POVERTY IN CANADA

POVERTY IN CANADA

Rudy Pohl

PreambleApril 2002
This article is the second in a series of articles looking at homelessness in Canada. The first article, posted November 2001, was a general introduction to homelessness and presented a brief overview of some important aspects of homelessness such as the size and makeup of Canada’s homeless population. Attention was drawn to the unusual fact that the incidence of homelessness has been dramatically increasing in the last two decades despite the steady rise in overall national prosperity — one would have expected the opposite.

As well, the article discussed the recent hardening of public attitudes toward the homeless as reflected in new, tougher anti-vagrancy and anti-begging laws being enacted across the country. Finally, the article briefly introduced what, according to some experts, are the three main causes of homelessness in Canada. These are: 1) an overall increase in the number of poor people, 2) an overall decrease in the number of affordable housing units in our urban centres and, 3) a nation-wide closing of government-run mental health institutions, forcing thousands of former and would-be patients out into the community without proper support where many of them end up poor and on the street.

Each of the three remaining articles in this series will present an in-depth investigation of these three causes of homelessness in Canada, beginning with this article which investigates poverty.
See Article 1 An Introduction to Homelessness in Canada

Poverty in Canada: The Debate
Poverty is a reality in Canada today. Despite having one of the highest standards of living among all the developed nations, and despite being voted numerous times in recent years by the United Nations as the best country in the world in which to live, experts agree that poverty is prevalent in Canada today. Unfortunately, that is more or less where the agreement ends. Exactly how prevalent and how serious a problem poverty is in Canada is an open question that has been hotly debated for the last 10 years. In fact, the very definition and meaning of the term poverty is in dispute.

On one side of the debate is a broad unofficial coalition of government departments and agencies at various levels and numerous private sector agencies who share a common mandate of alleviating poverty in Canada. We will call this group the “anti-poverty coalition.” Although generalizations are always risky, we can safely say that this group is to the left of centre on the political spectrum and is somewhat socialistic in its social philosophy. This group supports a highly regulated market economy and supports significant increases in government spending on social programs through the redirection of existing funds and/or new funds raised through increased taxation.

On the other side of the debate is another broad unofficial coalition, this one being made up of government departments and agencies and numerous private sector institutions and agencies whose primary mandate is promoting business and commerce within Canada and trade between Canada and others nations. We will call this group the “pro-business coalition.” This group is to the right of centre on the political spectrum and its members would class themselves as political and fiscal conservatives. This group favours a much less regulated market economy than the first group both at home and in the global context, and generally favours less government spending on social programs and decreased taxation.

The first group — the anti-poverty coalition — uses a certain definition of poverty and a certain method of measuring poverty, based on income, to arrive at a set of “poverty lines” for individuals and for various family types and sizes living in different regions of the country. For example, the poverty line for a family of four living in Toronto in the year 2000 was set at $33,665, thus any family whose pre-tax income was less than this amount was considered to be living in poverty (1). In regards to child poverty, a key social issue since a 1989 all-party resolution to end child poverty by the year 2000, this group arrives at a figure of about 20%, thus approximately 1 in 5 Canadian children are said to be living in poverty. A leading spokesperson of this group is Kevin Lee of the Canadian Council for Social Development. Lee is a senior researcher for the CCSD and has recently published a major work called “Urban Poverty in Canada: A Statistical Profile” which can be found online at: www.ccsd.ca/pubs/2000/up

The second group — the pro-business coalition — argues that the first group uses a definition of poverty that is far too broad to be realistic, and that it uses an inappropriate method of measurement as well as problematic data, and as a result arrives at so-called “poverty lines” that are highly inflated giving the impression that the situation in Canada is much worse than it actually is. This second group uses a far more restrictive definition of poverty and uses a method of measurement that is based on the cost of a list of certain basic necessities of life, rather than on income, and arrives at a set of “poverty lines” that are about half of those of the first group. According to the second group, the poverty line for the same family of four mentioned above was $18,856 in the year 2000 — almost $15,000 below the first group’s figure (2). In terms of percent totals, while the first group maintains that approximately 17% of all Canadians are living in poverty, the second group claims that the actual rate is around 8%. Regarding child poverty, the first group says it is 20% and the second says it is 10% (3). Christopher Sarlo of the Fraser Institute is a leading spokesperson for this group. Sarlo is an Associate Professor of Economics at Nipissing University, in North Bay, Ontario and has recently published “Measuring Poverty in Canada” which can be found online at: Measuring Poverty in Canada

