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Low Income in Canada: 2000-2007 Using the Market Basket Measure - August 2009

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4. The Results

Comparisons of Low Income incidence, depth and persistence for the period 2000 to 2007 using the MBM and the LICOs-IAT

In examining low income, several dimensions are important. This report will examine the incidence (the share of people living in low income in a given year); depth (how far below the low-income cut-offs low income families fall) and persistence (whether persons who experience low income during the 2002 to 2007 period do so for most of that period or for only one or two years).

4.1 Incidence: 2000 to 2007

Between 2000 and 2007, as measured by the MBM, the number of persons living in low income declined by 1.1 million to reach 3.3 million in 2007 (Figure 1). As a share of the population, the rate of low income fell from 14.6% in 2000 to 10.1% in 2007. The decline between 2006 and 2007 was the largest during this period.

The considerable drop in incidence in 2007 reflects strong median after-tax income growth for most economic families, including those in the bottom fifth of the income distribution whose real incomes increased by 4.4%. Income growth in 2007 was boosted by strong economic conditions; real GDP grew by 2.7% (year/year), employment rose by 2.3% (y/y) and the unemployment rate fell to a 30-year low of 6.0% (y/y).

Text version of Figure 1: Persons in Low Income and Incidence (MBM) 2000 to 2007

As can be seen in Figure 2, this trend in the incidence was similar using both the MBM and the LICOs-IAT. The declines between 2000 and 2001 and between 2006 and 2007 were the only year-over-year declines to be statistically significant. ^{Footnote 11}.

The gradual downward trend over the 2000 to 2007 period for both the MBM and the LICOs-IAT reflects improving employment and economic conditions over this period, significant increases in government benefits for both children and seniors and reduced income tax rates.

Text version of Figure 2: Trends in the Incidence of Low Income 2000 to 2007 using the MBM and the LICO-IAT

As can be seen in Figure 2, in 2007 the percentage of persons in the ten provinces living in low income based on the MBM was 10.1% compared to 9.2% using the LICOs-IAT. This difference in the overall incidence of low income was more than accounted for by the more stringent definition of MBM disposable income. If the same disposable income definition used for the LICOs-IAT had been compared to the MBM low income thresholds in 2007, the incidence of low income would have been 8.2% rather than 10.1%.

Children experienced a higher rate of low income than other age groups (Figure 3). In particular, using the MBM, the incidence of low income for children under age 6 was 13.3% and for children under 18 it was 11.9%, in 2007. A comparison of the two measures also shows a wider gap in the incidence of low income for children than for other age groups. For example, children under 18 had a low-income rate of 9.5% based on the LICOs-IAT. A key reason is because the MBM accounts for child care costs whereas the LICO does not.

Among persons 65 and over the incidence measured by the MBM was lower than using the post-income tax LICOs (2.6% with the MBM and 4.8% with LICOs-IAT). This was despite the fact that out-of-pocket medical expenses, which tend to be higher for households where the main income recipient ^{Footnote 12} (MIR) is 65 or over, are subtracted from disposable income before comparing it to the MBM thresholds.

This upward pressure from uninsured health costs on the incidence of low income for the elderly using the MBM is more than offset by the impact of the Low Income Measure equivalence scale used by the MBM. Most persons aged 65 and over are part of one and two-person families living in urban communities with populations of 30,000 or more. For these community and household sizes, the Low Income Measure equivalence scale used by the MBM calculates that a smaller fraction of the disposable income of the reference family of four is needed to have a similar standard of living than do the implicit equivalence scales of the LICOs-IAT. ^{Footnote 13}

This means that the relative gap between the low-income thresholds for the MBM and the LICOs-IAT is larger for most elderly persons than for working-age persons or children under age 18. Consequently MBM low-income rates for persons 65 and over tend to be lower than those using the LICOs-IAT.

The significant overall decline in low income rates for persons 65 and over reflects the fact that persons reaching age 65 after 2000 were more likely to qualify for employer-sponsored pension plan benefits and/or to live in couples where both partners had earnings prior to retirement (and consequently two retirement benefit cheques from the Canada/Quebec Pension Plans following retirement). The decline between 2005 and 2007 also reflects increases to the Guaranteed Income Supplement for low income seniors which took effect in January 2006 and January 2007.

Text version of Figure 3: Trends in the Incidence of Low Income by Age Group using the MBM: 2000 to 2007

The MBM thresholds are more sensitive to geographical differences in the costs of shelter and transportation than the LICOs-IAT. A key result of this greater sensitivity is that within each province the differences between the low income thresholds for small communities and larger urban communities are lower than thresholds based on the LICOs-IAT. This reflects several factors; smaller communities not served by public transit have higher transportation costs because operating a used car is more costly than purchasing adult public transit passes and taxi rides. Combined with the fact that incomes tend to be lower in rural areas than in large urban centres, this results in significant differences using the two measures in the geographical distribution of the low income population.

In 2007, according to the LICOs-IAT, only 6.0% of Canada's low income population lived in rural areas while 60.7% lived in the nine Census Metropolitan Areas (CMAs) with populations of 500,000 or more. ^{Footnote 14}However, according to the MBM, in 2007, 11.6% of Canada's low income population lived in rural areas while 50.0% lived in the large CMAs.

