snapshot removed from the everyday’, on which families could draw for inspiration when they return to their often challenging daily lives.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper162.pdf

Evaluating the possible impact of pension reforms on future living standards in Europe

Aaron George Grech

CASE/161. May 2012.
Successive reforms enacted since the 1990s have dramatically changed Europe’s pensions landscape. This paper tries to assess the impact of recent reforms on the ability of systems to alleviate poverty and maintain living standards, using estimates of pension wealth for a number of hypothetical cases. By focusing on all prospective pension transfers rather than just those at the point of retirement, this approach can provide additional insights on the efficacy of pension systems in the light of increasing longevity. Our estimates indicate that while reforms have decreased generosity significantly, in most countries poverty alleviation remains strong. However, moves to link benefits to contributions have made some systems less progressive, raising adequacy concerns for certain groups. In particular, unless the labour market outcomes of women and of lower-income individuals change substantially over the coming decades, state pension transfers will prove inadequate, particularly in Eastern European countries. Similarly while the generosity of minimum pensions appears to have either been safeguarded by pension reforms, or improved in some cases, these transfers generally remain inadequate to maintain individuals above the 60% relative poverty threshold throughout retirement. Our simulations suggest that the gradual negative impact of price indexation on the relative adequacy of state pensions is becoming even more substantial in view of the lengthening of the time spent in receipt of retirement benefits. The consumption smoothing function of state pensions has declined noticeably, strengthening the need for longer careers and additional private saving. When pressed, policymakers, particularly in Western Europe, seem to have been more willing to sacrifice the income smoothing function of pensions rather than its poverty alleviation function. Policymakers in some counties, notably Germany, France and the UK, have sought to refocus state pension systems towards generating better outcomes for people in the bottom half of the income distribution, probably with the insight that middle- to high-income individuals are possibly in a better position to accommodate the effect of state pension reforms by increasing their private saving. However in some cases, notably in Eastern Europe, results suggest that policymakers may not have fully considered the full impact of their policies on those on low incomes, on those with incomplete careers and on women.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper161.pdf

Localisation and the means test: A case study of support for English students from Autumn 2012

John Hills, Ben Richards

CASE/160. May 2012.
The combination of spending cuts, efforts to protect the poorest from some of their effects, and ‘localised’ decision-making are leading to an increase in the numbers of means tests designed by lower level institutions. This paper examines a case study of the effects of this, looking at the means-tested support which has been offered to English students applying to go to 52 universities from Autumn 2012, designed partly to offset the rise in general fees to or towards £9,000. 27 of these universities are offering significant levels of means-tested support through bursaries or fee reductions depending on parental income. Although using a common income definition, each university has designed its own system with widely varying criteria. Taken with the national maintenance grant system, these imply substantially different levels of support for students from lower and higher-income families. Nearly all of them involve significant downward steps or ‘cliff edges’ in support at particular income levels, often involving a drop of several thousand pounds. Just looking at student support by itself, this implies typical marginal withdrawal rates exceeding 40 per cent and even 100 per cent over particular income ranges. Taken together with the effects of other parts of the tax and benefit system that would have affected family income, the effect is marginal effective tax rates on family resources that exceed 50 per cent for the entire income range up to £43,000. They typically reach 180 per cent for £1,000 income variations around income of £25,000. For the most generous case, Oxford University, the £13,050 reduction in subsequent means-tested student support is equivalent to nearly the whole of the £13,250 net income difference between two-child families that earned £17,000 and £44,000 in 2010-11. As well as introducing extra complexity and questions of equity in treatment within student finance, this kind of development runs counter to other parts of government policy, such as Universal Credit, intended to smooth out and simplify means-tests. As localisation is pushed further, and more agencies become responsible for designing their own mean tests, the lack of a system to take an overview of their overlapping effects, and to avoid undesirable design features will become an increasing problem across social policy, not just in this particular area.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper160.pdf

Deliberative research as a tool to make value judgements

Tania Burchardt

CASE/159. April 2012.
The ‘deliberative turn’ in democratic theory has generated a wealth of deliberative experiments. The purpose of deliberation as a research technique (as opposed to policymaking or public consultation) is distinctive: to uncover the public’s informed, considered, and collective view on a normative question. In the social science context, this often arises in relation to research on poverty, well-being and inequality, where there is a need to define and justify the thresholds and concepts adopted on a deeper basis than convention alone can offer. This paper compares deliberative research to more traditional methods of studying the values of the general public, such as in-depth interviewing, attitudinal surveys, and participatory approaches, and reveals that deliberative designs involve a number of assumptions, including a strong fact/value distinction, an emphasis on ‘outsider’ expertise, and a view of participants as essentially similar to each other rather than defined by socio-demographic differences. Normative decisions permeate the design and implementation of deliberative research, so while it has the potential to provide uniquely considered, insightful and well-justified answers to the problem of defining a collective position on key questions in social science, transparency at all stages of the process is essential.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper159.pdf