Defining Poverty
Central to any discussion on the definition of poverty is the classical economist Adam Smith (1723 – 1790) whose thoughts relating to poverty continue to be used by both sides of the debate today. For Smith poverty was essentially the lack of the basic necessities of life, which he called “necessaries”. Smith wrote:

By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt…. Custom, in the same manner, has rendered leather shoes a necessary of life in England. The poorest creditable person of either sex would be ashamed to appear in public without them. (Adam Smith: An Inquiry into the Nature And Causes of the Wealth of Nations, 1776, Book Five: Chapter II, Article IV)

According to Smith, there is in every society an absolute minimum standard of living which consists of survival necessities (shelter, food and clothes), plus additional non-survival necessities as determined by each society’s customs (such as owning a linen shirt and a pair leather shoes in his day). Together these necessities meet not only a person’s basic survival needs, but also allow that person to participate in society with dignity and without the shame and stigma often attached to being poor. To allow any person to live below this minimum standard would, to use Smith’s term, render that society “indecent.”

One of the strengths of Smith’s approach is that it prevents us from making invalid comparisons between widely different societies and economies. By his words, “the custom of the country,” Smith is saying that we cannot compare the poverty found in a country like Canada with the poverty of a country like Bangladesh where people earn just pennies a day. We cannot say that the poor in Canada live like kings compared to the poor in third world countries, and so by comparison are not really poor at all.

Another strength of this approach is that it’s not time-sensitive. Since the non-survival necessities of life are determined by the customs of a society, which can and do change over time, Smith’s method is as valid today as it was almost 300 years ago.

Unfortunately, this last strength is also its most serious weakness, in that it leaves the door wide open for disagreements over which specific commodities and how much of each should be included among the non-survival necessities of life, and this is exactly what is happening in the Canadian poverty debate today. Members of the anti-poverty coalition include far more items on this list than those of the pro-business coalition, who claim that these kinds of items are actually amenities, not necessities, and claim that by including such items the true meaning of the word poverty no longer applies.

Measuring Poverty in Canada: A Jungle
Canada has no official definition of poverty, no official method of measuring poverty, and no official set of poverty lines. In the absence of any kind of official government-approved methodology the debate over how to measure poverty continues to boil.

There are presently two main methods being used to measure poverty plus a few minor variations of each. One method uses the Low Income Cut-off figures (LICOs) produced by Statistics Canada which are based on pre-tax income data. This method has been around since the 1960s and is used almost universally by members of the anti-poverty coalition. The other method is the Basic Needs Measure approach which is based on the cost of a list of certain basic necessities of life. This method was developed by Chris Sarlo of the Fraser Institute in 1992 and is used almost universally by the pro-business coalition.

Recently, Human Resources Development Canada with the participation of the provinces and territories developed another method of measuring poverty called the Market Basket Measure approach (MBM) which is also based on expenses rather than on income. This method is similar to the Basic Needs method and was developed because of a long-standing dissatisfaction within governments with the income-based LICO method. The MBM method established the poverty line for a family of four living in Toronto in the year 2000 at $ 22,779. That’s about $4,000 higher than Sarlo’s Basic Needs figure of $18,856, and about $11,000 lower than the LICO-based figure of $33,665.

Before we can proceed with our general investigation of poverty in Canada, we must first cut a path through this poverty-measurement jungle. The issue of how to measure poverty stands at the centre of an intense and often highly emotional, socio-political debate in Canada today. And because of the differences between definitions and measuring methods there are huge differences between the resultant poverty figures used by the two groups. Each of us must carefully consider these differences and then settle on the position we feel is correct before we can start participating in the discussion on poverty in a meaningful and informed way.

Three possible options are open to us. One, we could affirm and adopt the definitions, methods and figures of the anti-poverty coalition which are based on the Low Income Cut-Offs (LICOs). If we choose this option we would agree with the statements that 17 percent of all Canadians live in poverty; 20 percent of all Canadian children, or 1 in 5, live in poverty, and a family of four living in Toronto in the year 2000 with a gross income under $34,000 would be in poverty.

