Employment incentives for sole parents: Labour market effects of - - PowerPoint PPT Presentation

Employment incentives for sole parents: Labour market effects of changes to financial incentives and support

Dr Jacinta Dalgety1, Dr Richard Dorsett2 Philip Spier1, Steven Johnston1

1 Ministry of Social Development 2 National Institute of Social and Economic Research, UK

Why sole parents?

• Lower employment rates than couple parents

All Youngest child is 6+ years Sole Parents 47% 63% Mother in two parent family 67% 79% Father in two parent family 91% 92% Employment rates of adults in families with dependent children (June2004)

Source: HLFS customised series

Key policy changes

July 1996 Independent family tax credit introduced Changes to abatement rates of DPB April 1997 Part-time work testing for parents whose youngest child was aged 14+ Full-time work testing for parents whose youngest child was aged 14+ Part-time work testing for parents whose youngest child was aged 6-13 Work-testing removed Enhanced case management introduced In-work tax credit replaces child tax credit February 1999 April 2003 April 2006 April 1991 Benefit cuts

Independent Family tax Credit introduced Changes to abatement rates of DPB

A

80 85 90 95 100 105 110 115

Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08

Recipients, Thousands

All DPB recipients DPB-Sole Parents

1

A

B

Part-time work testing for parents whose youngest child is 14+

80 85 90 95 100 105 110 115

Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08

Recipients, Thousands

All DPB recipients DPB-Sole Parents

1

B A

C

Full-time work testing for parents whose youngest child is 14+ Part-time work testing for parents whose youngest child is 6-13

80 85 90 95 100 105 110 115

Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08

Recipients, Thousands

All DPB recipients DPB-Sole Parents

1

A B C

D

Work-testing removed Enhanced case management introduced

80 85 90 95 100 105 110 115

Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08

Recipients, Thousands

All DPB recipients DPB-Sole Parents

1

A B C D

E

In-work tax credit replaces child tax credit

80 85 90 95 100 105 110 115

Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08

Recipients, Thousands

All DPB recipients DPB-Sole Parents

1

A B C D E

80 85 90 95 100 105 110 115

Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08

Recipients, Thousands

All DPB recipients DPB-Sole Parents

1

E

A B C D

DPB numbers

1 Numbers of DPB-Sole Parent recipients are not available prior to June 1996

Source: MSD Information Analysis Platform

Increasing sole parents’ employment

• Sole parents are diverse and can have complex needs
• NZ and international evidence suggests that for

employment assistance to be effective:

– Childcare must be available – Sole parents must be comfortable with their child in childcare – Work needs to pay enough to cover the extra cost of childcare

• Financial gains from work also a driver

Financial incentives

• Minimum wages
• Wage subsidies
• In-work benefits

– Lump-sum – Time limited – Ongoing payment for low-income individuals – On-going payment for low-income families with children

In-work tax credit

• Replaced child tax credit in April 2006
• Eligible for $60 a week + $15 for every fourth and

subsequent child

• Requirements:

– Independent of benefit – Sole parents working 20+ hours a week – Couple parents working a combined total of 30+ hours a week

Other policy changes

• WFF Tax Credits abatement thresholds
• Accommodation Supplement
• Childcare Assistance

Sole parents’ employment

Source: Statistics New Zealand: Household Labour Force Survey, customised tables for population aged 15-64, annual average rates calculated by MSD

1 Smoothed by taking the average of the current and previous three quarters

Employment rates

0% 10% 20% 30% 40% 50% 60% 70% 80%

Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08

% employed

All aged 15- 64 (smoothed) Single, no dependent children (smoothed) Sole parents with dependent children (smoothed)

1

First changes Last changes

Economy or changes?

• Over this period there was a tight labour market and

strong economy

• How do we know how much of the change was due to:

– the changes in financial incentives – and how much was due to the strong economy?

