Poverty in Canada (2nd Edition)

I believe that Canadians have serious doubts about claims of widespread poverty in this country. Skepticism is wholly justified. These estimates of the extent of poverty in Canada are grossly exaggerated. The fact is that poverty, as it has been traditionally understood, has been virtually eliminated. It is simply not a major problem in Canada.

To a large degree the overstatement of the extent of poverty is a result of a basic misrepresentation. Both the CCSD and Statistics Canada cut offs are "relative" lines. That is, they are closely connected to average incomes or average consumption patterns. They are not linked in any way to the actual costs of basic necessities and are, in fact, substantially above such costs. They are set high enough to include a number of amenities or non necessities that are typically part of middle income budgets. Effectively, these relative lines are goals. They are levels of income representing a certain standard of living that we wish no individual or family would fall below. Yet they are used almost exclusively as "poverty lines." There is no problem with developing cut offs or levels that you would like every citizen to attain as a minimum. However, to "sell" these cut offs as poverty lines, or even to acquiesce in their use as such, is simply inappropriate.

In this book I develop a set of poverty lines based on the cost of necessities. I will argue that this "basic needs" approach is a more practical, useful and credible way of looking at the problem of poverty than the prevailing alternatives. Table 1-1 below compares my poverty lines, for a family of four, with the LICO and CCSD lines. What stands out is that these prevailing measures, one of which is widely considered to be Canada's "official" poverty line, are about twice as high as the cost of basic needs. More importantly, the poverty rates that these lines give rise to are four to six times higher than the rate using my basic necessities measure. What this means is that at least three-quarters of "poor" families of four have incomes greater than they require to satisfy all their basic needs. We will see that this degree of exaggeration of poverty is quite typical for every other type of household.

Table 1-1: Comparative poverty lines and poverty rates for a family of four, 1988
	CCSD	LICO*	Sarlo
Poverty Line ($income)	$26,941	$22,371	$13,140
Poverty Rate (%)	15.4%	10.1%	2.5%
Number of Poor Families	262,262	172,115	43,292
*For the purpose of this table, the family is assumed to reside in a community of between 100,000 and 499,999 persons.

The current approaches, LICO and CCSD, seriously misrepresent what it means to be living "in poverty." The impoverished suffer because they lack some basic need. Their resources are insufficient to enable them to acquire all that is essential. Their long term physical health is being jeopardized. Existing definitions, focussing on measuring the relatively less well-off, greatly overstate the extent of "poverty." They result in incorrect conclusions about the adequacy of social programs to meet the needs of those unable to work. They make it impossible to determine the extent to which economic growth and prosperity can reduce poverty. And they make international comparisons of poverty rates illegitimate. A basic needs approach to defining and measuring poverty, such as the one developed here, is not burdened by these deficiencies.

Prevailing "poverty lines" are in fact tools for measuring inequality and tell us nothing about poverty. This clearly reveals that, in the minds of the developers of these lines, inequality is the more important problem. They are more offended by inequality than poverty. The relative approach rests squarely on this ideological bias and any thorough critique must challenge this premise. I am not at all offended by inequality. I have no problem with large variations in income and wealth. I do not regard it as unjust or unfair that Wayne Gretzky earns one hundred times as much as most men of his age. I am however, deeply offended by poverty, by situations in which people are simply not able to acquire all the basic necessities of life, by children forced to line up at food banks. Poverty is the problem, not inequality.

In fairness, Statistics Canada makes it clear that "although (LICO) are commonly referred to as official poverty lines, they have no officially recognized status nor does Statistics Canada promote their use as poverty lines." If LICO are not poverty lines, what exactly are they? Perhaps the reluctance to call LICO "poverty lines" reveals that researchers at Statistics Canada regard poverty as a harsher and more serious problem than just having a low income. These and many other issues regarding LICO are examined in detail in chapter 4.

The CCSD has also issued a qualifier.