Two, we could affirm and adopt the definitions, methods and figures of the pro-business coalition which are based on the Basic Needs approach proposed by Sarlo. If we choose this option we would agree with the statements that only 8 percent of all Canadians live in poverty; only 10 percent of all Canadian children, or 1 in 10, live in poverty (as bad as that is); and a family of four living in Toronto in the year 2000 with a gross income under $19,000 would be in poverty.

Three, based on the simple premise that rarely is anyone completely wrong or completely right, we could settle on some kind of middle position between these two, which is what the people at HRDC have done with the Market Basket Measure. I personally have chosen this third option after having done the research for this article and coming to see some the problems that exist with each of these approaches.

There is no question that serious weaknesses exist in the LICO approach to measuring poverty, as Sarlo, HRDC and Statistics Canada maintain. In fact, Statistics Canada, which has been producing the LICOs for almost forty years, has repeatedly warned that LICOs are not poverty measurements and should not be used as such, rather they are measurements of low-income. At the same time, while I feel that the Basic Needs approach proposed by Sarlo (and HRDC) is a better method than the LICO income-based method, I agree with his critics who say that his numbers are simply too low for the accepted minimum standard of living in our society today. I find this especially so when it comes to rent allowances in large cities.

So then, if we were to adopt an exact middle position between the anti-poverty coalition and the pro-business coalition we would average both their poverty figures to arrive at the following results: 12.5 percent of all Canadians live in poverty; 15 percent of all Canadian children, or 1 in 6.5, live in poverty; and the poverty line for a family of four living in Toronto in the year 2000 was $26,260. Based on this middle position, we could then say, broadly speaking, that the LICO approach to poverty measurement yields poverty figures that are about 25 percent too high and the Basic Needs approach of Sarlo produces results that are about 35 percent too low. While such a straight-forward compromise may seem a bit simplistic to some, my guess is that these figures are not all that far from reality.

It is impossible, given the space limitations, to do any kind of in depth investigation into these two methods of measuring poverty in this article. However, for those who wish to delve deeper into this area, please see Appendix A at the end of this article.

Who are the Poor?
One danger when discussing definitions and methodologies is that we can get so focused on the details that we lose sight of the actual people themselves, those who are suffering and struggling in poverty. With this in mind and without further delay let’s now turn our attention to them. Who are the poor in Canada? Are there any identifiable persons or groups who are more likely to be poor than others? Is age a factor? What about gender, race? What about geographical factors? Does living in certain parts of the country make you more likely to be poor than living in other parts?

Kevin Lee from the Canadian Council on Social Development addresses these and other crucial questions in his publication “Urban Poverty in Canada: A Statistical Profile.“ Lee uses the Low Income Cut-offs for all his research, but because his work is almost entirely comparative in nature, his findings are not negatively affected by the weaknesses of the LICO method of measuring poverty.

For example, Lee compares the incomes of various demographic groups based on criteria such as gender, age, race, education and skills levels, and finds that certain groups are significantly worse off than others. He compares all these groups between themselves using the same income data from 1996 Census and the same LICO “poverty” lines produced by Statistics Canada, so while we may disagree with where Lee draws his final poverty lines, the results of his relative comparisons, that is, his ratios and trends, are valid. For example, we can disagree with Lee’s figure for the total number of single-parent families living in poverty in 1995 (because it is based on LIOCs which in fact don’t measure poverty), while at the same time completely agreeing with his finding that single-parent families have a “poverty rate” that is 2.45 times higher than non-single-parent families. To be able to use his trends and ratio results makes his work extremely valuable to all investigators regardless of which side of the poverty debate they are on. Lee does similar comparative studies between Canadian communities and cities.

Lee writes:

“Urban Poverty in Canada brings a novel perspective to the study of poverty in Canada by examining it at the local level and comparing the situation in cities across the country. Using data from the 1996 Census and Statistics Canada’s Low Income Cut-offs to measure poverty, the study demonstrates that substantial differences in income exist within and among Canadian communities.“ (Lee, p. xv)

The main findings of Lee’s study include the following:

1. From 1990 to 1995 the total number of poor people in Canada increased dramatically.
During this period, Canada’s total population increased by 6.1 percent, whereas the population of those considered poor increased by 28.6 percent, far outstripping the overall growth.

