F.Scott Fitzgerald: "The rich are different from us".
Ernest Hemingway: "Yes, they have more money".
| 1. Purpose 2. Background 3. Statistics Canada low-income cutoff lines 4. Alternative approaches to measuring poverty |
This paper provides background on the framework within which poverty measures have been developed in economically advanced countries, and sets out the main approaches to the measurement of poverty that have been used to date in Canada within this framework. The paper also outlines the critique of this framework that has emerged from the right wing of the political spectrum in recent years. Finally, options are set out for NAPO's position with respect to possible future changes to, or the replacement of, Statistics Canada's low-income cut off lines.
Conceptually, the most fundamental issue in defining poverty
is the choice between absolute and relative definitions of
poverty. The former approach focuses on the lack of "basic
necessities" while the latter emphasizes inadequacy compared
to average living standards or incomes. While this is a
significant distinction in theory, in practice most proponents of
a "basic necessities" approach to poverty in
economically advanced countries have for a long time incorporated
elements of a relative definition of poverty, by defining it not
in terms of the bare minimum needed to sustain life, but in
relation to what is considered a minimum acceptable standard of
living at a particular period of time.
Adam Smith, writing in the Wealth of Nations in l776, reflected
the view that poverty means more than not having the "basic
necessities" to sustain life, stating that:
"By necessaries I understand not only the commodities which
are indispensably necessary for the support of life, but whatever
the custom of the century renders it indecent for creditable
people, of the lowest order, to be without".
Adam Smith's view of poverty as a condition in which people are
unable to obtain the basic necessities of life, understood in a
relative sense, can be characterised as a compromise between the
purely absolute and the purely relative concepts of poverty. This
"relative necessities" view of poverty has become,
since Seebohn Rowntree's pioneering British study in l899, the
criterion according to which poverty is measured in most advanced
economic countries. By 1967, a survey conducted by the
International Labour Organisation showed that 44 of the 61
countries surveyed were administering public assistance schemes
paying cash allowances according to a means test which calculated
poverty relative to social norms of minimum necessary
consumption, usually adjusted from time to time to meet changes
in the price index.
In 1958, John Kenneth Galbraith, the well known American liberal
economist, expressed a similar view of poverty to the
"relative necessities" approach of Adam Smith nearly
two hundred years previously. Writing in The Affluent Society,
Galbraith stated:
"People are poverty-stricken when their income, even if
adequate for survival, falls markedly behind that of the
community. Then they cannot have what the larger community
regards as the minimum necessary for decency; and they cannot
wholly escape therefore, the judgement of the larger community
that they are indecent. They are degraded for, in a literal
sense, they live outside the grades or categories which the
community regards as acceptable".
Although they have never been explicitly acknowledged by Statistics Canada as an official poverty line, the Low-income Cut-off lines (LICOs) developed by Statistics Canada have traditionally been the most widely used measure of poverty in Canada.
The LICOs can be characterised as an indirect method of
implementing the "relative necessities" concept of
defining poverty referred to above, based on an expenditure
patterns approach. The construction of tthe LICO is a multi-stage
process. It begins with information on how much families in
Canada actually spend on what are assumed to be the three basic
necessities, namely food, clothing, and shelter. This information
has been obtained from the Family Expenditure Survey which was
conducted periodically by Statistics Canada until l992 (no survey
was conducted in l996), and published as Family Expenditure in
Canada(FAMEX).
Using family expenditure data, the LICO is set at the point where
families, on average, spend 20% more of their income than the
average family on food, clothing, and shelter. The low-income
cut-offs vary by the size of the family unit and the population
of the area of residence. There are seven categories of family
size, from one person to seven or more persons, and five
community sizes ranging from rural areas to cities with 500,000
or more residents. The result is a set of 35 low-income cut-offs,
which are updated annually by Statistics Canada using the
Consumer Price Index.
In 1990, M.Wolfson and J.Evans of Statistics Canada published a
discussion paper which identified issues with the LICOs and
discussed a number of options including scrapping the LICOs and
starting over. The issues included: adequacy of limiting the
definition of basic needs to the three categories of food,
clothing, and shelter; the extent to which the LICOs reflect the
evolution of basic needs as living standards evolve over time;
the extent to which the LICOs are an imperfect approximation of
family consumption because they excludes the consumption of goods
and services not directly purchased with money; use of the 20 per
cent parameter for purposes of determining the low-income cut-off
lines; and the need for additional data to measure the depth of
poverty, poverty on an after-tax basis, and the length of time
that people remain poor.
The authors were of the view that the LICO methodology was
flawed, and would need to be supplemented, in several respects.
