Lars Osberg Economics Department Dalhousie University June 23, 2009 Presentation to: Council of the Federation symposium St. John´s, Newfoundland, June 23 Poverty and Recessions: Canada‘s Vulnerable in Tough Times

2007 – lowest poverty rate in 30 years Statistics Canada no X Income in Canada 2007

Poverty and unemployment - rise and fall with the business cycle

But there has been a long term big change – Poverty is deeper now

So what’s happening to unemployment?

IMF “Advanced economies are suffering their deepest recession since World War II.” OECD Economic Outlook March Canada - Unemployment6.3%6.0%6.1%8.8%10.5%

So what sort of safety net is there ?

UI/EI Replacement Rate – 38 years of decline The average of the gross unemployment benefit replacement rates for two earnings levels, three family situations Source: OECD, Tax-Benefit Models. ; The Canadian Labour Force Participation Rate Revisited: Cohort and Wealth Effects Take Hold Steven James, Tim Sargent, Russell Barnett and Claude Lavoie Working Paper 2007 ‐ 01, Finance Canada, Page 11

EI Replacement Rate: Relatively low by OECD standards

The Big Problem – EI is much harder to get, especially since 1996

Social Assistance – low & falling ATIONAL COUNCIL OF WELFARE: WELFARE INCOMES 2005

Alberta Welfare Income: Couple + 2 Kids $ - 30% real cut by provincial SA

Poverty in perspective How much of market income would it take to completely eliminate the poverty gap ? Canada – 1.7% Nova Scotia – 1.7% V , v , v ; Low income cut-offs after tax, 1992 base; Aggregate low income gap as a percentage of market income (Percent); All family units For people who do not have much, it does not take much to make a big difference in their lives. Canada’s total poverty gap - approximately equal to foregone revenue of 2% cut in HST/GST

“Low Income/Poverty Line” - How should we measure it? Methodologies in use in Canada 1970 – 2008 Note: Because real median incomes flat , all effectively updated for inflation only LICO - % income spent on necessities LIM – 50% median Market Basket Method oHRDC or Fraser Institute Subjective (Leyden) “Barely adequate for day-to-day living” “Make ends meet”

Appendix G Page 81 Low Income in Canada: Using the Market Basket Measure HRSDC. October 2008; Table 1, page 12 The Evolution of Poverty Measurement - with special reference to Canada Osberg (2007) Poverty Line for 2 adult 2 child family (boy 13, girl 9) $2006 Market Basket Method LICO IAT rural = 21, K = 28, K+ = 30,000 LIM after tax = 29,600

Income Poverty Line in Canada Broad consensus on approximate level for urban areas for some family types BUT “Market Basket” Methodology shows importance of Child Care Expenses Transportation Cost in rural areas – bus service NOT available Is Annual Income Inadequacy a good guide for Poverty Policy?

Sen: Commodities are needed for capabilities, which enable valued functionings Poverty = deprivation of capabilities Relative income can determine absolute capability e.g. When everyone else has a car, how to get groceries? Capabilities <= $ income + “social wage” + context Problem: “capabilities” = opportunity set, ≠ observed choices Measurement example: % Canadians without car OR bus stop within 1 KM Multidimensional Poverty indices Measure achieved functionings Can look within households What is critical value of specific item deprivation? How to aggregate over single / multiple deprivations? Correlation of attributes is crucial Little information added if highly correlated with income, but “too low” correlation implies separable issues involved Measurement error biases towards chance correlation

Social Exclusion – ‘prevented from participation in normal activities of society’ Example of transportation Income poverty – do you have enough cash to buy bus fare ? Capabilities approach – might ask: is there a bus route? – but capability is fundamentally an individual attribute Social Exclusion – accessibility planning seen as an issue of community design Bus to where? How often? Is it wheelchair accessible? Where are services located? Determines feasibility of employment + access to social life & public services – many feedback effects of isolation Multi-dimensional, mixed indicators, threshold & feedback effects, long term deprivation crucial Social Exclusion – a relationship of society & the excluded Measurement Implication – both personal attributes & social context of individuals are crucial to social exclusion & poverty

“ Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services” UN Universal Declaration of Human Rights (1948) Article 25 Human rights Specified by Constitutions & International Covenants Clear legal origin, specificity & procedural legitimacy in democratic institutions Indivisible & interdependent E.g. Right to privacy is empty without right to housing Imposes obligations on state parties Typically seen as either/or condition Head-count measure of deprivation ?