Two approaches

• Difference-in-differences

– Data: Household Labour Force Survey and Income Survey (June Quarters)

• Survival analysis of recipients of DPB-Sole Parent

– MSD and IR linked data (MSD IRD Research Dataset)

Difference-in- differences

• Compare trends in outcome among a ‘treatment’ group

affected by policy change and a ‘comparison’ group unaffected

• No change in composition of treatment and comparison

groups over the period in terms of unobserved characteristics affecting outcomes

Employment rate

Estimated employment rate of sole parents with dependent children

Source: HLFS Difference-in-difference analysis

1 Calculated as employment rate less Difference-in-Differences estimate

The estimated employment rates have confidence intervals of ± 4 pp. The only statistically significant effect is that seen in the June 2007 quarter

First changes Last changes

Equals an additional 8,100 sole parents in employment

40% 45% 50% 55% 60% 65% 70% 75% 80%

Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Quarter ending

% employed

Employment rate of singles without children (from HLFS) Employment rate of sole parents (from HLFS) Estimated employment rate of sole parents had changes not been made

1

Hours of work

• Increased numbers of sole parents are meeting the

hours requirement of in-work tax credit

– The percentage of sole parents working 20 hours or more increased from 36% in June 2004 to 48% in June 2007 – Around three-quarters of this increase was due to changes

Survival analysis

• Model the time to exit benefit, or re-entry for those who

have left

• Focus on sole parents, first observed on DPB
• GDP captures broader economic influence
• Effect of changes captured by calendar time dummies

corresponding to stages of implementation

• Covariates capture extent to which some individuals exit

more quickly

Change in exit rates

Change in exit rates from benefit

Source: MSD IRD Research Dataset Survival Analysis

Sole parents’ periods of benefit receipt are shorter

0.00 0.20 0.40 0.60 0.80 1.00

2 4 6 8 10 12 14 16 18 20 22 24 Months since taking up a benefit

Probability remaining in receipt of a benefit

Had policy changes not been made With policy changes

0.00 0.20 0.40 0.60 0.80 1.00

2 4 6 8 10 12 14 16 18 20 22 24 Months since leaving benefit

Probability remaining off benefit

With policy changes Had policy changes not been made

Change in re-entry rates

Change in re-entry rates to benefit

Source: MSD IRD Research Dataset Survival Analysis

Sole parents previously

• n benefit are staying
• ff benefit much longer

Sole parents and work readiness

Need for additional support increases Life shocks and accumulated adversity Ill-health, recent separation, poor start in life Intensive, wraparound services needed Poverty entrenched and transferred Long-term benefit receipt, intergenerational dependency Some barriers to overcome Limited skills, experience or

• confidence. Young children

Facilitation, planning and/or training support Work ready sole parent Current or recent labour market attachment, motivated, marketable skills Employment support ‘Diseases’ of poverty e.g. Poor mental or physical health, debt, family violence

Remaining barriers to work

• A survey of low-middle income families completed in

September 2007

• Two out of five sole parents who were not in work

considered themselves available for work

• Largest barriers to work for those available for work are

around finding appropriate work

80 85 90 95 100 105 110 115

Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08

Recipients, Thousands

All DPB recipients DPB-Sole Parents

1

Independent Family tax Credit introduced Changes to abatement rates of DPB

A

A

B

Part-time work testing for parents whose youngest child is 14+

B A

C

Full-time work testing for parents whose youngest child is 14+ Part-time work testing for parents whose youngest child is 6-13

A B C

D

Work-testing removed Enhanced case management introduced

A B C D

E

In-work tax credit replaces child tax credit

A B C D E E

A B C D

DPB numbers

1 Numbers of DPB-Sole Parent recipients are not available prior to June 1996

Source: MSD Information Analysis Platform

Sole parents’ employment

Source: Statistics New Zealand: Household Labour Force Survey, customised tables for population aged 15-64, annual average rates calculated by MSD

1 Smoothed by taking the average of the current and previous three quarters

Employment rates

0% 10% 20% 30% 40% 50% 60% 70% 80%

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% employed

All aged 18-64 (smoothed) Partnered mothers w ith dependent children (smoothed) Single, no dependent children (smoothed) Sole parents w ith dependent children (smoothed) First Changes Last Changes

Change in economy?

• Evaluation carried out during period of economic growth
• Don’t know what will happen in different economic

conditions

• In-work benefits do have greater employment gains

during economic upswings than downturns

Further policy work

• Job Search Service (JSS)

– Targets clients in receipt of the Unemployment Benefit (UB) – Clients are referred to one of several activities, best suited to their individual job search needs – Fewer clients are being granted a UB related benefit – Once granted UB, JSS participants spend less time on benefit

• Part-time work testing
• Increasing DPB abatement thresholds from $80 to $100