The CCSD's income lines, which a national task force developed in 1973, were not originally intended to be measures of poverty as such. Rather they were developed in order to address the problem of severe and persistent income inequality in Canada by defining a minimum standard of income equality for Canadian families. The CCSD considers an appropriate minimum to be not less than one-half of the average family income in the community. Over time, a number of voluntary organizations and a few public agencies have come to regard these lines as poverty lines. Nevertheless, the lines do not measure poverty or need in the sense of providing estimates of the cost of essentials.

In spite of these caveats, both LICO and CCSD lines continue to be used by politicians, the media and in many research reports as poverty lines without qualification. Intellectual sloppiness can explain some, and perhaps most of this. However, it is very possible that healthy self interest is also at work here. Those who view the market system and the profit motive as immoral, exploitative and immiserizing will expect their message to be more favorably received if in the society being criticized, the number defined as poor is high. Similarly, those opposition politicians whose job it is to embarrass the government would be assisted by a high poverty count. Finally, some of those in the poverty "business" (administrators, social workers and indirectly, many academics) would like to see poverty defined as generously as possible. More "poor" means more clients, more government funds, and therefore greater status and security. High poverty lines are good business. The fact is, however, that relative lines or estimates using them tell us absolutely nothing about poverty. They are simply not credible ways of identifying and measuring the poor.

Credibility gap

Table 1-2 presents both the Statistics Canada (LICO) and the CCSD poverty lines for 1988, 1989, 1990, and 1991. While Statistics Canada adjusts its lines according to the size of the community, CCSD does not. Both, however, adjust their lines for family size reflecting the economies of scale of people living together. Are these poverty lines credible? Is it obvious that people with incomes below these values will be impoverished?

TABLE 1-2: Canadian "Poverty Lines" 1988, 1989, 1990, and 1991
	Statistics Canada (LICO) (1978 base) Population of Area of Residence					CCSD
Family Size	500,000 and over	100,000 - 499,999	30,000 - 99,999	Less than 30,000	Rural	Poverty lines
1988
1	$11,574	$10,992	$10,312	$ 9,533	$ 8,559	$11,546
2	15,270	14,494	13,523	12,546	11,187	19,244
3	20,428	19,357	18,092	16,829	14,979	23,093
4	23,539	22,371	20,913	19,453	17,316	26,941
5	27,429	25,972	24,220	22,567	20,136	30,790
6	29,959	28,305	26,458	24,608	21,983	34,639
7+	32,975	31,224	29,181	27,138	24,220	38,488
1989
1	12,037	11,432	10,725	9,915	8,901	12,170
2	15,881	15,074	14,063	13,048	11,634	20,283
3	21,245	20,132	18,815	17,502	15,578	24,339
4	24,481	23,266	21,749	20,231	18,009	28,396
5	28,526	27,011	25,189	23,469	20,942	32,453
6	31,157	29,437	27,516	25,593	22,862	36,509
7+	34,294	32,473	30,349	28,223	25,189	40,566
1990
1	12,639	12,004	11,261	10,411	9,346	12,778
2	16,675	15,828	14,766	13,700	12,216	21,297
3	22,307	21,139	19,756	18,377	16,357	25,556
4	25,705	24,429	22,836	21,243	18,909	29,816
5	29,952	28,362	26,448	24,642	21,989	34,075
6	32,715	30,909	28,892	26,873	24,005	38,335
7+	36,009	34,097	31,866	29,634	26,448	42,594
1991
1	13,271	12,604	11,824	10,932	9,813	13,417
2	17,509	16,619	15,504	14,385	12,827	22,362
3	23,422	22,196	20,744	19,296	17,175	26,834
4	26,990	25,650	23,836	22,305	19,854	31,307
5	31,450	29,780	27,770	25,874	23,088	35,779
6	34,351	32,454	30,337	28,217	25,205	40,252
7+	37,809	35,802	33,460	31,116	27,770	44,757
Sources: LICO—National Council of Welfare, 1989 Poverty Lines, April, 1989. LICO lines for 1990 & 1991 are estimated using 5 percent rate of increase; CCSD, by phone.