On the other hand, they stated that:
"... the current figures relating to the incidence of
low-income are generally well-accepted. Thus, it is worthwhile
considering alternative methods which would produce results
similar to the existing LICOS...while avoiding to the extent
possible the deficiencies of the current method".
The main conclusions of the Statistics Canada review of the
LICOs, as stated in l991, were that the LICOs would continue
"for the time being" as "the main and preferred
approach to the measurement of low income in Canada", and
that "an alternative Low Income Measure based on one-half
the median income would be evaluated as a replacement".
Moreover, "data related to the depth of low-income and data
on an after-tax basis would be published".
In May 1997, six years after the completion of its review of the LICOs, Statistics Canada published a report which presented low income data on an after-tax income concept, including data on how far family incomes are both from the LICOs and from an alternative Low Income Measure (LIM) based on one-half the median income.
Also, in June 1997 Statistics Canada's published survey of
labour and income dynamics found that for the two years of the
study, there was a substantial degree of movement out of and into
poverty as measured by the LICOs, with about half of Canada's
poor remaining poor for the two years in question, l993 and 1994.
While the LICOs have traditionally been the most widely used
measure of poverty, they have not been the only measures of
poverty used in Canada. Until very recently, the other poverty
measures used in Canada, as well as the LICOs, were all based on
the long-standing social consensus that in economically advanced
countries such as Canada poverty is defined as a condition under
which people are unable to obtain the basic necessities of life,
understood in a relative sense.
Within this consensus, four approaches to measuring poverty have
been used in Canada. First, under the expenditure patterns
approach, the income level necessary to meet basic needs is
estimated by comparing the percentage of income spent by people
on necessities. The LICOs developed by Statistics Canada are an
example of the use of the expenditure patterns approach for this
purpose.
Second, under the budget standard approach, low-income lines may
be calculated by directly attempting to estimate the minimum
income required to purchase a basket of goods and services judged
to be required in relation to achieving a minimum acceptable
standard of living. In Canada, this definition of low-income has
been used by several municipal agencies in developing budget
guides, for example the Toronto Social Planning Council (TSPC)
and the Vancouver Social Planning Council(TSPC). The poverty line
estimated by the TSPC under the budget standard approach was
higher than the LICO for a family of four living in a large city
in 1995, while that for the VSPC in 1997 was slightly lower. Both
the TSPC and the VSPC estimates of the poverty line show a
significant gap between the level of social assistance benefits
and the monthly income required to climb out of poverty, with the
gap ranging in the case of the VSPC study from 36% to 52%
depending on the type of household.
Third, under the public opinion approach, the income required to
to achieve a minimum acceptable standard of living can be
estimated on the basis of public opinion determined through
household surveys. For example, in Canada Gallup has been
conducting annual in-home surveys asking the question,
"Generally speaking, what do you think is the least amount
of money a family of four-husband, wife and two children-needs
each week to get along?" In 1995, the updated mean response
to this gave results which were close to those of the LICOs. A
potential advantage of this approach to measuring poverty may be
that the judgement exercised in estimating the minimum income
required to meet basic needs is made by the public generally,
rather than by "experts". On the other hand,
the responses given to opinion polls may be easily manipulated
depending on the wording of the question, and may not be taken
seriously when people are asked, on-the-spot, to determine the
amount of money on a week basis that a family of four needs to
"get along".
Finally, under the relative income approach, the low-income
threshold is estimated directly in relation to the range of
incomes within the population as a whole. This approach
identifies people less able than others to access goods or
resources within a given society at a particular time. Statistics
Canada's new Low Income Measures (LIMs) estimate that a family is
living in a low income situation if its income is less than 50%
of median family income, adjusted for family size. (Median income
is the level where one-half of Canadian families have higher
incomes, and one-half have lower incomes). The resulting low
income estimates depend on the choice of paramater, in this case
the specific fraction of median income, 50%.
It is essential to note that whatever method of measuring poverty
is employed, there will be a significant element of judgement in
its application, not merely the straightforward application of
technical expertise. Judgement is inherent in determining,
directly or indirectly, what is a minimum acceptable standard of
living in relation to society as a whole, both in terms of
deciding what items should be considered as basic necessities,
and what are the minimum acceptable quantities and qualities of
those items.
