This is the “statistic of the year” according to the Royal Statistical Society.
It is the share of those in relative poverty that are in working households. This statistic was entered into the RSS competition to find the statistic of the year by the Institute for Fiscal Studies.
There are two fundamental problems with this. First, this is based on a measure of poverty that is simply inaccurate.
The concept of relative poverty is measured as having an income below 60 per cent of contemporaneous median household income, equivalised in order to account for variations in household size.
The problem comes when you actually start to look at how those classified as in poverty describe their own financial situation. Using Understanding Society data and following the standard classification of relative poverty, my own analysis found that 84.7 per cent of those in “relative poverty” described their financial situation as at least “just about getting by” if not better. Only 6.2 per cent described their financial situation as “finding it very difficult”, with a further 9.1 per cent “finding it quite difficult”.
More people in “relative poverty” describe themselves as “living comfortably” – 18.8 per cent – than those who find things “very difficult”.
Moreover, 45.9 per cent of those classified in relative poverty said they were satisfied, to some degree, with their income.
Any measure of poverty where only a minority of those classified as in poverty report financial difficulty and nearly half are actually more or less content with their lot, is obviously an inaccurate measure of poverty. It follows that any claim as to the share of those in working households that is in poverty, based on this method, is without foundation.
In truth, what actually is being measured is low income relative to an arbitrary threshold imposed by statisticians remote from the people they are analysing. Such statisticians have little idea of what is actually sufficient to meet these people’s needs. Accordingly, misclassification will occur. This observation has been made by the American economist Thomas Sowell.
Which leads me to the next problem. According to Kelly Beaver of Ipsos Mori, one of the RSS’s judges of experts:
“This stark statistic really highlights one of the biggest issues facing the UK – in-work poverty. While it could be seen as positive that more people are in work, this figure shows that employment doesn’t necessarily mean an escape from poverty. Far from it, in fact.”
What Ms. Beaver either does not realise or neglects to tell you is that the statistic of 58 per cent is an aggregate of different types of households with different types of working arrangements, including households where just one partner is in employment. That is to say, it includes people who are not in work.
Households with no one in full-time work and just one or more in part-time work are included in this statistic.
Those households where all adults are in full-time work account for 10 per cent of those classified as in relative poverty. According to DWP figures, the relative “poverty rate” for this group is 8 per cent compared to 22 per cent overall. In households classified as “workless: one or more unemployed”, the corresponding statistic is 74 per cent. This would suggest the “statistic of the year” has more to do with not working than working.
It is simply wrong to make a judgement about the extent to which work pays by looking at among others, people who do not work.
The IFS has submitted a statistic which has little to do with reality. How could the RSS be so taken in? The panel of judges contains eminent statisticians such as Professor Sir David Spiegelhalter, a former RSS president, and Dame Jil Matheson, a former national statistician. They ought to know better. Other judges do not appear to have much by way of statistical expertise beyond a career in public affairs.
The RSS has lost its way in that it has not sought to critically evaluate the statistic supplied by the IFS. Note that that the IFS itself has done little by way of original statistical research itself. It has simply repackaged official statistics from the DWP to suit its own agenda. Judging from the tone of the RSS press release, it would seem the normative concerns of the organisation have taken precedence over its duty to promote statistical excellence. That it has chosen a highly dubious statistic as its “statistic of the year” ought to be a matter of scandal within the profession.
Matters are made even worse when you realise such erroneous and exaggerated claims are made as an invitation for greater intervention in the economy by third parties, which in practice will mean the government. Here is RSS judge and executive director, Hetan Shah:
“Policymakers have focused on work as the best route out of poverty, but our winning statistic shows that this will not be enough to eradicate the scourge of poverty in the UK.”
Mr Shah neglects to tell you many people “in poverty” are actually young and go on to earn more as they progress in their careers, improving their lot in life by themselves and without any need for policy intervention.
Any policy based on such profound misunderstanding of the facts will lead to inappropriate interventions and greater inefficiency.This will entail missed opportunities, jobs lost and greater costs handed down to the consumer. The biggest losers from this will be those who are poor. The worthies of the RSS judging panel will pay no costs for being wrong.