Income Research Paper Series
Low Income in Canada - A Multi-line and Multi-index Perspective
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Over the past 34 years low-income individuals have accounted for as much as 16% of the population and as little as 9% depending on the time period and low-income line used.
In the year 2000 the estimates of the size of the low income population were similar for the three low-income thresholds -- the Low Income Cut-Offs (LICO), the Low Income Measure (LIM) and the Market Basket Measure (MBM). The LIM estimated 3.8 million persons with low income compared to 3.7 million under the LICO and 3.6 million under the MBM.
Between 2000 and 2007 the low income population decreased by over 500,000 individuals under the LICO and MBM while it increased by 500,000 under the LIM. This is because the LICO and MBM thresholds are determined at a given point in time while the LIM threshold is always determined by the current population. Thus the results indicate that while the low income population is smaller than in the past under the LICO and the MBM at the same time the incomes of those in low-income have not increased as much as has the median income according to the LIM.
Between 2007 and 2009 this long downward trend in low income incidence under the LICO and MBM levelled off and in some cases began to reverse itself. The levels in 2008 and 2009 under the LICO and MBM are marginally higher than in 2007 but represent the second lowest annual rates of the past 34 years. Despite a statistically insignificant change in LICO between 2007 and 2008 and again between 2008 and 2009, on balance a series of more sophisticated tests indicate a slight upward trend in low-income during that time.
Low income across socio-economic groups
The incidence of low income varies across groups of individuals such as seniors, children, persons living in lone parent families (lone parents), recent immigrants, off reserve Aboriginal persons, persons with activity limitations, and non-elderly unattached individuals. Many of these individuals have been shown to have an increased risk of persistent low income (Burstein, 2005). Not all of these groups of individuals followed the same pattern as we saw for Canada as a whole.
Lone parents experienced a significant long term decrease in the incidence of low-income between 1996 and 2009. The low-income rates among lone-parents fluctuated between 40% and 50% for more than 20 years from 1976 to 1996 according to both the LICO and the LIM lines. From 1996 to 2009 the rates dropped sharply from 50% to around 20%. Interestingly this trend of lower rates for lone parents was preceded by a lessening of the gap ratio and severity of their low-income starting in the mid 1980's.
Despite a slight overall increase in low-income in Canada between 2007 and 2009, low income for lone parents did not increase between 2007 and 2009. Rather, it continued to decline in a trend started in the mid-1990s and coincided with an increase in the labour market attachment of lone parents. As such the trend in low income among lone-parents was different from that of the overall population. This decrease was accompanied by growth in the relative size of the service sector in 2008 which tends to employ more women than men.
For twenty years from 1976 through the mid-1990s the low income rates for seniors declined continuously and significantly from over 30% to less than 10% under both the LICO and LIM resulting in large part from increased pension income and government transfers. The rate continued to decline from 1996 through 2007 under the LICO (5 percentage points drop) and MBM (1 percentage point drop from 2000 to 2007) while it increased by about six percentage points under the LIM. This indicates that since 1996 seniors have continued to make progress relative to the 1992 distribution of income and the market basket but that they have lost ground relative to the incomes of non-seniors. This is also reflected in the fact that the growth in non-seniors median income was faster than that for seniors after 1996 while before 1996 senior's median incomes were increasing relative to non-seniors. Between 2007 and 2009 there was a small increase in the low-income rate for seniors under all three lines. Similar small increases were experienced by seniors during the recessions of the early 1980s and 1990s.
The general trend in low income incidence for children largely followed the national trend from 1976 to 20091. Despite a statistically insignificant drop in incidence under the LICO, the rate, gap ratio, and severity all increased slightly under the LIM and MBM between 2007 and 2008. Between 2008 and 2009 the LICO rate then decreased further while the rate increased marginally under the LIM and more substantially under the MBM.
Sustained high incidences of low income in excess of 30% occurred for the unattached non-elderly from 1976 to 2009. The 1990's saw a decade long peak of the low-income rate reaching almost 40% coinciding with high unemployment in this group. Since then the rate has fallen back to about 35% under all three lines. A small increase was noted between 2007 and 2008 that was experienced equally between males and females. This was followed by a small decrease under all three thresholds between 2008 and 2009.