In recent years, Canada's social safety net has been
significantly eroded by severe cutbacks in federal and provincial
government funding for social programs, and by the virtual
abandonment of any federal role in setting national standards for
these programs, except in the case of medicare where such
standards remain but are under increasing attack from some
provinces, notably Alberta, in light of cutbacks in federal
transfers under the CHST. All this has occurred in the context of
the high priority that has been given to deficit reduction, even
in a period of protracted high unemployment. In light of the
above, there has been a growing polarisation of incomes between
rich and poor people and regions in Canada, and an increasingly
influential and articulate critique from the right wing of the
political spectrum, often led by "think tanks" such as
the Fraser Institute funded by large corporations, which has
begun to challenge the very foundations of social policy in
Canada.
Broadly speaking, this critique seeks to undermine the basic
assumption that public assistance to the poor should be based on
need, and to restore the Victorian premise that public assistance
should be given only to the "deserving poor", namely
those who are willing to work at very low paying and often
temporary jobs, children, the old and the severely disabled.
Furthermore, there are indications that the fundamentalist
critique from the right is mounting a major challenge to the
long-standing social consensus that the definition of poverty
itself should not based in economically advanced countries on the
bare minimum needed to sustain life, but in relation to what is
considered a minimum acceptable standard of living at a
particular time.
Probably the most sweeping critique of the basic concept of
defining poverty in a way that includes some elements of
relativity is Andrew Sarlo, writing under the auspices of the
Fraser Institute. In his book, Poverty in Canada(second
edition,1996),
Sarlo utilizes a mix of arguments not only to attack the
validity of the LICOs on technical grounds, but on a basis which
at times calls into question the very foundations of conceiving
poverty on a basis which includes elements of a relative
definition.
Sarlo is not entirely consistent in his critique of relative
measures of poverty. On the one hand, he makes strong statements
in favour of an absolute concept of poverty, even in an
economically advanced country such as Canada, that would narrowly
limit poverty to those who are literally starving to death, or
otherwise at a rock bottom level of subsistence. For example, he
states:
"The notion that poverty is properly defined as the lack of
all basic physical necessities has much to commend it. It does
correspond more closely to the traditional understanding of the
term. It does lend itself to a constant standard by which
progress can be measured. It permits us to determine an
interesting and important demographic fact quite independently of
the issue of what we will do about it.."
On the other hand, Sarlo acknowledges that "in spite of
these and other advantages, there are a number of difficulties
with this approach". In particular, he is concerned that the
rock bottom concept of poverty may give ammunition to critics who
will see it as inhumane, and as a means of justifying very low
rates of social assistance, even for the "deserving
poor". On balance, however, Sarlo seems to come down very
much on the side of an absolute concept of poverty, which would
include the smallest possible elements of relativity consistent
with getting a large degree of public support.
To achieve this, he proposes as an alternative to the LICos a
budget standard approach which would define poverty in
significantly narrower terms than the budget standard measures
described above, and which would give much lower rates of poverty
than any of the other measures of poverty used to date in Canada.
Moreover, to influence public opinion as much as possible in
support of his proposals, Sarlo proposes that in addition to his
absolute measure of poverty, a second "social comfort"
set of lines could be developed based on a relative concept,
which however would not be considered as a true measure of
poverty.
Sarlo also does not hesitate to attack in strong terms what he
considered as the "vested interests" of those who
promote relative poverty lines. In this regard, he states:
"..By the mid-1960s...the social welfare lobby- a loose knit
fraternity of social activists, social workers, academics,
bureaucrats amd politicians had begun to take shape in Canadian
politics. It is not surprising that they embraced the issue of
poverty and made it their own. After all, most of them made a
rather handsome living off the poor. The problem was that
impressive economic growth in the post-war period was
significantly reducing the number of people who were unable to
obtain the basic necessities. Poverty, as it had traditionally
been understood, was quickly disappearing putting at risk the
comfortable livelihoods of many in the 'poverty business'. They
reacted in much the same way as troubled corporations. They did
what they could to increase the demand for their product.
Specifically,they redefined poverty as inequality and in doing so
were able to demonstrate the number of poor people were, if
anything, increasing. It was a brilliant manoeuvre and one that
went largely unchallenged. It was a straightforward functional
response to the threat of extinction. It was not compassion but
old fashioned self interest at work".
The status quo, namely maintaining the use of the existing
LICOs developed by Statistics Canada as the main measure for
measuring the incidence of poverty in Canada, has a number of
advantages. The existing LICOs have traditionally had a wide
degree of acceptance, are of long-standing, and produce results
with respect to the rate of poverty that are roughly compared
with most other poverty measures used in Canada. The existing
LICOs can be, and recently are being, supplemented by Statistics
Canada with additional data on the depth of poverty and the
movement of people into and out of poverty. While the LICOs
require the exercise of judgment, for example the 20 per cent
paramater and the limitation of "basic necessities" to
food, clothing, and shelter, judgement as noted earlier is
inherent in any measure of poverty.