2. Poverty is largely an urban phenomenon.
In 1990, 66.6 percent of the poor population in Canada lived in metropolitan centres. 70 percent of all poor people live in either Montreal, Vancouver or Toronto. Between 1990 and 1995, poverty rates rose in every city examined.

3. Poverty rates varied substantial between cities.
Cities in Quebec had the highest poverty rates while cities in southern Ontario had the lowest. For example, Montreal had the highest rate in Canada, 2.5 times higher than Oakville, which had the lowest rate.

4. Certain population groups were more likely to be poor than others.
These included:
• Single-parent families, whose poverty rate was 2.45 times higher than the average.
• Aboriginal persons, whose poverty rate was 2.26 times higher than the average.
• Recent immigrants, whose poverty rate was 2.17 times higher than the average.
• Visible minorities, whose poverty rate was 1.53 times higher than the average.
• Persons with disabilities, whose poverty rate was 1.47 times higher than the average.

5. Poverty rates varied considerably according to age and gender.
The young and the elderly are more likely to experience poverty. The incidence of poverty declines with age until age 45 to 54, after which it rises again. Women in every age groups are more likely to live in poverty, and women seniors above age 75 are the most like of any group. Among males, boys up to age 14 had the highest poverty rate. Children and youth made up one third of the total poor population.

6. Poverty rates varied based on education levels.
As expected, in every city examined persons with less than high school education were more likely to be poor than those with a post-secondary level education. However, at least 6 percent of post-secondary graduates in every city lived in poverty, and in six cities that rate was over 20 percent.

7. Poverty rates varied based on occupational skills levels.
As expected, persons with lower skills levels had a higher incidence of poverty, however high-skills workers still had high poverty rates in some cities. For example, in Montreal almost 20 percent of high-skills workers were living in poverty as compared to 4.5 percent in Gloucester or Burlington.

8. The average income for working-age families in Canada was $60,400.

9. The average income for working-age “poor” families in Canada was $14,500.

To summarize Lee’s findings in a few broad strokes we could say the following: As might be expected, those who are society’s most vulnerable, most disadvantaged, and least equipped to compete in a highly-competitive, fast-polarizing labour market, find themselves most likely to be living in poverty. This likelihood increases even further if one is living in any one of a number of cities that has exceptionally high poverty rates, the worst ones being cities in the province of Quebec, and most notably Montreal.

Lee’s work is so extensive and detailed that we can’t do much more here than briefly mention a few of his primary findings. The reader is encourage to go to the CCSD internet link provided above and download this imporant resource.

Child Poverty In Canada
We cannot leave this section on “Who are the Poor” without at least mentioning the issue of Child poverty in Canada, which has recently become one of the most important social issues in the country.

Twelve years ago, on November 24, 1989, the House of Commons unanimously passed an all-party resolution which resolved to eliminate child poverty in Canada by the year 2000. The actually wording was as follows: “This house seeks to achieve the goal of eliminating poverty among Canadian children by the year 2000.”

In 1989, when this commitment was made, the child poverty rate in Canada (based on LICOs data) was 14.5 percent, or 936,000 children. In 1999, ten years after this promise was made, the child poverty rate was 18.5 percent, or 1,298,000 children. Regardless of which method of poverty measurement one endorses, the trend is nevertheless glaringly obvious. Rather than seeing a significant drop in child poverty as we would surely expect after such a major public commitment made by all our federal politicians, we see instead an increase, and a whopping one at that. Let’s do a couple of quick calculations to see how bad this actually is, and to show how useful the middle approach to poverty measurement is.

1. Using the LICO-based data above, there were 362,000 more children in poverty in 1999 than in 1989. That was an increase of (362,000/936,000) X 100 = 39%!

2. Using our middle position method, we first reduce all the LICO numbers by 25%. After this adjustment, there were (963,000 X .75) 702,000 children in poverty in 1989, still a dreadful situation. And there were (1,298,000 X .75) 973,500 children in poverty in 1999, an increase of 271,500! The actual rate of increase in child poverty over this decade using these adjusted figures was still (271,500/702,000) X 100 = 39%! A national disgrace!