Low income among recent immigrants was a relatively low 10% in the late part of the 1970s and increased through the 1980's to about 20% and peaked in the mid 1990's at close to 30%. It has declined since then to drop below 20% by the year 2005 and this drop was coincident with increases in weeks worked. In 2006 and 2007 an upward trend in the low-income rate for new immigrants was observed under the LICO and LIM while their low-income rate under the MBM continued to fall. All three lines registered increases in the incidence of low income between 2007 and 2008 and then remained roughly stable in 2009.
Off-reserve Aboriginal persons
Between 1996 and 2009 the low income rate of off-reserve Aboriginal persons dropped more than 10% from a high of nearly 30% in 1996. The rate under the LIM has been stable since 2000 while the rate under the LICO and MBM has continued to fall. Between 2007 and 2008 the rates were stable or falling slightly however they went up under all three lines between 2008 and 2009 driven largely by a decrease in labour market activity.
Persons with activity limitations
Between 2000 and 2009 the low income rate of persons with activity limitations dropped about 3 percentage points under the LICO and 2 percentage points under the MBM while the rate increased 2 percentage points under the LIM. This would suggest that those with activity limitations are gaining ground against fixed standards but their median incomes are losing ground relative to the current incomes of other Canadians.
Provinces and metropolitan areas
Between 2000 and 2009 declines in the incidence and gap ratio of the low-income population occurred in the provinces of Alberta, Newfoundland and Labrador, Prince Edward Island and the cities of Edmonton and Calgary accompanying the economic growth in these areas during this period. There were significant improvements in low income for children and lone-parents in most provinces and cities in the past decade. However, some subgroups of the population experienced higher than average incidences of low-income. For example, in Alberta, and especially Edmonton, where incomes improved dramatically, low income among lone-parents remained high.
Relative rankings of the low income population in 2009 by province are very difficult given conflicting signals between the three thresholds and four measures2 and no definitive ranking is possible. However it is clear no province had statistically lower incidence, gap ratio or severity than Alberta in 2009. PEI was next and the reduction of low income in this province was also very strong from 1976 to 2009. Newfoundland and Labrador, Manitoba and Saskatchewan followed and it is difficult to differentiate between them. New Brunswick and Nova Scotia followed the above provinces in the low-income comparison and the low-income situation was slightly better than in Ontario. Quebec and British Columbia had the highest incidences of low income among the provinces.
A significant proportion of annual low income is of a transitory nature in Canada. One third of those who fall into low income leave low income the following year. While the remaining two thirds remained in low income the following year, very few of them (less than 1.4% under the MBM, 2.1% under the LICO and less than 3.5% under the LIM) would be low income for six years or more.
Still, more than 20% of Canadians experience low income sometime in a six-year period. For persons who experienced low-income during the 2002-2007 period the average time in low-income was about 2.4 years. (2.3 years under the MBM, 2.4 years under the LICO and 2.5 years under the LIM). This represents a slight decline in persistence under the LICO and stable persistence under the LIM compared to the 1993-1998 period.
Three groups of persons experienced low income in a more persistent manner than others. The most noticeable of them were lone-parents and unattached non-elderly persons and to a lesser extent, persons with activity limitations. These groups were the most likely to be in low-income for six years and once in low income, they would stay the longest. However their average persistence dropped by almost a full year over the past 15 years. Moreover under the LICO the proportion in low-income continuously for six years dropped from over 20% to 6%.
Low income persistence dropped significantly in Alberta, Quebec and the major cities in these two provinces in recent years. In Alberta in general, and in Edmonton and Calgary in particular, persistent low income became very rare. But the situation deteriorated in British Columbia, although the duration of low income did not appear to be particularly long in this province. On the other hand, relatively long spells of low income were found in the provinces of Newfoundland and Labrador, Nova Scotia and New Brunswick and in the city of Winnipeg.
Between 2007 and 2009 the proportion of low income Canadians exiting low income after one year decreased under the LICO and MBM and was stable under the LIM. At the same time the proportion of the population entering low-income increased under all three lines.
1. A child is considered in low-income if they are living in a family or household whose income is below the threshold.
2. The four measures are incidence, gap ratio, severity and persistence of low income.