On the other hand, the LICOs are an indirect way of measuring
relative poverty, and are somewhat complex and difficult to
explain. Moreover, they have never been explicitly endorsed by
Statistics Canada as a poverty measure, a point which has been
made by critics from the right such as Andrew Sarlo. There are
indications that Statistic Canada's commitment to maintaining the
LICOs is increasingly shaky, for example the Family Expenditure
Survey has not been conducted since l992 which over time tends to
understate the degree of poverty measured by the LICOs as
economic growth occurs and the proportion of income spent by the
average family on basic necessities falls.
Finally, it can be argued that a position of simply defending the status quo is excessively defensive and may give unnecessary ammunition to the attack on the status quo that has been launched by critics from the right such as Andrew Sarlo, and which has been garnering some support (see, for example, an editorial in the Ottawa Citizen of July 9, l997, as well a recent report by Kenneth Boessenkool published by the C.D. Howe Institute).
Under the budget standard approach, low income lines may be
calculated, as noted earlier, by directly estimating the minimum
income required to purchase a basket of goods and services judged
to be necessary to achieving a basic or minimum standard of
living. A budget standard measure can be consistent with a
relative concept of poverty, depending on the judgements that are
made with respect to what constitutes a basic or minimum standard
of living. On the other hand, a budget standard approach can
easily be the vehicle for the adoption of a much narrower, rock
bottom subsistence approach to defining poverty on an absolute
basis, as reflected in the proposal by Andrew Sarlo discussed
earlier.
A budget standard measure of the former type might be somewhat
easier to explain than the LICOs, but it would still be based on
a complex series of judgements, and would likely be subject to at
least as much criticism from those who argue for an absolute
concept of poverty. A budget measure of the latter type, on the
other hand, would undermine the very foundations of the concept
of relative poverty that has been accepted in economically
advanced countries such as Canada for a long time.
As noted above, opinion polls could be used as the basis for identifying minimum income levels required to meet necessary expenses. This approach may appear to be free of expert opinion or arbitrary judgement. However, results of attitudinal surveys depend on the precise way in which questions are formulated. Slight variations in survey questions can have large impacts on the results.
As noted earlier, Statistics Canada has developed a new low-
income measure (LIM) based on one-half the median income, which
could be considered as a potential replacement for the LICOs. By
comparison with the LICOs it would have the potential advantages
of being less complex, simpler to explain, and more clearly
recognising the relative nature of poverty in an economically
advanced country such as Canada through measuring the degree of
inequality of income. Results might be similar to those produced
by the LICOs, although this would depend very much on the choice
of parameter, specifically what percentage of income below the
median income would be chosen as "low income".
On the other hand, the LIM would be open to criticism for
completely ignoring the absolute element in poverty and
consequently for not taking into account absolute improvements in
the material standard of living associated with economic growth.
Such criticism may be especially strong in the present period,
when the tendency as noted earlier has been to cut social
programs and narrow the definition of who is poor rather than to
expand it.
As noted earlier, the recent critique from the right with
respect to existing poverty measures such as the LICOs is a
fundamental challenge to the long-standing social consensus that
poverty in an economically advanced country such as Canada should
be defined in relation to the minimum standard of living
necessary for dignity and to participate in the life of the
community. Although the critique may sometimes be couched in
technical terms, it is really ideological in nature, challenging
the traditional social consensus based on values of caring and
compassion.
The appropriate response to this critique may well be, not to
focus at the technical level on whether the LICOs should be
replaced by another approach to measuring poverty in Canada, but
rather to highlight the urgent need for national standards to
guide public policy in addressing poverty, including standards
relating to whether income support should be based on financial
need and/or other criteria, whether any test of financial need
should be based on absolute or relative concepts of poverty, and
whether the delivery of income suport should be restricted to
government and non-profit agencies. The development of such
national standards would require strong federal leadership in
close co-operation with the provinces, together with a broad
public consultation process involving all segments of the
population.
For NAPO to take this position may be seen by some as "pie
in the sky', especially in light of the severe cutbacks in
federal social transfers in recent years and the virtual
disappearance of national standards for social assistance under
the CHST. Moreover, there is a risk that even if national
standards for addressing poverty can be developed, they could
either be too broad to be meaningful, or too narrow to reflect
the rights of poor people as citizens entitled to decency and
respect. However, the greater risk would seem to be to remain
passive in the face of the greatest assault on traditional
Canadian social values for many decades, and to engage the debate
at a narrow technical level when what is at stake is much more
fundamental than that.
Copyright © 1997 The National Anti-Poverty Organization (NAPO)