April 2001
Senior Improvements
by Chris Sarlo
In 1973, about 24 percent of Canada's seniors were poor. Twenty-five years later (using the basic needs poverty line as a measure), less than 2 percent of our seniors were poor. This remarkable improvement is all the more noteworthy when measured next to the apparent lack of progress for non-seniors. Figure 1 presents the evidence regarding poverty trends by broad age grouping.
The average living standard of Canadian seniors has increased solidly over the past several decades, and it has increased much faster than that of non-seniors, using real total income as a measure. In the 25-year period before 1998, senior incomes (in constant 1998 dollars) increased by 34 percent, compared to an increase of 26 percent for non-seniors. In terms of inequality, 48 percent of Canada's senior-lead households were in the bottom income quintile in 1973 compared to 37 percent in 1998.
What explains both the absolute and relative improvement in the lot of Canadian seniors in the recent past? Most commentators attribute the improvement to the expansion and enhancement of government transfers to seniors. The evidence may appear to support this contention. Fully 80 percent of the increase in the average real incomes of seniors over the 25-year period has been in the form of government transfers. However, without denying the obvious—that a big increase in transfers will increase recipients' income—I wish to warn readers away from the conclusion that government transfers are the whole story.
Figure 1: Income Poverty Rates by Age Groupings
We can never know what would have happened in the absence of a particular transfer program. As policy students well know, the very existence of a transfer program will change the behaviour of current and potential recipients. People are likely to make decisions about spending, saving, and employment, based, to some extent, on their understanding of the program benefits that will flow to them. The increases in these benefits, especially those in the Guaranteed Income Supplement (GIS) and Spouse's Allowance (SPA) programs, were substantial during this period and would have been particularly significant to lower-income Canadians.
In addition, income data is sufficiently flawed that any examination of the contribution of transfers to the material improvement of seniors which uses income is suspect. For example, the income data in the 1998 Statistics Canada Survey of Household Spending reveal that 15,500 seniors lived on less than $5,000 income in 1998. We know that this cannot be done. My own research suggests that the minimum income required to cover the basic necessities is about $8,600 for an individual, and correspondingly more for a family. Almost 8,000 seniors apparently lived on less than $1,000 in 1998. This is simply absurd. The least a single Canadian senior would receive under existing programs is about $10,000. We know that Statscan has a growing problem with underreporting of income, but we also know that transfer income to seniors is easier for the agency to correct if it is underreported. Income from other sources is more difficult to check and correct. This means that any determination of transfers as a proportion of senior's income is unlikely to be reliable.
While the question of the role of transfers in reducing senior poverty and in improving senior living standards is interesting and worthy of study, larger questions about both the efficiency and the fairness of these programs are relevant. In 1998, only 30 percent of total government transfers to seniors went to those in the bottom income quintile. In other words, fully 70 percent of these transfers were received by those far removed from the poverty line. If the goal is to reduce senior poverty, this is hardly a good way to do it.
Chris Sarlo teaches economics at Nipissing University in North Bay, ON. He is the author of Poverty in Canada, published by The Fraser Institute.
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