Social Policy Research Paper Number 30

Contents

• Executive summary
• 1. Introduction
• 2. Methodological and data issues
• 3. Employment patterns and job characteristics
• 4. Child care and employment
• 5. Time use and activities with children
• 6. Income, financial hardship and perceived prosperity
• 7. Work–family spillover
• 8. Employment and wellbeing
• 9. Conclusion
• Appendix A: Comparison of LSAC and ABS employment estimates
• Appendix B: Employment tables
• Appendix C: Child care tables
• Appendix D: Wellbeing multivariate results
• Endnotes
• References
• List of tables
• List of boxes

6. Income, financial hardship and perceived prosperity

• 6.1 The measures
• 6.2 Household income
• 6.3 Parental labour supply and household income
• 6.4 Financial hardship and perceived prosperity
• 6.5 Parental labour supply and financial hardship and perceived prosperity
• 6.6 Receipt of government support
• 6.7 Summary

A number of approaches have been used to measure wellbeing.⁴⁸ Traditionally, assessment of personal wellbeing focused on the absence of signs of ill being, but over the last few decades indicators of positive wellbeing have also been emphasised. Personal wellbeing has sometimes been measured in terms of the extent to which individuals have access to a set of resources prejudged as necessary for meeting basic needs for healthy functioning, for handling life's problems, or for achieving 'a good life'. It has also been measured in terms of people's subjective experiences or inner sense of wellness or happiness (Allardt 1993; Campbell 1981; Deci & Ryan 2000). Thus, wellbeing may include objective circumstances such as access to financial and community resources, subjective phenomena such as happiness or life satisfaction, and circumstances that involve gradations of objective and subjective phenomena, such as physical health.

This section focuses on income, financial hardship and perceived prosperity. The following two sections focus on other aspects of wellbeing. Section 7 focuses on work-to-family spillover as an aspect of family wellbeing, and Section 8 addresses the links between employment and family wellbeing, by focusing in depth on parents' health, psychological wellbeing, marital relationship, work–family strains and gains, and time pressures.

Conventionally, measures of hardship and poverty are based on income. However, often the underlying concept of interest is material hardship resulting from a lack of consumption for which low income is used as a proxy. The many facets of poverty mean that it is not appropriate to rely solely on income-based measures to indicate disadvantage (Travers & Richardson 1993).⁴⁹ Furthermore, there is often a weak relationship between low income and material hardship because the needs of families are as important as income in determining whether a family experiences material hardship (see Mayer & Jencks 1989 for a discussion of this issue).

This section provides descriptive information on the gross income of families with young children, on the extent to which they report having experienced hardship and their self-reported subjective prosperity. Differences across family types (single-parent and couple-parent) and age of the study child are also examined. The relationships between the measures of income, financial hardship and perceived prosperity and family labour supply are also analysed.

6.1 The measures

The measures of income and financial wellbeing used in this section are described below, and summarised in Box 6.1.

Income

Wave 1 of LSAC has limited income data. LSAC collects information on the gross annual income of the parent(s).⁵¹ LSAC does not collect information about the income of other members of the household. The incomplete nature of the household income data means that household income can only be measured for households in which the parents are the only adults. In these households parental income and total household income will be the same. Therefore, when analysing household income, households with other adults present (including children aged over 15) are excluded.⁵²

When comparing incomes across different population groups for the purpose of assessing living standards, it is necessary to adjust household income for household size and composition in order to take into account differences in the costs of living. For example, a household with two adults will require a household income greater than that of a single adult household to attain the same standard of living. Similarly, a household with one adult and one child will require more income than a single adult household, but perhaps not as much as a two-adult household to achieve this standard of living.

The adjustment to household family income for household size and composition is done using equivalence scales. There are a number of equivalence scales that can be used. A widely used scale is the modified OECD equivalence scale.⁵³ This equivalence scale gives a weight of 1.0 to the first adult, 0.5 to the second and subsequent adults, and 0.3 to all dependent children. Each household's income is converted to an equivalised income by dividing total household income by the value of the scale for that household, resulting in a measure that can be compared across households of different size and composition.⁵⁴

To show how equivalence scales work, the following example considers a household with total income of $900 per week. If this family comprised two adults and two children, to obtain the equivalised household income, the $900 would be divided by 2.1, resulting in an equivalised income of $428. If the household comprised one adult and two children, applying the equivalence scale of 1.6 gives an equivalised income of $562. A higher value of equivalised household income for the single-parent family would indicate this family could afford a higher material standard of living than a couple-parent family on the same unequivalised household income.

