New study says poverty in Canada continues to be overstated

Contacts:

Professor Chris Sarlo, Adjunct Scholar
The Fraser Institute, Tel: (705) 474-3461, ext. 4569
Email: chriss@unipissing.ca

Suzanne Walters, Director of Communications
The Fraser Institute, Tel: (604) 714-4582,
Email: suzannew@fraserinstitute.ca

Release date: 23 July 2001

TORONTO, ON—Today, the Fraser Institute released a comprehensive study on poverty in Canada. It shows that about 8 percent of Canadians live in poverty, compared to the frequently quoted number of 17 percent.

About 10 percent of children live in poverty compared to the 1 in 5 figure often quoted.

These results are found in Measuring Poverty in Canada by Professor Chris Sarlo, professor of economics at Nipissing University, North Bay, Ontario. Sarlo uses the "basic needs" approach to measure poverty. He provides detailed calculations on how much income individuals or families require to buy – in adequate quantity and quality – all the necessities of modern day life.

This would include nutritious diet, satisfactory housing with modern conveniences, clothing, items for personal hygiene, health care, telephone, and transportation. Housing would include the full range of furnishings, appliances, including items like a television, and household items. According to this approach, someone is in a state of poverty if he or she lacks any items required to maintain long-term physical well-being.

Too often, claims about the number of poor in Canada are based on Statistics Canada's low income cutoff lines (LICO). However, this is deceptive. The LICO was not designed as a poverty measure. Statistics Canada warns with each release it is not a poverty measure. Yet, many groups and press organizations continue to use it even though it clearly inflates the extent of poverty in Canada. As an alternative, Sarlo has developed a Basic Needs Index as a more accurate measurement of poverty.

"A basic needs index provides more relevant information about the nature and extent of poverty in Canada," says Sarlo . "Conventional measures, such as LICO, tell us about inequality and the lack of 'social comforts,' but very little about the true nature of poverty."

The basic needs measure of poverty

Measuring Poverty in Canada provides a thorough review of the basic needs approach, first examined by Sarlo in his 1992 book, Poverty in Canada. It is an approach to defining poverty that insists that poverty is different from inequality.

"Anyone concerned about poverty should want to know how many of our fellow Canadians simply cannot afford the basic necessities of life. This is the sole purpose of the basic needs approach," says Sarlo.

The calculations are adjusted for the cost of living by province and over fifty cities across the country. Sarlo recommends that the lines be examined every 20 to 25 years for relevance to existing standards. The estimated annual cost of this standard of living for a single person in 2000 is about $8,900 (Table 1) but varies from city to city.

Measures such as LICO, and those developed by the Canadian Council on Social Development (CCSD), are relative measures in the sense that they rise with increases in average spending. This relativism means that they are actually measuring inequality, and not poverty.

Table 1: Provincial Poverty Lines (2000; CDN$)

Source: calculations by author.

Trends in Poverty

Measuring Poverty in Canada gives an estimate of the rate of poverty in Canada from 1951 to 1996, the most recent data available. This longer term trend reveals that the rate of poverty fell solidly from about 40% in 1951 to about 8% in 1981 where it has more or less stayed (Figure 1).

This is almost a five-fold decrease and it is, for the most part, a testament to the strong economic and employment growth in Canada, particularly during the 1950s and 1960s. Most of the decline occurred prior to the large increases in government social spending.

Measuring Poverty in Canada also provides an estimate of "consumption" poverty—the percentage of Canadians whose consumption is below the basic needs poverty line. Consumption poverty is consistently lower, by roughly 2 to 3 percentage points, than income poverty over the same time period. While the rate of consumption poverty (Figure 2) is lower than that of income poverty, the trend is quite similar; that is, a sharp decline before 1980 and relative stability afterwards.

"Regrettably, this success story is downplayed or ignored completely by many so-called experts who use the disappointing pattern of recent years to proclaim a 'crisis' of poverty in Canada. For the most part, the news is good. Clearly more work (and probably more creative work) remains to be done regarding poverty reduction," says Sarlo.

Inequality

It is often claimed that inequality is growing in Canada. Trends in total income and after tax income, however, have been stable since the early 1970s.

While consumption inequality has risen slightly over the period, there is evidence that inequality in the ownership of household facilities (key appliances) is not increasing and may be decreasing. The evidence simply does not support the hypothesis, repeated over and over as if it were fact, that there is a "growing gap"—that inequality in Canada is increasing.

Patterns of Poverty

British Columbia and Ontario are clearly the most expensive provinces in which to live. The poverty lines are about 8% higher in those provinces than in Canada, on average. New Brunswick and Quebec are the least expensive provinces in which to live. The costs in those provinces are about 12% lower than the Canadian average.

The rate of income poverty for seniors has fallen dramatically. It fell very sharply during the 1970s but has continued to decline to the point where the current poverty rate for those over age 65 is consistently below 1 percent.

Poverty among children

The trend in poverty among children mirrors the pattern of overall poverty since the early 1950s (see Figure 3). This is to be expected as most of the poor live in families and the fastest growing type of family is the single parent family— a group at high risk for poverty. It is noteworthy that poverty rates among children is higher than the overall rate of poverty. The rate of basic needs poverty for children has fluctuated around 10% for about two decades. Like the overall rate, the rate of poverty among children has not continued the downward trend of earlier decades.

"The debate about poverty thresholds is healthy and needs to occur periodically in an open society to ensure that we have good and credible measures of how we live. We may wish to remind ourselves that what we want, presumably, is to identify the condition of poverty and not the standard of living we want for the poor," concludes Sarlo.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver, with offices in Calgary and Toronto.