For example, is the family of four in a large Canadian city with 1991 income of $25,000, fully $2,000 below the low income cut off (LICO), necessarily living in poverty? Are there not cases in which a family could purchase adequate housing, nutritious food, clothing, personal, household and health care items without exhausting this income? What about the single mother of two in an average sized Canadian community? Is it reasonable that this family's income must be over $20,000 in 1991 to escape poverty? Is it possible that some of these below-the-line single parent families, especially those in rent-subsidized housing, might not regard themselves as poverty stricken? And what of more than 500,000 college and university students who live on their own during the school year? Is it appropriate to include them among Canada's poor in 1991 if their reported income (which excludes student loans and gifts) is below $12,000?

Contained in boxes throughout this chapter are a series of hypothetical yet quit typical cases of "poverty," using the prevailing (LICO) definition. The purpose of these cases is to demonstrate that many people currently classified as poor cannot be reasonably regarded as living in poverty. They are not presented as evidence or proof of the inadequacy of the existing approach. That comes later. However, they do, I think, serve to undermine the credibility of prevailing poverty lines because they reflect the situations of many hundreds of thousands of households currently defined as poor.

It is my contention that the levels at which these lines are set are just not credible cut-offs for separating the poor from the non poor. I think that many working and middle class Canadians regard these lines as clearly inflated. Their personal experience of managing a household on a tight budget, of knowing the true cost of essential goods and of seeing cases of genuine deprivation first hand leads them to seriously doubt the levels at which these lines are set. Canadians rightfully scoff at suggestions that individuals and families cannot "survive" on incomes lower than these levels. Many of today's adults were raised in families whose annual incomes were far less, in real terms, than current "poverty" lines and never regarded themselves as "poor." They never lacked any of the basic necessities of life.

The Canadian Council on Social Development has used its lines to estimate the extent of poverty in Canada since 1973. They reveal that the rate of poverty in Canada has increased from 23.3 percent in 1973 to 25.9 percent in 1986. Yet over this same period of time all indicators of average living standards rose. Real output per capita increased by 34 percent, real personal disposable income per capita rose 29 percent, average real family income increased 14 percent and average real income of unattached individuals increased 23 percent. The distribution of income (see quintile shares in table A-1) was essentially unchanged during this period. In these circumstances, we should expect that real economic growth would lift some out of poverty. Yet the CCSD measure shows poverty increasing. That average living standards can increase while the proportion of the population classified as poor also increases defies our common sense.

Household facility information provides additional evidence that poverty in Canada is greatly exaggerated. In 1989, households whose 1988 income was below LICO, i.e., were "poor" according to the National Council of Welfare, had the following characteristics: 99 percent had flush toilets (virtually all lacking them were in rural areas); 99 percent had refrigerators; about 50 percent had automatic clothes washers and dryers; almost 20 percent had automatic dishwashers; 39 percent had freezers; 95 percent had telephones; 97 percent had radios; 60 percent had colour T.V.; 34 percent had VCRs; 62 percent had cable T.V.; and 50 percent had at least one automobile. In spite of high rents and low vacancy rates in some of our major cities, the vast majority of "poor" Canadian tenants paid relatively low rents. Households with 1988 incomes below $20,000 paid an average cash rent of $340/month. For those in the lowest income group, below $10,000, fully 75 percent paid a cash rent of less than $400 per month.

All of this information suggests that "poverty" might be an inappropriate label for many low income Canadians. The income cut offs do not appear to correspond to widely held notions of deprivation. Traditionally, poverty has meant the absence of basic needs. A family was poor if its income was too low to acquire all the necessities of life. It is my view that most Canadians retain that "basic needs" notion of poverty.

In a sense we shouldn't be surprised that the extent of poverty is overstated. We live in an inflationary environment where exaggeration is acceptable if the cause is "good." Politicians, eager to share their vision of the future, stretch the truth and promise the world. Advertisers embellish because they want to improve living standards (ours and theirs). Teachers inflate marks to "help" their students. Reporters "hype" so that we will pay attention to their stories. Arguably the masters of the craft, social activists have refined exaggeration to a art. Problems become crises and crises catastrophes. "Crying wolf" is considered a legitimate political strategy.

