#15 March 2007 - Melbourne Institute News

Melbourne Institute News March 2007 ISSN 1442-9500 (print)

ISSN 1442-9519 (online)

Print Post Approved PP381667/01204

Issue 15

Farewell to our Director

Professor John Freebairn

Youths on Income Support Not Unhappy Drs Wang-Sheng Lee and Umut Oguzoglu find there does not appear to be a welfare stigma effect associated with receipt of income support by Australian youths.

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New Research Delves into Australia’s Health Care Woes A grant for a five-year longitudinal survey will allow researchers to understand how the changing balance between work and life for Australia’s doctors is influencing medical workforce shortages.

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HILDA Survey in 2007 What has been happening with the HILDA Survey over the past few months? This article will keep you up-todate on everything that has been going on.

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After two years as Melbourne Institute Director, John Freebairn will, in early April, be returning to his tenured position in the economics department at the University.

As an academic and intellectual, John is one of an exceptional group of economists. It has thus been a privilege to have him serve as Director of the Institute.

The substantial breadth and depth of his expertise and interests has enriched our research and brought added strengths to our profile. His ability to penetrate to the heart of the matter and subsequently articulate complex issues in clear and simple terms has been especially valuable.

John had some very big shoes to fill when he succeeded Peter Dawkins as the Institute Director in April 2005.

However, he was clearly up to the challenge, and while his (self-imposed) period of tenure has been relatively brief, it has been one of considerable success for the Institute.

The Institute’s size and profile has continued to steadily grow, with total revenue for 2007 projected to amount to $11.6 million, which represents a 20 per cent increase on the level recorded in 2004.

Perhaps most significantly, 2005 and 2006 have been extremely successful years for the Institute in terms of securing national competitive grants. In total, the Melbourne Institute and its staff were awarded five Discovery grants and three Linkage grants from the Australian Research Council as well as one major grant from the National Health and Medical Research Council over this period. Collectively these grants are worth over $5 million. cont’d back page

www.melbourneinstitute.com Melbourne Institute of Applied Economic and Social Research - Page 1

Youths on Income Support Not Unhappy A recent study from the Melbourne Institute has found that there does not appear to be a welfare stigma effect associated with receipt of income support by Australian youths.

The study is based on the Longitudinal Surveys of Australian Youth (LSAY), a nationally representative 1997-2004 panel data set of approximately 6,000 youths that correspond to their final 2 years of high school and entry to the workforce. Drs Wang-Sheng Lee and Umut Oguzoglu found that youths on income support were not more likely to report lower levels of subjective well-being than youths not on income support.

A novel feature of the statistical approach used in the study is that it attempts to control for the persistence of subjective well-being levels as well as an initial setpoint or baseline level of happiness. Psychologists have repeatedly found strong empirical support for both these hypotheses. But, to date, studies of well-being have generally not attempted to model such dynamic processes explicitly.

“If a policy objective of income support programs is to help those that need it the most without being

discriminated against, then our findings suggests that Centrelink has done a good job in terms of service delivery and providing an essential helping hand to relatively more disadvantaged youths,” according to Dr Lee, the lead author of the study.

“We were actually somewhat surprised with our findings given that researchers have generally found a welfare stigma effect for adults on welfare. But it is possible that youths might have intermediaries like youth support agencies and parents, which would serve as buffers and make the notion of receiving income support more indirect.”

The authors believe that in order to further check the robustness of their results, more focus groups or case studies, similar to a study conducted in 2003 by the Brotherhood of St. Laurence on the administration of Youth Allowance, could be useful. Such a study would provide extra insights regarding the mechanism and root causes of any stigma effects that youth income support recipients might experience.

The working paper 03/07, entitled “Are Youths on Income Support Less Happy? Evidence from Australia” is available for free downloading at www.melbourneinstitute.com.

Congratulations to Dr Wang-Sheng Lee The Melbourne Institute and its staff would like to congratulate WangSheng Lee on recently being awarded his PhD by the University of Melbourne. The title of his PhD thesis was ‘Aspects of Propensity Score Matching’.

Wang joined the Melbourne Institute as a PhD student in October 2003. In early 2006 he was appointed as a Research Fellow at the Melbourne Institute and is currently working in the Labour Economics and Social Policy Research Program.

Wang is involved with projects researching low-pay dynamics, welfare transitions, child care benefits and microsimulation of labour supply.