4.2 Depth: 2000 to 2007

In addition to the percentage of people living in low income, it is also important to know how far below the low income thresholds their incomes fall. Two populations might have the same incidence of low income. However, if one low income population, on average, has an income just below the low income thresholds while the second, on average, has an income that is only half the low income thresholds, the first population is definitely better off than the second.

In general, the annual changes in depth are slight and not statistically significant; national depth rose slightly, (0.4 percentage points) between 2000 and 2007 (Table 9). More noteworthy are inter-group comparisons of depth. In 2007, the depth of low income was considerably less both for the low income elderly (25.8%) and for low income children (26.0% for those under age 18 and 25.2% for those under age 6) than it was for the working-age population 18 to 64 (35.2%). This reflects the greater generosity of government transfer programs to seniors (such as the Old Age Security Pension, the Guaranteed Income Supplement, and the Canada and Quebec Pension Plans) and to families with children (such as the refundable Canada Child Tax Benefit, the National Child Benefit Supplement and the Universal Child Care Benefit).

Comparing the MBM to the LICOs-IAT, it appears from Figure 4 and Table 9 that working-age persons and children in low income in 2007 experienced a slightly smaller depth of low income using the MBM than using the LICOs-IAT. However, these differences are also not statistically significant (see footnote 11). There is a wider difference in the measure of depth for seniors because their income distribution is more compressed, making depth among them more sensitive to the differences in the low income thresholds used by the LICO-IAT and the MBM.

It is difficult to determine why year-to-year changes occur in the depth of low income or why depth using one measure of low income is higher or lower than using another measure. The change in the depth of low income from year to year is the net result of a combination of influences: 1) how far below the thresholds those moving into low income fell; 2) how close to the thresholds those moving above the thresholds were before they exited low income; 3) whether the disposable incomes of those who remained below the thresholds in both years moved closer to or farther from the thresholds and 4) the low income status of families added to the sample.

Text version of Figure 4: Comparison of 2007 Depth of Low Income using the MBM and the LICOs-IAT

4.3 Persistence: 2002 to 2007

The negative consequences of living in low income, particularly for children, are likely to be more damaging the longer one lives in such circumstances. Thus it is important to know to what extent persons experience persistent, as opposed to short-term, low income.

It is important to understand the difference between experiencing low income in a given year during a period of more than one year, experiencing low income every year during the period and experiencing low income persistently during the period. ^{Footnote 15} Consider, for example, an unattached young woman living alone in 2000 and 2001 who had a disposable income of $12,500 and a low income threshold of $15,000. In 2002 she married and the combined incomes of the two spouses totalled $21,000 compared to their low income threshold of $22,000. In 2003 she became pregnant and stopped earning, but her spouse obtained better-paid work so family disposable income remained at $22,000. In 2004 the baby arrived so their low income threshold rose to $25,500, but their family income, with her parental benefits went up to $27,500. So, over the five-year period from 2000 to 2004, this woman lived in families with a total disposable income of $95,500 while the total of the low income thresholds for those families was $99,500. Therefore she is counted as living in persistent low income for the period from 2000 to 2004 although during the last year of the period, the disposable income of her family was above the low income threshold.

Of all persons aged 18 to 59 in 2002, 23.4% experienced low income for at least one year between 2002 and 2007, using the MBM; while 6.1% (just about one-quarter of those experiencing low income at least one year) experienced persistent low income over this six-year period (Figure 5).

Looking at children under age 13 in 2002, 27.8% were in low income at least one year between 2002 and 2007 using the MBM; while 9.1% (under one-third of those experiencing low income at least one year) experienced persistent low income. ^{Footnote 16}

For those over 65 years of age, 10.0% experienced low income at least once between 2002 and 2007 while 1.9% were in persistent low income over this period.

Text version of Figure 5: At least one year of Low Income and Persistent Low Income using the MBM: 2002 to 2007

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• ¹¹ In this report, Bootstrap weights were used to calculate the standard errors and confidence intervals associated with the estimates presented. When the report says that the difference between two estimates is statistically significant it means that the confidence intervals related to each estimate do not overlap. Return to reference 11
• ¹² The Main Income Recipient in an economic family is the adult in that family who has the highest individual annual income. Return to reference 12
• ¹³ There is no pre-set equivalence scale for the Low Income Cut-offs. The equivalence scales are implicit and arise from the econometric calculations done to establish threshold levels for the different family sizes. Return to reference 13
• ¹⁴ Census Metropolitain areas, from east to west, Québec City, Montréal, Ottawa-Gatineau, Toronto, Hamilton, Winnipeg, Calgary, Edmonton and Vancouver Census Metropolitan Areas. Return to reference 14
• ¹⁵ See Tables 3a and 3b in Section V. Return to reference 15
• ¹⁶ To ensure that persons do not move out of their age group during the period of observation, it is necessary to restrict the sample for the beginning year of the panel (2002) to those under age 13 in the case of children and to those 18-59 in the case of working-age adults. This convention is followed in all discussions of low-income persistence in this report. Return to reference 16

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Date Modified:

2011-12-14