Social scientists have an obligation to expose inflated claims. They must stand above the fray and must themselves resist the temptation to overstate regardless of what desirable goals it might serve. No one is naive enough to believe that there exists an objective truth about poverty. But neither is it wholly subjective. Poverty is simply not whatever you want it to be.

Purpose of this study

This study has two purposes: First, it is a critique of prevailing approaches to defining and measuring poverty in Canada. Second, it is an attempt to establish a credible and useful alternative approach, one which reinstates the traditional "necessities" link to poverty. Without denying its other aspects, I regard poverty as principally an economic problem. At its core, poverty means having insufficient resources. The debate, of course, is about what constitutes "sufficiency" or "adequacy." Regrettably, economists have tended to avoid the study of poverty, probably regarding it as too laden with emotional and ideological overtones to be capable of rigorous scientific investigation. Much of the current literature on poverty (as opposed to, say, inequality or income and wealth distribution) is written by students of politics and sociology. This study is an attempt, in some sense, to bring poverty "home" by stressing its crucial economic component.

Just as we know, fairly precisely, the number of unemployed in Canada, so also should we know, with equal accuracy, the number who cannot afford basic necessities. We should want to know this independent of its policy implication. I regard the poverty "rate" as just as important and interesting a socioeconomic characteristic as the birth rate, the immigration rate, the inflation rate, the unemployment rate and the growth rate. In order to measure the poverty rate, we require a consistent and reliable measuring stick and a credible methodology. This work undertakes to provide both.

Plan of the book

The natural flow of the book involves three distinct stages. I begin with a critical evaluation of the existing approaches to the definition and measurement of poverty (chapters 2 and 3). I then develop an alternative approach based on the cost of necessities which is used to measure and profile poverty in Canada (chapters 4, 5, 6, 7 and 8). Finally, my own approach is subjected to critical scrutiny; qualifications are noted and contentious issues such as welfare adequacy, housing affordability, food banks, and child poverty are dealt with (chapters 9 and 10). This is, broadly, the logic of the book. What follows is a more detailed, chapter by chapter, sketch of what lies ahead.

Chapter 2 involves a critical analysis of both relative and absolute approaches to defining and measuring poverty. A careful examination of Canada's most widely used "poverty line," Statistics Canada Low Income Cut Offs (LICO), is the content of chapter 3. It is determined that LICO is strictly a relative measure and is a totally inappropriate tool for measuring poverty. An alternative approach, based on the cost of necessities, is developed in chapter 4 and actual estimates of those costs are contained in the subsequent two chapters. Chapter 5 develops a rigorous methodology for the determination of the minimum cost of a nutritious diet. It is utilized to determine essential food costs during 1988 in Canada's 25 major cities. In chapter 6, estimates of the essential cost of shelter and other basic needs are determined. These three chapters (4, 5 and 6) represent the crucial methodological core of the study. In chapter 7 all cost calculations are integrated and 1988 poverty lines by family size for our major cities are determined. Provincial poverty lines are also determined and the incidence of poverty is estimated, province by province. The most important finding is that, using the necessities approach, just under 1 million Canadians, or about 4 percent of the population were poor in 1988. Chapter 8 profiles the poor, examining such characteristics as age, education, immigration status, family type, housing, children, and employment status. Not surprisingly, the majority of poor Canadians are either young, single or live in single parent families (many are all three). Chapter 9 considers a number of important qualifications or exceptions where income is not a good indicator of the households true standard of living. These exceptions result in a substantial yet indeterminate reduction in the number of estimated poor. Chapter 10 examines the very important issue of the "adequacy" of government welfare programs. We find that total income to both unemployable welfare recipients and all elderly households is adequate, averaging several thousand dollars above the poverty line. Income to employable welfare recipients is at or below the poverty line. The issue of the connection between food banks and welfare rates is also examined. Chapter 11, the conclusion, summarizes the major findings of the study, highlights several deficiencies or weaknesses and suggests improvements.