Despite a period of unparalleled economic expansion in the mid 1990s, this decade was one of failed expectations and broken promises for children and their families. And at a time when governments had a growing capacity to invest in a long-term vision for children — AS THEY HAD PROMISED TO DO — they chose instead to cut taxes and dismantle much of the social system that protected families.

For those who want to know more about this key issue, visit the website of Campaign 2000 at Child Poverty and Campaign 2000

• One final bit of “poverty trivia:” The number of foodbanks in Canada has increased 187% since 1988.

The Structural Causes of Poverty in Canada
We can better understand the recent worsening situation of poverty in Canada if we first get a little historical perspective. There have been two times in the past 300 years when economic structural changes have occurred in the world that have been so massive and so far-reaching, that the impact on societies has been nothing short of monumental.

The first time was in the Industrial Revolution which began in the early 1700s and caused massive societal transformations, especially in the western world, changing life from agrarian-based societies to industrial-based societies. The second time was in the early 1980s with the beginning of the “Information Revolution.” Today, a rapid, world-wide, economic transformation is taking place that is changing our societies from industrial-based societies to information-based societies. The Industrial Age, with its manufacturing-based “smoke-stack economies,” is quickly being replaced by the Information Age and its computer/telecommunications-based economies. The changes that are taking place are profound and the casualties are many. (see Alvin Toffler’s books “The Third Wave” and “Powershift” for more).

These changes are part of a greater phenomenon called “globalization” which in a nutshell works like this. In the last three decades, with the increases and improvements in communications, transportation and distribution (and a few other factors), came an increase desire for trade between nations. With this came a general easing of trade barriers and restrictions (GATT, Free Trade Agreement) allowing foreign companies to sell in Canada and thereby compete with Canadian companies, and vice versa. This increased competition lead to ever greater pressures on Canadian companies to reduce their costs of producing goods. Many companies could not compete and either closed down permanently, or closed their Canadian-based manufacturing plants and opened new ones in third-world nations where workers are paid a fraction of Canadian labourers’ wages for the same work.

At the same time this was happening, computer-based technologies were coming of age and revolutionizing the way we live and the way we do business, bringing even greater competition. Year after year, more and more formerly labour-intensive jobs were replaced or reduced by some form of computerization or robotics. What it formerly took 10 unionized assembly-line workers to do could now be done in a fraction of the time by one computer-assisted employee. Entire industries that had employed hundreds of thousands of workers either died or were modernized with massive layoffs following. The cumulative results over the years of all these changes have been substantial.

One result has been the polarization of our labour market into high-skills, high-paying jobs on one end of the spectrum, and low-skills, low-paying jobs on the other end. With massive reductions in our manufacturing-based economy, large numbers of low-to-medium skills, well-paying jobs have been permanently lost. Most of these manufacturing jobs had been unionized jobs that did not require overly high educational levels, paid fairly well, and provided many benefits. Thus, the average factory worker in Canada had little difficulty making a half-decent living and raising a family.

While these types of jobs still do exist today, the problem is there are simply far fewer of them. And while the new economy does have a significantly larger service industry, the jobs in this sector are generally not unionized and generally do not pay well at all. For those who are not highly-qualified in today’s demanding, competitive labour market, the prospect of finding a full-time, well-paying job is becoming increasingly bleak. The overall effect of these changes is that more and more people are being forced into very low-income situations, or long-term unemployment, and for some, welfare and poverty. Naturally, those who are disabled, disadvantaged or discriminated against, are going to find it even more difficult to keep their heads above water.

A Double Whamee: Globalization and Government cut-backs
At a time when entire national economies are undergoing historic changes, governments might well be expected to help cushion the blows of globalization on those citizens most negatively affected, either through the creation of innovative social programs or through increased spending on existing programs. Instead in Canada, amazingly, the exact opposite has happened. Just when more help was needed, less help was offered.

In an effort to make Canada ever-more competitive in an increasingly mean and lean global market, federal and provincial governments during the 1990s offered huge tax credits and promoted business in many ways while making massive cuts in social spending and restructuring entire sections of the social safety net. The very people who were most negatively affected by the new structural causes of poverty in Canada, and who needed the most help, now had fewer resources available than ever before.

