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Description
In the 1990s, children living in poverty preoccupied social policy analysts. The high profile response was the National Child Benefit System, a negative income tax * paid by Ottawa targeting low-income families with children. (1) In this decade, adult poverty has assumed a comparably high profile. For example, the presence of an open drug market, widespread prostitution, homelessness, and mental illness in Vancouver's Downtown Eastside is a serious blot on the city's self-image. Over the last decade, the local and provincial governments have attempted many remedies--with negligible success. The most recent proposal, from the provincial government, acknowledges that deinstitutionalization of psychiatric patients, here as elsewhere in North America, has been pursued too far. The proposal is to renovate a century-old mental hospital in suburban Vancouver to accommodate and treat 1,100 mentally ill people currently living in downtown Vancouver (Cernetig 2007).
Several high-profile policy studies address the issues of adult poverty, including reports by the Toronto Task Force on Modernizing Income Security for Working-Age Adults (MISWAA 2006) and the Caledon Institute (Battle et al. 2006). These two reports propose a "new architecture" and extrapolate from the analysis of child poverty to make the case for a negative income tax as the foundation of adult anti-poverty policy. The thrust of both is to dismiss the "old architecture" as a failure. The MISWAA report (2006, 11) categorically affirms, "the income security system for working-age adults in Ontario does not work." Ken Battle (2006, 1) and colleagues "explain why current programs--especially welfare and Employment Insurance, the two core adult benefits--fail to meet the needs of working-age Canadians."
Conclusions such as these are throwing out the baby with the bathwater. To make them requires ignoring evidence of substantial social policy success in recent years. Over the last decade, the unemployment rate has fallen; the employment rate has risen; the overall poverty rate has declined.
Not all is right with Canadian social policy--certainly there is much wrong in Vancouver's Downtown Eastside. But these trends suggest that some things are going well. A combination of favourable labour-market changes and effective policy changes has had a beneficial impact on poverty in Canada.
In summary, this Commentary proceeds as follows. The next section briefly documents trends in poverty in Canada. These include not only a notable decline in the poverty rate over the last decade, but higher median incomes among those demographic categories at the highest risk of experiencing poverty. Moreover, aggregate statistics point to a strong link between Canada's higher employment rate and lower poverty rate. There follows a comparative discussion of US and Canadian experience in welfare reform. I discuss the major strategies implemented in each country, which can be informally characterized as "soft love" or "tough love" in approach. Federal and provincial social policy reforms of the last decade were, in many instances, blunt instruments whose impacts have not been clearly assessed. This study employs simple difference-in-difference regressions to gain a tentative assessment of the importance of "supply side" shifts in welfare policy in the three provinces (Alberta, Ontario, and British Columbia) to have undergone the most dramatic shifts over the last 15 years. I conclude that to make further progress in tackling poverty, rethinking and refinement are in order. The final section introduces six dossiers in need of attention.
Canadian Poverty Trends
In terms of the low income cut off * (LICO), Canada's traditional poverty threshold measure, poverty declined significantly over the last decade (See Figure 1). This is true for Canadians overall, and for several groups of particular concern. Between 1996 and 2005, among all Canadians, the post-tax, post-transfer LICO poverty rate fell from 16 to 11 percent. Over these nine years, the rate among children living in female lone-parent families fell from 56 to 33 percent. Among unattached men, it fell from 38 to 32 percent; among unattached women, from 47 to 37 percent. (2)
Figures 2a, 2b and 2c illustrate more encouraging news: the increase since 1996 in post-transfer, post-tax median * incomes among those in three groups at high risk of experiencing poverty. Not only are median incomes now higher, but the increases are primarily due to increased market earnings, not to increases in net transfers.
Changes in median market income among any group arise from a combination of two factors: changes in earnings among those working and changes in the employment rate among members of the group. Over the decade, median market income increased only slightly within families, holding constant the number of members working. The increases in post-transfer, post-tax median incomes and declines in the poverty rate within these particular categories have been driven primarily by the relative decline in "no earners" among them (Canada 2007, 25).
Figure 3 is a scatter plot illustrating the relationship between Canada's poverty and employment rates over the last decade. These statistics are at an aggregate level, but they are highly suggestive: the link between Canada's higher employment rate and lower poverty rate is very strong. The higher employment rate appears to be the key proximate variable to explain the decline in poverty.
This brings us to the question: why has employment income dramatically increased among those at risk of poverty? There is no definitive answer, although partial explanations have been put forward, including improved education levels in the case of lone mothers. (3) As I discuss below, there is considerable evidence pointing to the importance of changes to provincial welfare protocols, changes rendering access to welfare more difficult among those deemed employable. These changes had the effect of increasing labour supply among the low skilled. Other policy innovations also matter, as does the overall increase in labour demand arising from sustained growth of the Canadian economy over the last decade.
[FIGURE 3 OMITTED]
Policies to restrict access to transfer income and induce the low skilled to enter the labour market have an adverse side effect. The minority who do not, for whatever reason, obtain employment often become worse off. One measure of this is the poverty gap *, the distance between a poverty threshold and the average income of those whose incomes ate below it. Over the course of the last decade, the gap increased somewhat for three of the four categories illustrated in Figure 4. However, it is worth noting that, over the decade 1996 to 2005, market income inequality, as measured by the Gini coefficient *, did not rise. It declined, if only slightly. (4)
The US Experience: "Soft Love," "Tough Love" and the Importance of Employment as a Policy Goal
The pioneers of rigorous policy analysis directed at poverty programs are largely American. Since the 1960s, US debate over anti-poverty policy has been intense. It reached a crescendo in 1996 when a Republican-controlled Congress enacted legislation to end the New Deal era federal grant (Aid to Families with Dependent Children (AFDC)) destined to fund state welfare programs. In its place, Congress proposed a new block grant (Temporary Assistance for Needy Families) that imposed time limits on welfare access, and mandated states to launch programs inducing welfare-to-work among those deemed employable. Over strenuous opposition from many fellow Democrats, then-president Bill Clinton signed the legislation. If this was "tough love," it must be added that during Clinton's first term, Congress also undertook "soft love" in the form of a major expansion of the program (Earned Income Tax Credit) that supplements effective wage rates among low-income families with children.
Over the second half of the 1990s, the combination of a vibrant economy and ambitious "soft" plus "tough" love programs directed at increased employment succeeded in reducing the US welfare caseload by over half. To cite a prominent analyst, writing about post-1996 outcomes:
More significant caseload declines and larger increases in labor force participation among less-skilled mothers occurred than many observers would have predicted. Entry into welfare fell, and exits from welfare rose. There remains debate as to how much these results were due to a strong economy, to program reform, or to their interactive effects. While some of this change in behavior is due to traditional labor supply responses to growing wages and increased financial incentives to work, the changes were greater than historical experience would lead one to expect. (Blank 2002, 1159).
In general, the misgiving among many Democrats over implications of the 1996 legislation proved unfounded. Average income transfers to the poor declined but so, too, did the proportion living below US poverty thresholds. In the case of female lone-parent families, for example, the poverty rate... |
More articles from C.D. Howe Institute Commentary
Falling poverty rates, rising employment among poor, reflect social po..., October 01, 2007
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