Income inequality is dealt with, appropriately, in the appendix. It is a concept which has been associated with the issue of poverty and is similarly tainted by mythology. The life cycle hypothesis is used to shed some light on the explanation of prevailing income inequality. Simulation experiments demonstrate that substantial disparities in incomes at any given time are quite consistent with egalitarian principles.

It is with some reluctance that I embarked on this critique of the prevailing approaches to the definition and measurement of poverty. To even imply that the extent of poverty in Canada is exaggerated is, to some, to be "anti-poor" and insensitive to the misfortunes of others. The belief that we have widespread and undiminished poverty is something of a sacred cow. It is heresy to challenge that notion. The open minded reader will recognize, however, that my criticisms are aimed at the "entrepreneurs of poverty," not the poor.

We do not help the poor by exaggerating their numbers. We do great injury to the scientific study of poverty when we use poverty and the poor to further our own ideological goals. The importance of the problem demands a more objective, dispassionate approach. Despite a substantial literature, we really don't know much about the nature of poverty in Canada. It is hoped that this study provides the impetus for a reexamination of how poverty is defined and measured. Existing approaches are not even remotely satisfactory.

CASE 1: HOW POOR IS THIS STUDENT?

A 20 year old student who comes from Goderich, Ontario and goes to university (1990-91) in Waterloo.

The student returns home during the summer (May 1-Sept 1) and lives with parents. Total resources available to the student are: $3,000 earnings from summer job, a $4,500 student loan (no grant because parents income, around $40,000, is too high) and about $1,500 from parents. The student's major expense is shelter. She shares a $600/month two bedroom apartment situated within a mile of the university. Although the apartment costs more than the average two bedroom in the Kitchener-Waterloo area, it does have a swimming pool, exercise room and cable T.V. The student furnishes her apartment with her own bedroom items from home as well as "cast-offs" from parents and relatives. So the student's annual shelter costs are $3,600 excluding, of course, any revenues from summer sublet. Tuition, incidental fees, books and other school supplies come to about $2,500. The student's grocery bill averages about $150 per month, including some fast food (burgers, pizzas, etc.). The student attempts to maintain the nutritious diet that she received at home with recommended levels of fruits, vegetables, whole grains, milk and one cooked meal per day (roast, pork chops, chicken, fish, stew, etc.). Occasional departures from good nutrition are not for lack of money. Finally, she spends about $1700 on other items including clothing, personal care, laundry, travel, phone and entertainment. While she could save about $1000 if she lived in residence, she feels the privacy, independence and additional amenities of apartment living are worth the extra expense. Overall, her standard of living, by no means extravagant, is perfectly adequate. However, she, and hundreds of thousands of students like her, lives well below the "official" poverty line. Because Statistics Canada does not include loans or gifts as income, her reported income is only $3000, leaving her with a poverty gap of $9000.

CASE 2: IS THIS ELDERLY COUPLE REALLY POOR?

An elderly couple in Montreal, both age 68.

