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Income in Canada

Chapter VIII : Low income

A person in low income is someone whose family income falls below Statistics Canada's low-income cutoffs (LICOs). The cutoffs reflect an income level at which a family is likely to spend significantly more of its income on food, shelter and clothing than the average family.

Low-income cutoffs have been calculated using both total income (that is, income after government transfers but before taxes) and after-tax income. The analysis below provides after-tax low-income information. Statistics Canada considers this measure to be preferable for two main reasons. First, income taxes and transfers are essentially two methods of income redistribution. The before-tax rates only partly reflect the redistributive impact of Canada's tax/transfer system, by including the effect of transfers but not the effect of income taxes. Second, since the purchase of necessities is made with after-tax dollars, it is logical to use people's after-tax income to draw conclusions about their overall economic well-being.

When is someone counted as being in low income? Low-income cutoffs depend on family size since larger families need more income to meet their needs. The cutoffs also take into account the varying costs by community size. In 2002, a family of four living in a city with a population of half a million or more would be counted as low income if the total of the after-tax income for all family members fell below the cutoff of $30,576. For the same family living in a rural area, the cutoff was $20,047.

After five years of consecutive reductions, in 2002, low income rate for families stopped dropping

After five consecutive years of decrease in the low-income rate, reflecting a well-performing economy and a decrease in income taxes, in 2002 the low-income rate stopped dropping. Since the increase from 2001 to 2002 is not statistically significant, only the subsequent years of data will allow to determine if the trend has changed. This low-income rate in 2002 represents an estimated 605,000 families.

Although the low-income rate has changed, the financial situation of families below the low-income cutoff has remained unaffected over the past 6 years. In 2002, families in low income would have needed, on average, an additional $6,900 in after-tax dollars to reach the low-income cutoff. In relative terms, this gap was 30% of the low-income cutoff. During the years 1996 to 2001, this gap for low income families was between 30% and 32%.

Among unattached individuals, 1,015,000 or 25% were in low income in 2002, down from 34% in 1996 and 26% in 2001. Unattached individuals in low income would have needed, on average, an extra $5,200 to reach the low-income cutoff in 2002. In relative terms, their low income gap was 36% of the low-income cutoff. During the years 1996 to 2001, this gap for low income unattached individuals varied between 37% and 39%.

Low-income rate varied, depending on family type and number of earners

Over the last seven years, the low-income rate for elderly families did not change much, decreasing slightly from 3.0% in 1996 to 2.7% in 2002, while that for non-elderly families dropped from 11.9% to 7.7%. The difference between these rates diminished. However, there are larger differences among family types and when considering the number of earners in the family. Only 5.5% of non-elderly married couples with no children at home were in low income in 2002. Their low-income rate approached 30% if both partners were non-earners in 2002, and was much smaller (2.3%) if both received earnings.

For the 3,124,000 two-parent families with children, the average low-income rate was 5.4%. A majority of these two-parent families (1,943,000) had two earners in 2002; the low-income rate for this group was 3.0% (2.6% in the previous year). Of the estimated 454,000 two-parent families with one earner, 15% were in low income. Although relatively few in number, 72% of the 45,000 two-parent families with no earners experienced low income in 2002. Six years earlier, the rate was even higher at 81%.

Chart 8.1
Majority of families with no earner were in low income, 2002

Chart 8.1
Majority of families with no earner were in low income, 2002

Low-income rate for female lone-parent families increased after five consecutive years of decline

After five uninterrupted years of decrease from 49% in 1996 to 30% in 2001 the low income rate for female lone parent families grew in 2002: of the 500,000 lone-parent families headed by women, 35% were in low income. About 82% of lone-parent families headed by women had earnings in 2002 (the same rate as in 2001) while in 1996 the corresponding figure was 65%. Although the low-income rate of female lone-parent families with one earner was about four times the average for all families (28% versus 7.0%), they fared much better than lone mothers without earnings; 85% of the latter experienced low income in 2002.

