Costing poverty: four promising practices

Despite the complexities associated with assessing the cost of poverty, outlined in the previous post, there are some recent, rigorous discussions of methods involved in establishing a dollar-figure of costs, and some numbers determined through those methods.

The first example I would highlight is from the Joseph Rowntree Foundation, in the United Kingdom, which has done extensive research and writing on poverty in recent years, including on determining the cost of child poverty in the UK.  The advantage of measuring child poverty is the relative simplicity of starting within a fixed age range, and assessing the future life-course costs from there.  However, in a very readable 12-page summary of the Foundation’s work in this area, Donald Hirsch deals elegantly with the challenges, including the provision of the following chart:

chart of ways to cost poverty

From this model, the Foundation went on to report that child poverty was costing the UK £12 billion in publicly funded services, and that the longer term impact “…is costing the Exchequer £2 billion a year in extra benefits paid to adults who grew up in poverty and are now out of work. Child poverty is also diminishing UK GDP by at least £11 billion through reduced earnings of those in work, £3 billion of which would have gone to the Exchequer in taxation.”

A second example of costing is not for poverty in general, but focuses on costs associated with non-completion of high school in Canada. This study, written by Olena Hankivsky for the Canadian Council on Learning, established the sectors that are known to have impacts from lower educational achievement, and then identified the dollar-value impact in each of them, per dropout.  With an explicit identification of the sectors and the impacts, Hankivsky summarizes her cost findings in the table below.  What is particularly illuminating, however, is her comparison of the cost of doing nothing, per drop-out, and the savings that could be achieved if the situation were to improve by a one percentage point increase in high-school completion rates.

While extrapolating this method to a study of poverty in general would be an ambitious undertaking, the method, in my opinion, produces a credible result.

A third example takes a different approach, assessing the benefits of removing economic and social gaps between Aboriginal and non-Aboriginal peoples in Canada to the national fiscal health of the country. In a presentation to the Canadian Economics Association, an overview of the study by the Centre for the Study of Living Standards included the following graphic image of its framework:

A final example is Nathan Laurie’s costing of poverty in Ontario for the Ontario Association of Food Banks. This study focuses on what it calls “remedial” costs of poverty related, for example, to health and crime, and then on costs of inter-generational poverty, and the social costs of poverty.  The conceptual model is represented graphically, copied below:

The study reports a range of costs, both private and social, for both Canada and Ontario.  While the assumptions for extrapolating from Ontario data to nation-wide data weren’t clear to me, the Ontario figures seemed somewhat compelling, with estimates of between $32 and $38 billion in combined social and private costs, presumably annually, as this was calculated to be 5 to 6% of provincial GDP.

This is by no means an exhaustive list of credible studies on costing, but, in my opinion, they provide interesting and relatively rigourous conceptual and fiscal models for calculating costs, and are articulate about assumptions made in arriving at these figures. And those characteristics makes them promising as approaches to costing poverty.

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