The husband worked fairly steadily over the years, but was laid off at age 60 and decided to take early retirement. He had no company pension, no RRSPs and no significant saving set aside for retirement. Raising four children and paying off the mortgage on their modest 3-bedroom home made it difficult to save much. They always regarded their home, now valued at about $180,000, as a retirement nest egg. Three sources, the Old Age Security (OAS) program, the Guaranteed Income Supplement (GIS) program and the Quebec Pension Plan (QPP), provide income totalling approximately $14,500 for 1990. Their main expenses, all expressed in annual terms, consist of: shelter costs (maintenance, insurance, property tax, water, heat, electricity) of about $4,000 (including property tax refund); food costs of $4,500, including a take out or restaurant meal about once a week; clothing, personal care, household supplies, gifts and misc. of about $2,000; maintenance, gas and licences for 5 year old car of about $1,000; and new home furnishings or appliances of about $1,000. This leaves them with $2,000 plus income tax credits of approximately $150. They pay zero income tax. They have been in the habit of taking one major vacation every two years (Florida, Las Vegas, France, Caribbean cruise etc.) and several shorter trips each year, mainly visiting friends and relatives. They have a color T.V., V.C.R.., two bathrooms and drink wine with most meals. Their lifestyle is eminently middle class. Yet they are "officially" poor, falling about $2,000 below the poverty line. If this couple were informed of their destitute status, they would be incredulous and highly insulted. They are not alone! In 1988 roughly 550,000 households headed by someone 65 years old or more were considered "poor." Of those almost half (250,000) owned a home, 90 percent mortgage free. Statistics Canada, Household Facilities by Income and Other Characteristics, 1989, cat. 13-218, p. 104.Note

CASE 3: CAN WE CALL THIS PART-TIME ACTOR "POOR"?

Actor/Waiter living in Vancouver.

This 25 year old is your typical "starving" actor. His job at a restaurant does not pay well but allows him great flexibility to go to auditions and take extended periods off. He earns $5 per hour plus tips and averages about 25 hours per week—mainly on weekends. His tips for 1990 are about $5,000 but he underreports this amount by half. In addition to his restaurant earnings, he made about $2,000 from acting during the year. His total reported income for 1990 then is approximately $11,000, leaving him $1,500 below the poverty line. He lives in a rather humble bachelor apartment above the restaurant where he works. It costs him $400/month including utilities. He spends about $1,000 on food. It would probably be double that if he didn't get free meals where he works. He spends nothing on furniture because what he now has is intact and will be serviceable for years to come. He has no car but does spend about $1,000 on transportation, mainly public transit, cab fares and car rentals. As an actor, he considers his appearance to be very important. Consequently, he spends roughly $2,700 on clothing, grooming and personal care items. He spends about $1,500 on entertainment and another $1,000 on a variety of smaller items such as telephone, gifts, alcohol, books and newspapers. Finally, household supplies and miscellaneous items cost about $500. Although he would love to have much more money to spend, he currently lacks none of the necessities and is, in large part, enjoying his life. Nevertheless, he is classified as one of Canada's impoverished.

CASE 4: IS THIS SINGLE MOTHER AND HER FAMILY POOR?

Single mother of two children living in Toronto.

She is not working and is not currently looking for work because she feels her time is better spent caring for her children (ages 3 and 6) and because, with limited skills, her market wage would likely be lower than her current welfare benefits. She separated from her husband two years ago and he has provided no financial support. Her total 1990 income from family benefits, family allowance and tax credits (both federal and provincial) is approximately $13,000. This puts her and her family fully $9,000 below the poverty line. She is in a rent subsidized housing unit and pays only $2,500 including utilities. Since she is in a rent-geared-to-income unit, her social assistance (FBA), $9,876. is about $400 per month less than it would be if she faced market rents. Nevertheless, with an average of two bedroom unit costing about $700 per month, she is clearly better off in her subsidized apartment.Note She is a good cook and ensures that her family eats nutritiously. Shopping wisely and buying no junk food, her total annual expenditure on food is $4,500 and this includes a treat every two weeks (pizza, Chinese food, take-out chicken, etc.). In addition, she spends $1,000 on clothing, $1,000 on furniture, appliances, maintenance and other household items, $500 for transportation, $500 for laundry and dry cleaning, $500 for personal care items for herself and her children, $300 for telephone service, $500 for cable T.V. and newspapers, and $500 for entertainment (mainly videos, beer and an occasional baby-sitter). She spends her final $1,000 on ways that enrich herself and her children. Such things as concerts, trips to the Science Center, the zoo, the ballpark, the circus, the planetarium, and picnics on Centre Island are, in her view, healthy and educational diversions. Is this family poor? I would argue that they are not poor because they can purchase all of their basic needs as well as a number of amenities. There is no extravagance here, but neither is there destitution.