October 2001
October QUESTIONS & ANSWERS
by Joel Emes
Q: What is Canada’s poverty line? How is it measured?
A: Canada does not have an official poverty line. Professor Chris Sarlo, in his recent Fraser Institute publication Measuring Poverty in Canada, describes 6 different low-income and poverty definitions employed in discussions about poverty in Canada. These definitions fall into two general classes. One class uses the cost of a basket of market goods to determine the low income or poverty lines. The other class uses average income or average income coupled with information on average expenditures on basic necessities to determine low-income lines. The following is a brief description of these low income and poverty lines. This Q&A borrows heavily from the aforementioned report.
The Canadian Council on Social Development (CCSD) used to produce a measure that was consistent with their view that poverty means being less well off than most others. This line was set at half the average income for the refer-ence family of three and adjusted for other family sizes. The CCSD appears to have switched to using Statistics Canada LICOs which are discussed below. Estimates of the CCSD thresholds using their methodology are presented in the second column of table 1.
Statistics Canada’s Low Income Cut-Offs (LICOs) have often been used as “poverty lines” in spite of Statistics Canada’s frequent warnings that they do not measure poverty. The methodology is based on income and is complex. The LICO threshold is set at 20 percent above the average spending on food, shelter, and clothing. Low Income Cut-Offs, updated by the overall Consumer Price Index, are given in the second column of table 1.
The Montreal Diet Dispensary (MDD) puts out a set of budget-based thresh-olds generated by starting with the question: How much income does a family require to meet basic needs? The MDD lines consist of 8 spending categories selected to provide the “minimum adequate requirements for the maintenance of a family as a unit and the preservation of health and self-respect of the individual.” In addition to this set of measures, the MDD calculates another set which is intended to allow for minimal integration into society. Ten spending categories are added to the eight from the “basic needs” lines to arrive at the “minimum adequate living standard” lines. Column three of table 1 lists the MDD Minimum Adequate Living Standard lines; column five of table 1 presents the MDD Basic Needs lines. These lines, like many of the others taken from Measuring Poverty in Canada have been updated to 2000 by the report’s author, Prof. Chris Sarlo.
The Market Basket Measure (MBM) is a work in progress headed by Human Resources Development Canada with the cooperation of the provinces. The MBM employs a market basket approach but by applying an add-on percentage to the costs of basics it implicitly includes more than the basics in its measure. Column four of table 1 gives an estimate of the MBM lines. Prof. Sarlo’s Basic Needs Poverty Lines (BNPL) emphasize the connection between real deprivation and poverty. The BNPL are based on the cost of a list of necessities of life that are required to maintain good physical health on an ongoing basis. The quality and comprehensiveness of each of the four basic necessities of food, shelter, clothing, and health care reflect current community standards. Column 6 of table 1 gives the Basic Needs Poverty Lines for Canada.
Q: Given the various measures of low income and poverty discussed above, at what income are a family of four in Canada considered impoverished?
A: This month’s graph shows the income thresholds for a family of four from the 6 low income and poverty measures presented in table 1. For sake of comparison, the graph also shows the net income a family in British Columbia would earn if two of the family members worked at minimum-wage jobs for a combined total of 60 hours per week. British Columbia has the highest minimum wage in the country at $8.00 per hour. This same calculation was done for a family in Newfoundland and Labrador. That province has the lowest minimum wage in Canada at $5.50 per hour..
October Graph
Endnote
1 Notes: All net income calculations include
CPP, EI, and income tax reductions as well
as GST/HST credits, Canada Child Tax Benefits,
provincial child benefits, and BC’s sales
tax credit. Annual minimum wage for a single
person assumes a 2,080 hour work year.
Annual minimum wage for the family of
four assumes two family members work a
total of 3,120 hours in the year. NF has the
lowest minimum wage at $5.50 per hour; BC
has the highest minimum wage (effective
November 1, 2001) at $8.00 per hour.
Joel Emes (joele@fraserinstitute.ca) is Senior Research Economist at The Fraser Institute. He has an M.A. in Economics from Simon Fraser University.
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