Caution: Excess Complexification & its costs !

Main Points Long term trend increase in Average Poverty Gap in Canada Poverty Rate moves with Unemployment Rate – rapid rise Canada’s social safety net cut substantially in mid 1990s – not fixed Implications – More Poor People and Deeper Poverty in As recession grinds on, faster, deeper income losses likely – but less social support is now in place for income replacement than in 1990s Work Incentives & Retraining – increasingly irrelevant as jobs disappear Longer Term Trends Social Exclusion, Capabilities & Human Rights discourse will widen policy dimensions to include context and “social wage”

Additional slides if time permits

Little change in real median household income in Canada between CANSIM Table –Statistics Canada no X Income in Canada 2007

Was slow growth in living standards inevitable? NOT ! – Canada has worst record

Average Income has risen because top quintile much better off Statistics Canada X Income in Canada 2007

Time and Poverty Spells Annual accounting period – too long & too short No cash & no credit? – very cold in much less than a week Immediate Needs - historic focus of social policy – now downgraded Human Rights perspective implies short term deprivation matters Stress may trigger events with long term consequences Long term poverty & inter-generational impacts ? Long term poor – clearly the most deprived – “culture of deprivation” a real concern Now the focus of “Human Capital” emphasis & “Social Exclusion” discourse Individuals flow through sequence of households Poverty spell entry, exit and recurrence implied by real time changes in both incomes and household composition Panel data + {assumption: equivalence scale + no transactions costs} can generate individual life histories of equivalent income poverty spells Costs of volatility & insecurity in health, well-being & human capital not now recognized

Most Poverty Spells are short Statistics Canada X Income in Canada 2007

But lots of people cycle through Statistics Canada X Income in Canada 2007

07/09/2015 Lars Osberg and Kuan Xu, Dalhousie University, Canada 30 Not much change & fairly narrow range – in 2006 $ [Fraser Institute an outlier – “extreme deprivation” concept] 4 person household Low Income/ Poverty Line - urban area of ,000 rural ratiosingle ratio Statistics CanadaLICO base29, Statistics CanadaLICO base34, Statistics CanadaLICO base (63%)34, Statistics CanadaLICO - IAT 1992 base28, CCSDhalf average income31, Senate Committee(basic needs+30%)*avg growth35, CCSDupdated to 2004**35, Senate Committeeupdated to 2004**39, Statistics Canadasubjective -"barely adequate for daily living"22, Statistics Canadasubjective -"make ends meet"35, Statistics CanadaLIM 50% median market income29,10012 LIM 50% median before Tax34,00012 LIM 50% median after tax29,60012 Sarlo / Fraser Institutemarket basket20,320 HRDCmarket basket*27,

Axioms, Aggregation & Dominance – measurement since Sen (1976) Distribution Sensitive Poverty Indices SST = FGT 1 (1+G(g)) SST = (r) (g) (1+G(g i )). Average Poverty Gap ratio often ≠ poverty rate Inequality of poverty gaps is empirically unimportant Axiomatic basis of Indices Transfer sensitivity axiom important BUT others ?? Focus – relative poverty lines cannot qualify Impartiality – group identities of poor irrelevant Continuity – no “threshold effects” – by assumption Equivalence scales LIS scale now common Stochastic Dominance of Deprivation Profiles Restricted dominance is relevant criterion Poverty among the Elderly ?