An excellent and well documented article on this topic can be found online at the website of The Ecumenical Coalition for Economic Justice. This article shows in detail how the Canadian government succumbed to regular pressure from globalizing institutions like the International Monetary Fund (IMF) which strongly recommended that Canada make strategic structural adjustments that would reduce spending on social programs and “grant greater power to private markets.” It also shows how Canada followed this and other advice for several years to the detriment of social programs.

Appendix A: Measuring Poverty

Low Income Cut-offs (LICOs)
Michael Goldberg, a research director with the Social Planning and Research Council of British Columbia and respected member of the anti-poverty coalition, has written:

“The National Council of Welfare and most other social policy researchers use the low income cut-offs as their preferred measure of poverty. In the absence of any unforeseen and dramatic developments, my guess is that most of us will continue using LICOs for years to come.” (Defining and Measuring Poverty in Canada: Proceedings: Prince George Form April 3, 2000, Edited by Michael Goldberg and Jean Pulkingham Defining and Measuring Poverty in Canada

The low income cut-offs or LICOs as they are called, were developed in the 1960s by a Statistics Canada researcher named Jenny Poduluk as a method of measuring low income, and were based on 1961 census data. The income data available at the time showed that families of different sizes living in centres larger than 15,000 spent about 50 percent of their pre-tax income on the three basic survival necessities of food, shelter and clothing. Ms. Poduluk added 20 percent to this figure and thereby defined the low-income population of Canada as those people who spent 70 percent or more of their gross annual income on these three basic necessities of life. Her reasoning, in her own words, was as follows:

“It was assumed that where expenditures on these components were well above average, that is, where they accounted for 70 percent or more of family income available, such families might be in ‘straightened circumstances.’ They would have little discretionary income left after expenditures on the basic essentials, or income to pay for medical care, education of children, recreation and so forth, or for savings.”

Those who oppose the use of LICOs as poverty measures make several points against their continued use as such, however, the most damaging by far is the following. Recent census data has shown that the average Canadian family now spends only 34.7 percent on the three basic necessities, and when we add Poduluk’s arbitrary figure of 20 percent to this figure, we end up with a total of 54.7 percent. Thus, according to those who advocate LICOs as poverty lines, anyone spending about 55 percent of their pre-tax income on food, shelter or clothing is living in poverty. This would also mean that anyone living at the poverty line would have a “discretionary income” of 45 percent of their annual pre-tax income, which would mean, by definition, that they could not possibly be poor. We know of course, that those living in poverty do not have anywhere near a 45 percent discretionary pre-tax income, if they have any at all, and thus we can see the inherent weakness in using LICOs to measure poverty. The numbers simply don’t make sense and are guaranteed to yield inflated results.

The intended purpose of Statistics Canada’s Low Income Cut-offs from the beginning, was never to measure poverty, but to measure low income as their name implies. And while they may have been reasonably, although incorrectly, used 30 years ago as so-called poverty lines, the above example shows how inappropriate such an approach is today, yielding numerical results that are open to challenge.

It is important to realize that the controversy surrounding LICOs is not over their validity in and of themselves, or their accuracy, or even their continued use as measurements of “low income.” Rather, the controversy is over them being called “poverty lines” and being used as such, especially by those in the anti-poverty coalition. For example, Kevin Lee of Canadian Council on Social Development writes: “Canada’s unofficial definition of poverty is based on Statistics Canada’s Low Income Cut-offs(LICOs)” (Urban Poverty in Canada, p. 99). Yet Statistics Canada, which itself produces the LICOs, has for years published warnings and disclaimers saying that the LICOs do not measure poverty and thus should not be considered as poverty lines or used as such.

In 1997, StatsCan’s chief statistician, Ivan Fellegi went so far as to write:

“For many years, Statistics Canada has published a set of measures called the low income cut-offs. We regularly and consistently emphasize that these are quite different from measures of poverty. They reflect a well-defined methodology which identifies those who are substantially worse off than the average. Of course, being significantly worse off than the average does not necessarily mean that one is poor.… Statistics Canada does not and cannot measure the level of poverty in Canada.”

