Income Research Paper Series
Market Basket Measure Technical Paper: The other necessities component

by Burton Gustajtis and Andrew Heisz

Release date: December 8, 2022

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The Market Basket Measure (MBM) establishes poverty thresholds based on the cost of a basket of food, clothing, shelter, transportation and other necessities for a family of four that reflects a modest, basic standard of living. A family with a disposable income below the appropriate MBM threshold for the size of the family and their region of residence is considered to be living in poverty.

This technical paper describes how the cost for “other necessities” is estimated in the 2018-base MBM. It provides a brief overview of the theory and application of techniques for estimating costs of “other necessities” in poverty lines and deconstructs the 2018-base MBM other necessities component to provide insights on how it is constructed. The aim of this paper is to provide a more detailed understanding of how the other necessities component of the MBM is estimated.

Introduction

The other necessities component estimates costs for goods and services that are not captured under the shelter, clothing, food, and transportation components (e.g., household items, personal care, reading materials, etc.). The methodology for pricing these other goods and services does not utilize the pricing of specific items as the other parts of the MBM. Doing so would be near impossible, as there are a large number of items that would potentially need to be priced, and many of the items would be considered necessities for some families but not for others. Consequently, the other necessities component is meant to approximate average expenditures on a wide range of other necessary goods and services, including those for cellular services.Note 

The theory behind estimating the other necessities component

The MBM-2018 methodology uses price and quantity estimates to build costs for the shelter, clothing, food, and transportation components. In order to estimate the total poverty thresholds, the cost of necessary goods and services not covered within those components need to be estimated. There are a large number of goods and services that could be enumerated in the other necessities component. For example, anything from toilet paper to a telephone to a small amount for entertainment or cultural events could be included. In addition, the needs from family-to-family may vary according to a large number of factors. For example, male-only families would likely not need products used primarily by women, while adult-only households would likely not need school supplies for children. Therefore, since the products that could be included in a list of “other items” is so broad, rather than trying to enumerate them all, a more generic approach is used to get the final dollar amount for this component.

The most commonly used approach for estimating the income needed for goods and services, which are not directly enumerated under a poverty line methodology, is to base an amount on the observed EngelNote  coefficient. The Engel coefficient represents the share of income or expenditures that are committed to food. This approach allows a cost to be estimated for a non-specified list of items, while basing it on a minimum standard (i.e., minimum nutritional requirements) for a major consumption group.

For many poverty lines currently in use, the cost of a nutritious diet is divided by the Engel coefficient to yield the poverty line. For example, in the 1960s, the United States designated their official poverty line based on work by statistician Mollie Orshansky as:

P o v e r t y   L i n e  =  c o s t   o f   n u t r i t i o u s   f o o d   b a s k e t E n g e l   c o e f f i c i e n t MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiuaiaad+ gacaWG2bGaamyzaiaadkhacaWG0bGaamyEaiaadccacaWGmbGaamyA aiaad6gacaWGLbGaaeiiaiaab2dacaqGGaWaaSaaaeaacaWGJbGaam 4BaiaadohacaWG0bGaamiiaiaad+gacaWGMbGaamiiaiaad6gacaWG 1bGaamiDaiaadkhacaWGPbGaamiDaiaadMgacaWGVbGaamOBaiaadc cacaWGMbGaam4Baiaad+gacaWGKbGaamiiaiaadkgacaWGHbGaam4C aiaadUgacaWGLbGaamiDaaqaaiaadweacaWGUbGaam4zaiaadwgaca WGSbGaamiiaiaadogacaWGVbGaamyzaiaadAgacaWGMbGaamyAaiaa dogacaWGPbGaamyzaiaad6gacaWG0baaaaaa@6C75@

Rearranging the terms yields the following formula:

P o v e r t y   L i n e  =  c o s t   o f   n u t r i t i o u s   f o o d   b a s k e t  +  c o s t   o f   n u t r i t i o u s   f o o d   b a s k e t   × ( 1 E n g e l   c o e f f i c i e n t 1 ) MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiuaiaad+ gacaWG2bGaamyzaiaadkhacaWG0bGaamyEaiaadccacaWGmbGaamyA aiaad6gacaWGLbGaaeiiaiaab2dacaqGGaGaam4yaiaad+gacaWGZb GaamiDaiaadccacaWGVbGaamOzaiaadccacaWGUbGaamyDaiaadsha caWGYbGaamyAaiaadshacaWGPbGaam4BaiaadwhacaWGZbGaamiiai aadAgacaWGVbGaam4BaiaadsgacaWGGaGaamOyaiaadggacaWGZbGa am4AaiaadwgacaWG0bGaaeiiaiaabUcacaqGGaGaam4yaiaad+gaca WGZbGaamiDaiaadccacaWGVbGaamOzaiaadccacaWGUbGaamyDaiaa dshacaWGYbGaamyAaiaadshacaWGPbGaam4BaiaadwhacaWGZbGaam iiaiaadAgacaWGVbGaam4BaiaadsgacaWGGaGaamOyaiaadggacaWG ZbGaam4AaiaadwgacaWG0bGaaeiiaiabgEna0oaabmaabaWaaSaaae aacaaIXaaabaGaamyraiaad6gacaWGNbGaamyzaiaadYgacaWGGaGa am4yaiaad+gacaWGLbGaamOzaiaadAgacaWGPbGaam4yaiaadMgaca WGLbGaamOBaiaadshaaaGaeyOeI0IaaGymaaGaayjkaiaawMcaaaaa @913A@

Next, replacing the Engel coefficient with:

x = x f x f + x o MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEaiabg2 da9maalaaabaGaamiEamaaBaaaleaacaWGMbaabeaaaOqaaiaadIha daWgaaWcbaGaamOzaaqabaGccqGHRaWkcaWG4bWaaSbaaSqaaiaad+ gaaeqaaaaaaaa@3F44@

where;

x MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEaaaa@36F3@ is the ratio of food expenditures to total expenditures

x f MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEamaaBa aaleaacaWGMbaabeaaaaa@380A@ is food expenditures

x o MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEamaaBa aaleaacaWGVbaabeaaaaa@3813@ is non-food expenditures

And rearranging the terms once again yields the following:

P o v e r t y   L i n e  =  c o s t   o f   n u t r i t i o u s   b a s k e t  +  c o s t   o f   n u t r i t i o u s   b a s k e t   ×   x o x f MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiuaiaad+ gacaWG2bGaamyzaiaadkhacaWG0bGaamyEaiaadccacaWGmbGaamyA aiaad6gacaWGLbGaaeiiaiaab2dacaqGGaGaam4yaiaad+gacaWGZb GaamiDaiaadccacaWGVbGaamOzaiaadccacaWGUbGaamyDaiaadsha caWGYbGaamyAaiaadshacaWGPbGaam4BaiaadwhacaWGZbGaamiiai aadkgacaWGHbGaam4CaiaadUgacaWGLbGaamiDaiaabccacaqGRaGa aeiiaiaadogacaWGVbGaam4CaiaadshacaWGGaGaam4BaiaadAgaca WGGaGaamOBaiaadwhacaWG0bGaamOCaiaadMgacaWG0bGaamyAaiaa d+gacaWG1bGaam4CaiaadccacaWGIbGaamyyaiaadohacaWGRbGaam yzaiaadshacaqGGaGaey41aqRaaeiiamaalaaabaGaamiEamaaBaaa leaacaWGVbaabeaaaOqaaiaadIhadaWgaaWcbaGaamOzaaqabaaaaa aa@7A0B@

(1)

In this manner, the cost of items other than food is obtained with reference to the consumption habits of the reference population using a multiplier ( x o x f ) MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaWaaeWaaeaada WccaqaaiaadIhadaWgaaWcbaGaam4BaaqabaaakeaacaWG4bWaaSba aSqaaiaadAgaaeqaaaaaaOGaayjkaiaawMcaaaaa@3BD6@ drawn from an appropriate data source, such as an expenditure survey. More specifically, the size of this “other” component equals the cost of the food basket multiplied by the multiplier.