Prior to joining the Melbourne Institute, he worked for more than 5 years as a researcher for Abt Associates Inc. in Bethesda, Maryland (USA) where he was part of a team that performed rigorous experimental welfare reform evaluations for the states of Delaware and Indiana.

Wang also holds a B.A. in economics from Colby College, and an M.A. in economics from Michigan.

Profiles for all staff and students are available for viewing on our website www.melbourneinstitute.com.

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New Research Delves into Australia’s Health Care Woes Up to 5,500 doctors will be asked to participate, with the first wave of the survey expected to be in Autumn 2008. The grant will provide the team with $2.1 million in funding over five years.

Background

A NHMRC grant for a five-year longitudinal survey awarded to the Melbourne Institute will allow researchers to understand how the changing balance between work and life for Australia’s doctors is influencing medical workforce shortages.

The research project titled ‘Medicine in Australia: Balancing Employment and Life (MABEL): The Australian Longitudinal Survey of Doctors’ was awarded by the National Health and Medical Research Council to a team of experts from the University of Melbourne and Monash University. The research will be led by Professor Anthony Scott, head of the Health Economics area at the Melbourne Institute.

The changing patterns of doctors’ work over time will be examined to better understand doctor shortages and surpluses, and their pivotal role in the health care system. Changes in family circumstances, job satisfaction, earnings and the nature of work itself will be examined to determine the most effective policy responses to maintaining the size, motivation and productivity of the medical workforce.

“Changes in skill mix and recruitment into deprived, remote and rural areas will continue to be key areas of policy debate and development which will require a strong and rigorous evidence base”, said Professor Scott.

The health workforce is now a key area of government policy. A background of ever-increasing demand for health care, the ageing of the medical workforce, combined with more women entering medicine and changes in doctors preferences over their work-life balance, are all having important effects on the ability of the health care system to provide high quality and accessible health care. However, there is little knowledge or understanding of how and why doctors make decisions on how many hours they work, their location of work, including working in rural and remote areas, and decisions to leave the medical workforce and retire. These decisions have important effects on the population’s access to health care and therefore on their health status and on the quality of care received.

The research Examining the changing patterns of doctors’ work over time to better understand doctor shortages and surpluses, and their pivotal role in the health care system will be a major focus of the research project. Changes in family circumstances, job satisfaction, earnings and the nature of work itself, will be examined in order to determine the most effective policy responses to maintaining the size, motivation and productivity of the trained medical workforce. The research will provide a rigorous analysis of medical workforce decisions that underpin workforce distribution and the working patterns of doctors.

The study will evaluate and simulate policy changes and provide important evidence to support future policy developments.

The survey The Australian Longitudinal Survey of Doctors (ALSD) will track a random stratified sample of around 5,500 doctors over an initial four year period. This will include GPs, private specialists, hospital doctors, and doctors in specialist training. The first wave of the survey is planned for the first half of 2008.

Further information on this project is available from our website www.melbourneinstitute.com.

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HILDA Survey in 2007 There have been exciting happenings afoot in the HILDA Survey team in 2007 thus far.

Wave 5 Data Release The major news item is the official release of Wave 5 in the first week of February 2007. Within a month of release, we have filled over 100 orders for the data.

There have been several improvements to the data with the release of Wave 5, including new derived variables, improved income imputation, revised geography variables and reviewed populations in the coding framework. In addition, Stata files are now included on the CD Rom (along with the SAS and SPSS data files).

The advent of the Wave 5 release has meant a few changes in the way the data orders are processed. We have streamlined the process to make it more time efficient, particularly in our dealings with the Department of Families, Community Services and Indigenous Affairs (FaCSIA). All orders are now sent directly to FaCSIA and the approved applications are then forwarded to the Melbourne Institute. We are finding this change makes the filling of orders far more efficient and the turnaround time is faster, which makes for happier and more satisfied data users!

ACSPRI Conference In December 2006, several members of the HILDA Survey team attended the ACSPRI Conference at the University of Sydney. The conference had been designed to include a special HILDA stream of papers. Three sessions of the conference had a HILDA theme, each with a particular focus.

Professor Mark Wooden was the convenor of the HILDA stream for the ACSPRI conference and was pleased with the response the papers garnered from the conference organisers and attendees.

“We had a full house for every session,” Professor Wooden reported, “and all three sessions initiated lively discussions.”

