More confusion about median income

The government is proposing, not for the first time, to change the signposts that are used to warn us if child poverty is getting worse.  The most commonly used indicator in Europe, the “risk of poverty”, is based on “economic distance”, judged as 60% of the median income.  The median income splits the top half of incomes from the bottom half.  One of the objections, made by a spokeswoman for the PM, is right:  if the median income falls during a recession, the poverty threshold might also fall.  The other statement, made by David Cameron, shows he doesn’t quite get it:

“Today, because of the way it is measured, we are in the absurd situation where if we increase the state pension, child poverty actually goes up.”

That could only be true if lots of pensioners were sitting on something just below  the median income, enough to change the figure, and the government was offering a big enough increase in the pension to leap-frog them over the median.  Not that  many are.   I suspect this is probably another example of confusing the median with the average.  The mean average is sensitive to changes in income anywhere in the income distribution, top or bottom; the median, or the half-way point, isn’t.

Additional note, 2nd July:  An editorial in the Scotsman this morning writes that

“there is an element of truth in the belief that poverty cannot be wiped out. This becomes an inescapable fact if poverty is measured in relative terms: for people to be rich, someone has to be poor. … Using relative terms, poverty could be reduced if an economic crash hit the wealthiest hard and closed the gap between rich and poor by simply drawing back the rich while the poor standing still.” 

No, that wouldn’t alter the median; that’s completely wrong.  What is it about simple sums that defeat grown-ups so completely?

I wrote an article about this four years ago:  Why refer to poverty as a proportion of median income?, Journal of Poverty and Social Justice, 2012 20(2) 163-176 (sadly, behind a pay-wall).  There are problems using the median income: the biggest is that we’re comparing people on very low incomes to other people on fairly low wages, which are often unstable and insecure.    I suggested there that we could go for a comparison with median wages instead.  That doesn’t, however, address the other problem, which is that lots of our politicians and journalists can’t quite grasp what the figures are about.

2 comments

  1. Caroline Leclercq

    I suspect Cameron is not really bothered about whether he fully grasps the idea – just keen on how things look. No change then!

  2. Steve McKay

    Some of their “ideas” are getting a bit tiresome, now. Although, I think Frank Field also made a similar point about the supposed impossibility of getting everyone aove 60% of the median.

    In the 1990s (if not earlier) Governments were claiming that work always paid more than benefit, and for most people that was true (albeit the size of that gap might be small, and in-work costs could exceed the gain). But it won’t be any more true under Universal Credit, as mortgage interest support remains available for non-workers, but not those in work (and the same point about in-work costs applies – though childcare is better assisted now).

    There also seems to be an unspoken assumption that those getting a lot of non-work benefits (and hence subject to the cap) would be worse off in work, when in most cases they would get more money when working – perhaps not a lot more, but rarely would it be less if the issue is Housing Benefit amounts.

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