On the other hand, the low-income rate for lone-parent families headed by men declined since 1996, when it was 22%. By 2002, it halved to 11%.

Low-income rate for children continued its downward trend, while the rate for all Canadians grew slightly

After climbing throughout the early 1990s, the prevalence of low income peaked in 1996, at 14.0%, and then declined to 9.3% in 2001. In 2002, 9.5% of all Canadians were living in low income (about 2.9 million persons). Low income was more prevalent among women than men (10.1% versus 8.8% in 2002).

About 702,000 children under 18 were living in low income families in 2002, down from 1,175,000 in 1996. The proportion of children living in low-income families has been falling since 1996, when it last peaked at 16.7% on an after-tax income basis. In 2002, the percentage of children in low income fell to 10.2% - the lowest rate recorded from 1980 onward (the earliest year for which comparable data are available). In 2001 the rate was 10.4%.

The number of children in low-income living in two-parent and female lone-parent families were comparable (341,000 and 329,000 respectively). However, at 6.0% in 2002, the low-income rate of children living in two-parent families was much lower than that of children living in female lone-parent families (39%).

Among seniors aged 65 and over, low-income rates and trends varied by gender. In 2002, the low-income rate for women aged 65 and over was 9.0%, the respective rate for men was 4.4%. Historically, low-income rates for senior women have been more than double those for senior men. From 1980 until 1992 the low-income rate for senior men has been dropping steadily from about 14% and in the early 1990's the rate stabilised at around 4% to 5%. For senior women, the low-income rate has been diminishing gradually since 1980, when the rate was about 26%. Seniors living on their own, as unattached individuals, did not fare as well as those living in families: 18% were in low income in 2002, compared with only 2.2% of seniors living in an economic family. The rate was 20% for unattached older women and 14% for unattached older men.

People in the 18 to 64 age range accounted for about two-thirds of the low-income population. Their low-income rate was close to the average rate for the population at large: 9.7% of individuals in this age group was in low income in 2002.

Chart 8.2
Low-income rates of children, adults of working age, and seniors, 1980 to 2002

Chart 8.2
Low-income rates of children, adults of working age, and seniors, 1980 to 2002

Crossing the LICO line

A family's income often changes substantially over time. A breadwinner may lose a job; a second family member may enter the labour market. The family itself may experience a change, such as marital separation, which often affects income. The birth of a child, an older relative joining the household or even a move to a larger city can affect income needs. Such changes can cause a family to "cross the line", moving into or out of low income.

Of all persons in low income in 2001, 33% were no longer below the line in 2002, while the remaining 67% stayed in low income both years. Of all people in low income in 2002, 33% had not been in low income the year before. In short, there is clearly some turnover in the low income population from one year to the next, even when the overall low income rate is does not change much, as was the case between 2001 and 2002. At least for some, low income is not a persistent state. However, this level of turnover also means that, over a longer period, the number of people that experienced low income at some point in time is much greater than one might conclude based on annual low income rates.

Low income touched more than one in five people over a six-year period

According to data referring to the period from 1996 to 2001, almost a quarter of all Canadians experienced low income at some time over a six-year period (24%). This reflects the fact that, for some, low income is a transitory experience. About 8.5% experienced one year of low income and 5.0% experienced two years (not necessarily consecutive). At the other extreme, 3.1% of the population was in low income throughout the full six years. Among all those below the cutoff at some time during the six-year period, the average spent 2.7 years in low income.

Among children under age 18, 29% were in families that experienced low income at some time over the 1996-2001 period. About 9.6% were in low income for one year, 2.8% for all six years. The average number of years in low income for children was 2.7, about the same as the average for all persons.

At some time during the 1996 to 2001 period, 14% of seniors experienced low income. While this rate is below the 24% rate for the whole population, 4.2% seniors experienced six years of low income which is above the rate for all Canadians.

Chart 8.3
Persons experiencing low income at least one year at some time during six years from 1996 to 2001

Chart 8.3
Persons experiencing low income at least one year at some time during
six years from 1996 to 2001

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Date Modified: 2005-05-05 Important Notices