Professor Wooden chaired two of the three sessions, with Dr Michael Kortt of FaCSIA chairing the other.

Three presenters were members of the HILDA team at the Institute, the others were HILDA users from other Australian universities. We were also fortunate to have Lorna Hall from ACNielsen present, as well as John Haisken-DeNew, from the DWI in Essen, Germany.

“There was considerable interest in the data and what all our presenters had to say,” said Mark Wooden. “It was also an ideal opportunity for HILDA users to come together with users of other data panel sets and talk about their experiences.”

Cross-National Equivalence File (CNEF) A significant milestone for the HILDA team in 2006 was the incorporation of the HILDA Survey into the CrossNational Equivalent File (CNEF). Prior to 2006, the CNEF provided a set of equivalently defined variables from four panel studies covering four different countries (Britain, Canada, Germany and the USA). The addition of the HILDA Survey makes Australia the fifth member of this exclusive club.

Maintained by researchers at Cornell University, the CNEF data sets are designed to allow crossnational researchers not experienced in panel data analysis to access a simplified version of these panels, while providing experienced panel data users with guidelines for formulating equivalent variables across countries. Importantly, the equivalent file provides a set of constructed variables for example pre- and post-government income and international household equivalence weights that are not directly available on the original surveys.

Details on how to access the CNEF data files can be found on the HILDA web site.

PanelWhiz This is a new and innovative venture to emerge from the RWI Essen, Germany, established by HILDA user Dr John Haisken-DeNew. PanelWhiz is a panel data retrieval program and comprises a collection of Stata add-ons or subroutines that allows researchers to use a common graphical interface for accessing many datasets – largescale household panel data sets in particular – directly within the statistical package Stata.

Dr Haisken-DeNew accounts for the reasons behind developing the PanelWhiz software in a paper co-written with Markus Hahn. The main reason is the fact that many large scale panel data sets, such as HILDA, provide many files per year (in our case, a new wave every year) and negotiating one’s way manually through these data files, selecting the desired variables individually, is both tedious and time consuming. Dr Haisken-DeNew worked for

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many years in user-support, which he believes more than qualified him to write and develop the PanelWhiz program. “It toughens you up” he said.

Prior to the development of PanelWhiz, researchers had little option but to address data files by name and extract the information they required manually from the data sets they were using. With the advent of PanelWhiz, researchers can now retrieve their desired data with one mouse-click, with all the merging and matching done automatically. The researcher does not select individual variables but “vectors” of variables. Using a drop-down menu system, the user selects variables from any or all years available from that panel survey. The data is then merged to a “long file” which can be directly used by the Stata panel estimators. From there, the items the researcher has selected can be stored as project classes (or modules) which can be edited and added to. In addition, PanelWhiz easily exports any Stata data to SAS, SPSS, LIMDEP, GAUSS and MS Excel.

The PanelWhiz system was originally known as the “SOEP Menu” and used for extracting and managing variables from the German Socio-Economic Panel (SOEP) data. In late 2006, Dr Haisken-DeNew modified the package to incorporate the micro data from the HILDA Survey. Hence, both the SOEP and HILDA datasets are available in PanelWhiz.

Another admirable feature of PanelWhiz is that users of the software make a donation to UNICEF per calendar year and package, rather than paying a licence fee to use the software.

Of course, using PanelWhiz for negotiating through the HILDA datasets and other large household panel surveys like it is hardly compulsory, says John Haisken-DeNew. “It just depends on what the value of your time is. The data work can be done on your time, or in no time – it’s your choice!”

For more information, please see www.panelwhiz.eu.

This article was written with thanks to Ms Philippa Moore and Professor Mark Wooden.

2007 HILDA Survey Research Conference Registrations are now open for the 2007 HILDA Survey Research Conference.

The 2007 HILDA Survey Research Conference is being held on Thursday 19 and Friday 20 July 2007, at the University of Melbourne.

The aim of the conference is to provide a forum for the discussion of research based on the Household, Income and Labour Dynamics in Australia (HILDA) Survey.

Attendance at the conference is open to all persons interested in the HILDA Survey and in longitudinal survey research.

To register, please complete the registration form available on our website and fax to 03 8344 2111.

Conference Dinner The conference dinner is open to all delegates. Guests are also welcome. The cost for the dinner is $75. The dinner will be held at University House at the University of Melbourne.