Consider then, the situation as it exists today. There is an official government ministry — Statistics Canada — who for almost forty years has gathered data and produced a set of low income figures which it warns are “quite different from measures of poverty,” and then further states that it “does not and cannot measure the level of poverty in Canada.” And yet, despite these repeated warnings and disclaimers, and despite the obvious weakness inherent in this method when misapplied to measuring poverty as seen by the example above, there is nevertheless, an entire coalition of organizations and individuals who insist on using these figures for exactly this purpose. Naturally, the continued existence of such a serious methodological weakness has left the door wide open for a major challenge to be leveled against it sooner or later, and such a challenge finally came in 1992 by Chris Sarlo of the Fraser Institute.

Basic Needs – Market Basket approach
In 1992, Sarlo published “Poverty in Canada” in which he outlined his criticisms of using LICOs as poverty measures and proposed instead a method of measuring poverty which he termed the “Basic Needs” measure of poverty. In 2001 he published a revised and updated version of this publication called “Measuring Poverty in Canada.” Sarlo writes:

“In 1992, Poverty in Canada proposed an alternative measure of poverty based on the costs of a list of necessities. This approach is founded on the belief that poverty is a serious predicament. It means (and has always meant) insufficiency and discomfort. It conjures up images of hungry children and inadequate housing. Anyone who is concerned about poverty should want to know how many of our fellow Canadians simply cannot afford the basic necessities of life. This is the sole purpose of the basic-needs approach. The basic-needs approach described in this publication, Measuring Poverty in Canada, has undergone a thorough-going review” (Sarlo, p. 5).

Sarlo’s Basic-Needs approach or what others, especially HRDC, have called the Market Basket Measure approach, is a method of measuring poverty that is based on the actual cost of a pre-determined list of survival (shelter, food, clothes) and non-survival necessities of life. The costs of these various items are determined by using the official Consumer Price Index and FAMEX, the 1997 Statistics Canada Family Expenditure survey. A detailed list of actual items and quantities used by Sarlo can be viewed in his online publication. Sarlo makes various adjustments based on factors such as family size, individual status (disabled, able-bodied) and the size of population centre in which the person lives to arrive at a series of poverty lines. As mentioned previously, his calculations result in a set of figures which include $8,900 for a single adult living in a major centre like Toronto in the year 2000, and $18,856 for a family of four living in the same size of centre. On average Sarlo’s poverty lines are slightly more than half of those based on LICOs.

The response from anti-poverty groups across Canada to Sarlo’s 1992 work was swift and intense, ranging from severe distain to outright ridicule. The consensus was that his definition of poverty was far too restrictive — to the point of being “indecent,” that his survival item costs, especially rent allowances, were unrealistically low, and that the non-survival items on his list were far too few in number, too low in quantity, and too low in cost. In the years following his first publication Sarlo seems to have heard his critics on these particular issues as he significantly increased his list of non-survival items and their quantities in his 2001 publication. Nevertheless, even after these upward re-evaluations, his poverty lines are still only 55 percent of those using LICOs.

One major strength of the basic-needs method is that it is precise and transparent. We can see exactly which items are included in our list of basic necessities, how much or how many of each, and what each costs. This allows us to easily evaluate whether or not such a list and it’s resultant poverty lines are realistic or not. For example, we can look at Sarlo’s list of basic needs and compare his allowance for a 3-bedroom apartment in Toronto in the year 2000 with other rental data from a credible source, and can conclude for ourselves whether Sarlo is off the mark or not. We can look at his list and quantities of non-survival items, and we are able say that based on Adam Smith’s definition of poverty, there are not sufficient items or quantities on this list, and as such, it is not realistic. In other words, because this method is precise and transparent, and because it measures actual costs rather than pre-tax income ratios, we have a solid basis for critical evaluation and debate. The same cannot be said for LICOs when used as poverty measures.

These factors were behind a recent project in the area of poverty measurement lead by Human Resources Development Canada with the participation of the provinces and territories. As a result of long-time dissatisfaction with LICOs being used as poverty measures, the provinces and territories wanted a new way to measure poverty that was “easy to understand, sensitive to geographic cost differences, and related to changes in costs of consumption rather than to changes in income“ (HRDC 1998:1). The result was a method of poverty measurement called the “Market Basket Measure“ or MBM, which turned out to be essentially Sarlo’s basic-needs method but with more non-survival items included on the list than he had. The MBM method established a poverty line for a family of four in Toronto in the year 2000 at $ 22,779, about $4,000 higher than Sarlo’s figure of $18,856, and $11,000 lower than the LICO-based figure of $33,665.