Indigenous people in Australia, Canada, New Zealand, and the United States often face extensive social and economic hardship despite living in some of the world’s wealthiest nations. Unlike the case in international contexts, the Australian Government is unique in using the quarantining of welfare benefits as a key strategy in closing the gap in Indigenous outcomes. This approach – known as income management – sets aside 50 percent of welfare benefits to ensure that they are spent on priority items (food, housing, clothing, utilities, or transport) and not on excluded items (alcohol, cigarettes, gambling or pornography). The goal is to direct welfare payments towards essential needs; reduce the funds available for anti-social behaviors linked to child abuse and family dysfunction; protect women and the elderly from excessive demands for money; and improve the care of children.
Income management, however, has been controversial with critics arguing that it is paternalistic and proponents arguing that it benefits Aboriginal communities. To date, what is known about Australia’s income management policy comes from qualitative evidence which can at best be described as mixed. Evidence based on sound policy evaluation methods is currently lacking. In this paper, we provide the first causal evidence linking income management to a key policy target – children’s school attendance. By constraining people’s spending choices, income management is meant to increase the chances that children’s basic needs are being met, resulting in higher school engagement and greater educational attainment.
In contrast to the policy’s objectives, we find no evidence that school attendance increased after the introduction of income management. In fact, we estimate that attendance fell by 2.7 percentage points on average in the short-run. Importantly, income management did not significantly affect student enrollments or mobility patterns into and out of Aboriginal communities; thus, the drop in school attendance does not appear to be due to increased churning in student enrollments or new students. Nor is it due to concurrent policy initiatives. Instead we find that the attendance penalty associated with the introduction of income management is dramatically reduced after the adoption of more flexible administrative arrangements, suggesting that implementation issues may be responsible for the temporary reduction in school attendance that we observe.
We argue that the way that income management was implemented may have resulted in income insecurity, barriers to day-to-day economic activity, and a loss of empowerment which may have led to increased family stress and had adverse consequences for parenting. Our results therefore suggest that policy makers should pay careful attention to the erosion of social capital when implementing new programs. This is particularly true in Aboriginal communities where attempts to reduce disadvantage through increased social mobility may put social and cultural capital at risk.
An updated version of this paper has been published as Cobb-Clark, DA, Kettlewell, N, Schurer, S and Silburn, S. (2023) The Effect of Quarantining Welfare on School Attendance in Indigenous Communities. Journal of Human Resources, 58(6) 2072-2110. DOI: 10.3368/jhr.1218-9909R2