HILDA Data User Training HILDA Data User Training will take place the day before the conference on Wednesday 18 July 2007 in the Alan Gilbert Building at the University of Melbourne.

Registration for the training can be obtained by using the conference registration form. More details regarding the training can be obtained from the HILDA website.

Further Enquiries The Melbourne Institute website will be updated regularly in the lead up to the conference. Please refer to www. melbourneinstitute.com for more details or call the Conference Registrations desk on 03 8344 2108.

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Reimaging the Income Transfer System

by Professor John Freebairn

While the current Australian income transfer system cannot be described as “badly broken”, it has a number of serious problems that warrant reform, and likely quite radical reform.

Clearly the combination of a progressive personal income tax system and a means-tested system of social security payments redistributes income from the better off to those on low incomes, and there is extensive redistribution in favour of families with children. Problems with the current system include the disincentives for many to actively seek employment, its complexity, and the extent of churning of taxes and income support payments. Disincentives to work arise from high effective marginal tax rates of 50 per cent and more associated with the overlap of income taxation and the withdrawal of payments as income is earned.

Complexities arise because: the income tax base is the individual, but means testing of social security is in terms of household income; there are a large number of different social security payments, many of which have different forms of income testing, income thresholds of withdrawal, and withdrawal rates; the use of different indexation factors for different types of income support, including no indexation for the income tax thresholds; and, there has been a history of (ad hoc) political decisions to favour particular groups via additions to or special concessions to the income tax and social security systems.

At the outset it has to be acknowledged that radical reform will be difficult. Except for times of a booming economy, political constraints of approximate aggregate revenue neutrality and maintenance of the current redistributive pattern, or at least having few losers, are likely to be binding unless the system is seen to be “badly broke”. Allied with these political realities is the economic reality that any reform of the income transfer system is close to a zero-sum game. Relatively minor efficiency and simplicity gains are required for a positive-sum game, and then these net gains are difficult to quantify, and inevitably the estimates are controversial.

Costed proposals of illustrative negative income tax models to integrate the Australian personal income tax and social security systems indicate the magnitude of challenges involved in radical reform. Setting the base income grant at current social security payment levels for reasons of maintaining the current levels of redistribution at the lower end, the marginal income tax rate would need to exceed 50 per cent, and in fact for aggregate revenue neutrality was estimated at 55 per cent.

Alternatively, if the marginal tax rate was to be 30 per cent, aggregate revenue neutrality would require reducing the base income grants by 54 per cent, and in the process redistributing from those on low incomes to those on high incomes.

Perhaps the more promising reform strategy for Australia is first to rationalize the income tax and social security systems as separate exercises. For example, the many different forms of family support, including FTB(A), FTB(B), Maternity Allowances and Child Care Support, each with different eligibility and means-testing arrangements, could be integrated into a single system of family or child support. Other areas for review include: the special exemptions and deductions in the income tax system; integrating the Medicare Levy and low income tax offsets into the income tax rate schedule; adopt a common index across the pension, allowance and taxation systems; and replace the special add-on allowances for rent assistance, pharmaceuticals, etc with a dollar increment. Not only are reforms in these areas important in their own right, but also they would be part of a more comprehensive integrated income transfer system, such as the negative income tax idea.

This is a summary of a paper prepared by John Freebairn, Guyonne Kalb, Hielke Buddelmeyer and Rosanna Scutella of the same title presented at a conference “From Welfare to Social Investment” held at Melbourne on 21 and 22 February, 2007.

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The Australian Economic Review

The March issue of The Australian Economic Review sees a range of interesting articles with a particular focus on Industry Dynamics in the Policy Forum.

Innovation and Industrial Evolution, Elizabeth Webster, Hielke Buddelmeyer and Paul H. Jensen

Invited Article

Shakeouts, Innovation, and Industrial Strategy and Policy, Kenneth L. Simons

The Role of Firm Dynamics in Australia’s Productivity Growth, Robert Breunig and Marn-Heong Wong Founder Quality and Firm Performance: Impliations for Local Development Strategies, Peter Thompson

Global Imbalances and China, Yu Yongding.