Hardship

In LSAC, experience of financial and material hardship is measured by asking the primary carer a series of questions about the degree to which they have been affected by a shortage of money, looking at specific indicators that are outlined in Box 6.1.⁵⁵ These indicators of financial stress may be considered a form of deprivation measure because they largely reflect that the household went without certain items or services.

Prosperity

LSAC also contains a question of the primary carer about how they and their family are getting on financially (perceived prosperity). Response categories range from very poor to prosperous.⁵⁶

Income support

This section also includes an examination of the extent to which different families receive an income support payment from the government. This information is based on whether either parent received a payment, and is based on reported receipt of government support, which as discussed later, may underreport the actual receipt of government support. This section focuses only on receipt of income support payments, which includes the following payments: Parenting Payment (Single), Parenting Payment (Partnered), Carer Allowance, Disability Support Pension, Newstart Allowance or another income support payment. Receipt of Family Tax Benefit (FTB) Part A or B was not analysed, as an initial examination of the data indicated probable significant underreporting of receipt of these payments.

6.2 Household income

This section provides an overview of the household income data. Both the unequivalised and equivalised household income for couple-parent families and single mothers were analysed. Single fathers were excluded, as were households with adults other than the parents present, as discussed earlier in the section.

The average unequivalised gross household income for the infant cohort was $1,201 per week and for the 4–5 year-old cohort it was only slightly higher at $1,268 per week (see Table 6.1). Differences were apparent between single mothers from the infant cohort and those from the 4–5 year-old cohort. Single mothers from the infant cohort had an income of $456 compared to $543 from the 4–5 year-old cohort. A similar pattern was evident for couple-parent families. Couple families from the infant cohort had, on average, unequivalised income of $1,290 per week compared to $1,391 for those from the 4–5 year-old cohort. A possible reason for the differences in the income of single-parent and couple-parent families across cohorts are the number of adults (parents) employed, and if employed, the hours worked. This is explored in Section 6.3.

As discussed, in order to compare financial living standards it is necessary to adjust for differences in household composition using an equivalence scale. Overall, single-mother families had a much lower equivalised income than couple-parent families. For the infant cohort, the equivalised weekly gross income for single-mother families was $290 per week, while couple-parent families had an equivalised income of $641 (see Table 6.1). The pattern for families from the 4–5 year-old cohort was similar. Single-mother families had an equivalised income of $336 compared to $639 for couple-parent families.

6.3 Parental labour supply and household income

There was a clear relationship between parental labour supply and household income. This is not surprising given the importance of wage and salary (and business) income to Australian households. Households with no parent employed, whether single-mother or couple-parent, had the lowest income (see Table 6.2). In couple-parent families, those with two parents employed had higher incomes than those with one parent employed. For example, in the infant cohort, the average unequivalised income of single-mother families in which the mother was not employed was $425 and if employed was $603. For couples, if neither parent was employed the average unequivalised income was $561, if one was employed it was $1,222 and if both were employed $1,490. The effect of parental employment on income was also evident from the comparison of couple-parent families where the primary carer worked full-time ($1,768) to those where the primary carer worked part-time ($1,428). The same relationships were observed for the 4–5 year-old cohort. Single mothers working full-time also had higher income than those working part-time, although the sample size was too small to make this distinction in the infant cohort.

As noted earlier, within family types the 4–5 year-old cohort had somewhat higher average unequivalised income than the infant cohort. An important factor is the difference in parental employment. Parents were more likely to be employed, and more likely to be employed full-time in the 4–5 year-old cohort than the infant cohort. For example, in the infant cohort, 36.9 per cent of families were couple-parent families in which both parents worked (30.0 per cent where the primary carer worked part-time and 6.8 per cent where the primary carer worked full-time). In the 4–5 year-old cohort, 47.8 per cent of families were couples in which both parents worked, including 35.3 per cent in which the primary carer worked part-time and 12.3 per cent in which the primary carer worked full-time.

Within each combination of family type and parental employment status there are still differences between the cohorts in unequivalised household income. For families who received income support or family payments, a contributing factor was that families of the 4–5 year-old cohort had, on average, more children than those in the infant cohort, thereby making these families eligible for more assistance. There are, however, other factors that were not examined here, including the exact hours worked (as demonstrated elsewhere in this report, the categories of full-time and part-time work do not capture the full extent of diversity in hours worked), other job characteristics, or measures of human capital such as educational levels of parents. Any differences in these factors are associated with different average incomes across the cohorts.

