Income Research Paper Series – Research Paper
Low Income Lines, 2011-2012
Market Basket Measure (2011 base)
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What is the MBM?
The MBM is a measure of low income based on the cost of a specific basket of goods and services representing a modest, basic standard of living. It includes the costs of food, clothing, footwear, transportation, shelter and other expenses for a reference family of two adults aged 25-49 and two children (aged 9 and 13). It provides thresholds for a finer geographic level than the LICO, allowing, for example, different costs for rural areas in the different provinces. These thresholds are compared to disposable income of families to determine low income status. Disposable income is defined as the sum remaining after deducting the following from total family income: total income taxes paid; the personal portion of payroll taxes; other mandatory payroll deductions such as contributions to employer-sponsored pension plans, supplementary health plans, and union dues; child support and alimony payments made to another family; out-of-pocket spending on child care; and non-insured but medically prescribed health-related expenses such as dental and vision care, prescription drugs, and aids for persons with disabilities.
The MBM, including its definition of disposable income, was designed by a working group of Federal, Provincial and Territorial officials, led by HRSDC between 1997 and 1999 (Hatfield 2002; Michaud, Cotton and Bishop 2004). During 2009 and early 2010, the MBM underwent a comprehensive review of both content and methodology (Hatfield, Pyper and Gustajtis 2010). Though led by HRSDC, the consultation process involved officials from Provincial and Territorial governments, other federal departments and agencies including Statistics Canada and a panel of experts in low income measurement. This review process led to a rebased series of thresholds (MBM 2008 base) which was revised historically to 2000, the beginning of the MBM time series. Among the changes to the MBM resulting from the comprehensive review was the revision of the shelter component to include the costs of homeowners without mortgages. This revision recognized that, in a given year, homeowners without mortgages may pay less for shelter than they would if they were renting.
During 2012, HRSDC officials re-examined the methodology for including homeowners without mortgages in order to better implement the conceptual decision to reflect these costs in the MBM. Following this re-examination, a revised methodology was adopted that adjusts the MBM disposable income of homeowners without mortgages to account for the potential differences in their shelter-related expenses. Specifically, the disposable income is adjusted in the following manner:
- Shelter cost for mortgage-free owners is calculated, based on the median shelter cost for all two- and three- bedroom mortgage-free dwellings in each MBM region. These shelter costs reflect the actual distribution of two- and three-bedroom mortgage-free units in each MBM region.
- Mortgage-free owners’ difference in expenditures is calculated as the difference in the median shelter cost calculated in 1. above and that of renters (i.e. the cost of the shelter component)
- Disposable income of owners without mortgages is adjusted by adding the mortgage-free owners’ difference in expenditures prevailing in their MBM region to their MBM disposable income. Table A provides detailed information of the amounts of these adjustments in each MBM region.
The shelter thresholds themselves are now exclusively a reflection of the median costs for all two- and three-bedroom rental units in each MBM region, weighted to take into account the actual distribution of such units.
The revision takes effect in 2011 and includes an historical revision back to 2002 (the first year in which housing tenure information is available in SLID).
How are MBM thresholds calculated?
The MBM thresholds are calculated as the cost of purchasing the following items:
- A nutritious diet as specified in the 2008 National Nutritious Food Basket (Health Canada 2009).
- A basket of clothing and footwear required by a family of two adults and two children.
- Shelter cost as the median cost of two- or three-bedroom rental units including electricity, heat, water and appliances. Shelter cost of mortgage-free owners is no longer reflected in the thresholds, but rather in the disposable income of individual reference families for whom it applies.
- Transportation costs, using public transit where available or costs associated with owning and operating a modest vehicle where public transit is not available.
- Other necessary goods and services.