Data Surveys

Contributed Articles

NCVER’s National Collections and Surveys on Vocational Education and Training, Susanne Wood and Gurijinder Virk

What Determines Australia’s Response to Emergencies and Natural Disasters?, Simon Feeny and Matthew Clarke

For the Student

Disability Support Pension Recipients: Who Gets Off (and Stays Off) Payments?, Lixin Cai, Ha Vu and Roger Wilkins

Predicting Reserve Bank of Australia Interest Rate Announcements: Beware of the Target Rate Tracker, Steve Easton and Sean Pinder

Changing Skill Intensity in Australian Industry, Ross Kelly

The Australian Economic Review can be subscribed to online at www.blackwellpublishing.com/aere.

Policy Forum: Industry Dynamics Industry Dynamics: Setting the Scene, Paul H. Jensen and Elizabeth Webster

Economic Implications of Climate Change The first Melbourne Institute Economic Forum for 2007 will explore: the underlying economic arguments for government intervention into the production and consumption of greenhouse gases, particularly in a global context; the pros and cons of different forms of intervention, including a carbon tax, tradeable permits, regulation, and R&D subsidies; and the likely implications for the level and structure of the Australian economy of a major reduction in greenhouse gas emissions.

Professor John Freebairn will speak about ‘Background Economic Issues’ and Professor Philip Adams from the Centre of Policy Studies at Monash University will speak on ‘Impacts on the Australian Economy of a Sharp Reduction in Greenhouse Gas Emissions’.

They will be joined by Dr Beth Webster in Melbourne who will speak on ‘Some Lessons from the ‘Stern Review’. In Canberra they will be joined by Professor Warwick McKibbin from ANU who will speak on ‘A Blueprint for Policy’.

Melbourne Institute Economics Forum Carillon Room, Hotel Sofitel, Melbourne 12.30 - 2.00pm, Tuesday 17 April 2007 Public Economics Forum Old Parliament House, Canberra 12.00 - 1.45pm, Thursday 19 April 2007 Further details on these Forums, including registrations forms, are available from our website www.melbourneinstitute.com.

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Recent Melbourne Institute Working Papers 07/07 - ‘Immigration and Wages: An Open Economy Model’, Wang-Sheng Lee. 06/07 - ‘Some Policy Issues in Providing Retirement Incomes’, John Freebairn.

05/07 - ‘The Importance of Observing Early School Leaving and Usually Unobserved Background and Peer Characteristics in Analysing Academic Performance’, Guyonne Kalb and Sholeh A. Maani.

04/07 - ‘Exporter and Non-Exporter Productivity Differentials: Evidence from Australian Manufacturing Establishments’, A. Palangkaraya and J. Yong.

03/07 - ‘Are Youths on Income Support Less Happy? Evidence from Australia’, Wang-Sheng Lee and Umut Oguzoglu.

02/07 - ‘Effects of Health on Wages of Australian Men’, Lixin Cai. 01/07 - ‘The Relationship between Health and Labour Force Participation: Evidence from a Panel Data Simultaneous Equation Model’, Lixin Cai. Working papers can be downloaded for free from www.melbourneinstitute.com.

Farewell to our Director

(cont’d)

John was also the central figure behind the organisation of last year’s “Making the Boom Pay” Conference, the Institute’s fourth Economic and Social Outlook Conference (jointly organised with The Australian newspaper). Like our previous outlook conferences, it was widely hailed as a huge success and has been influential in shaping policies across the broad political spectrum.

On behalf of all Melbourne Institute staff members I would like to thank John for his efforts, and especially his sage and thoughtful advice. His dry sense of humour will be particularly missed. We wish him well in his future endeavours. Of course, he is not moving very far, so we hope and expect to continue to involve John in some of our future research activities.

Mark Wooden Deputy Director

Melbourne Institute News Views expressed by the contributors to Melbourne Institute News are not necessarily endorsed or approved by the Melbourne Institute. Neither the Melbourne Institute nor the Editor of Melbourne Institute News accepts any responsibility for the content or accuracy of information contained in this publication. Editor: Laura A’Bell, tel: 8344 2154, fax: 8344 2111, email: labell@unimelb.edu.au. Sub-Editor: Rachel Derham. Contributors: Professor John Freebairn, Dr Wang-Sheng Lee, Ms Philippa Moore, Dr Umut Oguzoglu, Professor Tony Scott, Professor Mark Wooden.

Level 7, Alan Gilbert Building, The University of Melbourne P: (613) 8344 2100 F: (613) 8344 2111 www.melbourneinstitute.com