Some of the compositional differences between cohorts are taken into account when equivalised income is considered. For example, while single not-employed mothers in the 4–5 year-old cohort had higher unequivalised income than those in the infant cohort ($447 compared to $425), the equivalised income was virtually the same ($262 in the infant cohort and $264 in the 4–5 year-old cohort). While the unequivalised income of couple-parent families, by parental employment, was higher in the 4–5 year-old cohort, the equivalised income was actually lower in the 4–5 year-old cohort. That is, while couple-parent families had more income in the 4–5 year-old cohort, they had more family members to sustain with that income. This was not true of employed single-mother families, whose equivalised income was higher in the 4–5 year-old cohort. The higher income in this cohort translated into a better standard of living, as measured by the amount of income adjusted for family composition.

Overall, as with unequivalised income, greater parental employment was associated with higher levels of equivalised income. These data, interpreted as financial wellbeing, showed that financial wellbeing was higher in families with at least one parent employed, and higher still in couple-parent families where two parents were employed; and full-time as opposed to part-time employment further improved financial wellbeing.

6.4 Financial hardship and perceived prosperity

The measures of hardship and prosperity do not need to be equivalised for differences in family size and consumption since they implicitly take account of differences in the consumption needs of families.

Single mothers were much more likely to report having experienced at least one of the types of financial or material hardship than parents in couple-parent families (see Table 6.3). Over 70 per cent of couple-parent families had not experienced any of the hardships, whereas only about 40 per cent of single mothers reported having experienced no hardships in the previous 12 months.⁵⁷ The most common hardship was not being able to pay gas, electricity or telephone bills on time.

Single mothers were also much more likely to have reported experiencing a number of financial hardships in the previous 12 months than couple-parent families. For example, 7.1 per cent of single-mother families in the infant cohort reported having experienced four or more of the hardships. Among couple-parent families in the infant cohort, just 2.0 per cent had experienced four or more hardships. There was little difference in the patterns of financial hardship reported between the infant and 4–5 year-old cohort for both couple-parent and single-mother families.

Single-mother families also reported lower levels of family prosperity than couple-parent families (see Table 6.4). This was the case for both the infant and 4–5 year-old cohort families. For both couple-parent and single-mother families, only a very small proportion reported being prosperous (the maximum was 2.2 per cent for couple-parent families from the 4–5 year-old cohort). Similarly, a small proportion of families reported being very poor (the maximum was 2.1 per cent for single-mother families from the 4–5 year-old cohort).

The biggest difference between single-mother and couple-parent families was that single-mother families were more likely to say that they were 'just getting along' (47.8 and 51.5 per cent among the infant and 4–5 year-old cohorts respectively) than couple-parent families (33.4 and 31.2 per cent among the infant and 4–5 year-old cohorts respectively). Couple families were more likely to report being 'very comfortable' or 'reasonably comfortable' than single-mother families.

6.5 Parental labour supply and financial hardship and perceived prosperity

In this section, the relationship between parental labour supply and financial hardship and perceived prosperity is presented (see Table 6.5). The analysis was conducted separately for single-mother and couple-parent families. Families with adults other than parents were included in this analysis.⁵⁸

For both single-mother and couple-parent families, jobless families reported having experienced a higher number of hardships than families in which there was parental employment. Interestingly, although single-mother families reported having experienced a greater number of hardships than couple-parent families (irrespective of whether there was parental employment in the household), the difference in the number of hardships between jobless families and families in which at least one parent was employed was greater for couple-parent families than single-mother families. This pattern holds for families from both cohorts.

For couple-parent families, although having both parents employed resulted in a lower number of hardships being reported, the difference compared to couple-parent families in which only one parent was employed was relatively small. For example, for couple-parent families from the 4–5 year-old cohort in which only one parent was employed, the average number of hardships experienced was 0.53 compared to 0.31 for couple-parent families in which both parents were employed (see Table 6.5).

The prosperity measure did not vary to the same extent as the number of hardships measure across family type and employment status, although the patterns were largely similar to those identified in the analysis of hardship. Single mothers' prosperity did not vary significantly according to employment status, but was overall lower than that of couples. Not-employed couple-parent families had the lowest levels of self-reported prosperity; even lower than single mothers. Prosperity was higher in couples with at least one parent employed, with significantly higher prosperity reported in families where two parents were employed.

