The Poverty Campaign That Would Impoverish Atlantic Canada

Peter Fen

 “One Million Too Many” screamed the headlines that accompanied the press coverage of the Campaign 2000 report card on child poverty in Canada. According to the report, authored by a coalition of social and labor groups, child poverty had risen in the year 2002 and the country had fallen further behind in its efforts to make good on the 1989 House
of Commons resolution to eliminate child poverty by the year 2000. The report advocated a series of measures aimed at eliminating child poverty.  But many of these measures would, if implemented, accomplish exactly the opposite, especially here in Atlantic Canada.

And while the recommendations in the report are especially bad news for Atlantic Canada’s economies, it is difficult to see where the report gets its pessimistic view of child poverty.  Even its selective use of statistics does not appear to bear out its conclusions.

The most egregious error is the report’s use of Statistics Canada’s Low Income Cut Off (LICO) as a surrogate for a poverty line. But even if one accepts that as a measure for poverty in Canada, it is difficult to arrive at the conclusion that child poverty is rapidly increasing. The report itself records that families living under the LICO line decreased from over 21 per cent in 1992 to less than 16% in 2002. In absolute numbers the number of children in LICO and lower income families decreased by over 300 thousand in the last seven years.

And the report card, ending as it does in the year 2002, does not allow for the increases in the child tax benefit that kicked in over the last few years.  Those increases are likely to reduce child poverty even further, but were not even mentioned in the report.

Remarkably the report’s figures demonstrate that the Atlantic Provinces are the most generous when it comes to supporting their residents on welfare. All four Atlantic Provinces provide welfare benefits to single mothers and couples with children that raise their income closer to the LICO line than any other province, with the possible exception of Saskatchewan. This generous support may be part of the reason the Atlantic Provinces have a greater level of dependency than other provinces in Canada.

But using the Low Income Cut Off as the poverty line is sloppy at best, downright deceptive at worst.  Even Statistics Canada warns against using it as a measure of poverty. The LICO was first put forward by Statistics Canada in 1968 as a measure of the number of Canadian families in “straitened” circumstances. It is based on 1961 research that showed Canadian families spending 50% of their total income on the three necessities of food, clothing and shelter.

The LICO authors then arbitrarily added 20% to get their low income line. So if your family had to spend 70% or more of your income on the necessities in 1961 you were below the LICO line and living in straitened circumstances. Whether or not you were poor was never addressed.

With increased prosperity people naturally spent less of their income on the basics. In the last 40 years the percentage of family income needed for basics has dropped from 50% to 35%.  Yet the LICO line continues to be set at 20 points above that average i.e 55%. Now a family is considered to be in straitened circumstances if it has to spend half its income on the basics.

As time passes and general wealth increases, the LICO will become even further distorted.  Imagine a time about twenty years from now when only 20% of one’s income is needed for the essentials.  If we continue to add the 20% to the essentials to find the LICO line we will keep substantial numbers in poverty even as their circumstances greatly improve.  As someone once said “the poor are always with you”.

A true measure of poverty should not be based on an arbitrary percentage of what average Canadians pay for essentials, but on the income levels needed to purchase the essentials, a much lower number. When calculated that way poverty numbers tend to shrink to a small fraction of what the LICO numbers indicate.

But even living at the LICO line would leave up to 45% of total income for other necessities. While that is not a great set of circumstances, it is a far cry from poverty as it is understood in the rest of the world.

The report goes on to lament that almost half of recent immigrant families with children are living below the LICO line. And while that is a considerably higher percentage than the rest of the population, it would appear to say that even living below the LICO line in Canada is better than living in the country the immigrants recently left.

In short, the report’s basic statistical underpinnings are weak.

The report then goes on to make things worse. Some of its conclusions are simply counter-productive when it comes to improving the economic health of Atlantic Canadians. Its most egregious suggestions center on the minimum wage and the requirements for Employment Insurance. It suggests the minimum wage be raised to $10 an hour nation wide while the requirements for E.I. be reduced to 360 hours with a one year benefit period.

The minimum wage recommendation appears harmless enough — a so called leveling of the economic playing field.  Yet its impact would be most pronounced in Atlantic Canada. In metro Toronto the effective minimum wage is already over $10 an hour. In a hot labor market with high costs for housing, it would be difficult to hire workers for less than $10 an hour.  In Atlantic Canada wages less than $10 an hour are widespread. Many light manufacturing businesses have moved to Atlantic Canada in order to take advantage of the lower cost of labor, a saving that is possible because of lower housing costs. It is, if you will, Atlantic Canada’s competitive advantage.  Taking it away for dubious equity reasons would be extremely destructive.

Similarly the lowering of E.I. requirements to 360 hours, (from
420 minimum now), and the lengthening of benefit periods to a full year would further erode the work motivation for Atlantic Canadians in the seasonal economy.

But making EI easier to obtain is not a solution for poverty.

Work is. Part of the reason the number of LICO families has decreased in the last eight years is the huge number of jobs that the economy has created. Create more jobs, even low income jobs, and you create a pathway out of poverty no matter how it is defined.  Make jobs more expensive for employers to create, make it easier to receive EI or welfare, and you destroy jobs.

At its heart Campaign 2000 is not about eliminating poverty, it is about reducing economic inequality in Canada. And while that is a laudable objective, it should be argued on its merits, not by using a faulty poverty indicator to try and show that Canadian families are mired in poverty, especially when the nostrums put forward threaten the economic progress of Atlantic Canadians.