In dual-working couple-parent families, financial wellbeing, as measured by reported hardships and perceived prosperity, did not vary significantly according to whether the primary carer worked full-time or part-time hours (see Table 6.5) This is despite considerable differences in income according to the hours worked by primary carers (see Table 6.2). A possible reason for the weak relationship between primary carers' hours and reported hardship or prosperity is that some primary carers may work full-time to boost the finances of the household where there are more financial pressures. While the income may be higher in these families, so may be the financial commitments, for example, the mortgage repayments.

6.6 Receipt of government support

The analysis in this section is based on parents' reports of financial support they received from the government. Some caution needs to be exercised when interpreting this information on self-reported receipt of income support payments as there is evidence from other surveys that parents do not always accurately state which government payments they are in receipt of. For example, a significant proportion of mothers in receipt of a FTB Part A or B, when asked whether they received an income support payment, gave an incorrect response (Gray & Renda forthcoming). According to Gray and Renda's research, the lack of knowledge was in both directions with mothers who received an income support payment reporting that they did not, and others who did not receive an income support payment incorrectly reporting that they did receive a payment.

Initial examination of the self-reported government payments indicated that the data on receipt of FTB was problematic. For example, 93 per cent of single-mother families reported receiving an income support payment, but only 73 per cent reported receiving FTB Part B. However, all single-parent families are eligible for FTB Part B. There was also an apparent underreporting of FTB Part A. This section therefore focuses only on receipt of income support payments.

The vast majority of single mothers who were not employed reported receiving an income support payment (95.0 per cent for the infant cohort and 97.6 per cent for the 4–5 year-old cohort in Table 6.6). A large proportion of employed single mothers also reported receiving an income support payment (84.0 per cent among the infant cohort and 76.3 per cent among the 4–5 year-old cohort). This high proportion of employed single mothers receiving an income support payment was a consequence of the income support system rules that allowed single mothers to continue to receive some income support payments while earning quite substantial amounts of income (Centrelink 2005).⁵⁹

Among couple-parent families, the proportion in receipt of an income support payment was much lower than for single-mother families. For jobless couples, 80.8 per cent from the infant cohort and 85.7 per cent from the 4–5 year-old cohort reported having at least one parent in receipt of an income support payment. Of the jobless couple-parent families that did not report receiving an income support payment, some had one or both of the parents on paid parental leave. Other jobless couple-parent families had a significant source of income other than from paid employment.⁶⁰ There were also likely to have been respondents receiving an income support payment who incorrectly reported that they did not.

Compared to jobless couples, couples in which one parent was employed had much lower rates of receipt of income support payments (22.3 per cent for the infant cohort and 28.9 per cent for the 4–5 year-old cohort). When both parents were employed, the percentage receiving income support was lower again (10.5 per cent for the infant cohort and 14.2 per cent for the 4–5 year-old cohort).

The lower rates of receipt of income support payments among employed couples compared to employed single mothers was explained by differences in the eligibility conditions and income test for income support payments for single-parent and couple-parent families, as well as the lower incomes of single mothers.

6.7 Summary

Very few of the families assessed themselves as getting along 'poorly' or 'very poorly' financially. At the other extreme, few families said that they were prosperous. Single-mother families were more likely than couple-parent families to say that they were 'just getting along' financially, and couple-parent families were more likely so say that they were 'very comfortable' or 'reasonably comfortable' financially.

• As expected, having a parent or parents in paid employment was associated with an increased equivalised family income.
• Single-mother families had much higher rates of having experienced financial hardship and having experienced multiple hardships than couple-parent families.
• For both single-mother and couple-parent families, jobless families reported having experienced a higher number of hardships than families in which there was parental employment.
• Much of the difference in equivalised family income between single-mother and couple-parent families was explained by the higher rates of joblessness among single-mother than among couple-parent families.
• For couple-parent families, although having both parents employed resulted in a lower number of hardships being reported, the difference compared to couple-parent families in which only one parent was employed was relatively small.

The analyses in this section revealed a strong connection between parental employment and financial wellbeing. The equivalised income measures, as well as the hardships and perceived prosperity measures, highlight the financial wellbeing benefits that follow from parental employment.

Return to top

Next: 7. Work–family spillover

Previous: 5. Time use and activities with children

Copyright & Disclaimer | Privacy policy | Contact us | FaHCSIA home

© Commonwealth of Australia, 2007
Last modified 24 April, 2009