The MBM application of the theory

The MBM uses a similar formula to the traditional Orshansky formula, but with several modifications to incorporate more available data (e.g., new minimum standards).

As a review, the total threshold costs for the MBM are calculated in the following way:

M B M   P o v e r t y   L i n e = c o s t   o f   n u t r i t i o u s   b a s k e t +   c o s t   o f   a d e q u a t e   c l o t h i n g   +   c o s t   o f   a p p r o p r i a t e   s h e l t e r   +   c o s t   o f   t r a n s p o r t a t i o n +   c o s t   o f   o t h e r   n e c e s s i t i e s   MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGceaqabeaaqaaaaa aaaaWdbiaad2eacaWGcbGaamytaiaacckacaWGqbGaam4BaiaadAha caWGLbGaamOCaiaadshacaWG5bGaaiiOaiaadYeacaWGPbGaamOBai aadwgaaeaacqGH9aqpcaWGJbGaam4BaiaadohacaWG0bGaaiiOaiaa d+gacaWGMbGaaiiOaiaad6gacaWG1bGaamiDaiaadkhacaWGPbGaam iDaiaadMgacaWGVbGaamyDaiaadohacaGGGcGaamOyaiaadggacaWG ZbGaam4AaiaadwgacaWG0baabaGaey4kaSIaaiiOaiaadogacaWGVb Gaam4CaiaadshacaGGGcGaam4BaiaadAgacaGGGcGaamyyaiaadsga caWGLbGaamyCaiaadwhacaWGHbGaamiDaiaadwgacaGGGcGaam4yai aadYgacaWGVbGaamiDaiaadIgacaWGPbGaamOBaiaadEgacaGGGcGa ey4kaSIaaiiOaiaadogacaWGVbGaam4CaiaadshacaGGGcGaam4Bai aadAgacaGGGcGaamyyaiaadchacaWGWbGaamOCaiaad+gacaWGWbGa amOCaiaadMgacaWGHbGaamiDaiaadwgacaGGGcGaam4CaiaadIgaca WGLbGaamiBaiaadshacaWGLbGaamOCaiaacckacqGHRaWkcaGGGcGa am4yaiaad+gacaWGZbGaamiDaiaacckacaWGVbGaamOzaiaacckaca WG0bGaamOCaiaadggacaWGUbGaam4CaiaadchacaWGVbGaamOCaiaa dshacaWGHbGaamiDaiaadMgacaWGVbGaamOBaaqaaiabgUcaRiaacc kacaWGJbGaam4BaiaadohacaWG0bGaaiiOaiaad+gacaWGMbGaaiiO aiaad+gacaWG0bGaamiAaiaadwgacaWGYbGaaiiOaiaad6gacaWGLb Gaam4yaiaadwgacaWGZbGaam4CaiaadMgacaWG0bGaamyAaiaadwga caWGZbGaaiiOaaaaaa@C962@

where;

C o s t   o f   o t h e r   n e c e s s i t i e s  =  ( c o s t   o f   n u t r i t i o u s   b a s k e t  +  c o s t   o f   a d e q u a t e   c l o t h i n g ) × x o n x f c                                             +   c e l l   p h o n e   s e r v i c e   c o s t MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGceaqabeaacaWGdb Gaam4BaiaadohacaWG0bGaamiiaiaad+gacaWGMbGaamiiaiaad+ga caWG0bGaamiAaiaadwgacaWGYbGaamiiaiaad6gacaWGLbGaam4yai aadwgacaWGZbGaam4CaiaadMgacaWG0bGaamyAaiaadwgacaWGZbGa aeiiaiaab2dacaqGGaWaaeWaaeaacaWGJbGaam4BaiaadohacaWG0b Gaamiiaiaad+gacaWGMbGaamiiaiaad6gacaWG1bGaamiDaiaadkha caWGPbGaamiDaiaadMgacaWGVbGaamyDaiaadohacaWGGaGaamOyai aadggacaWGZbGaam4AaiaadwgacaWG0bGaaeiiaiaabUcacaqGGaGa am4yaiaad+gacaWGZbGaamiDaiaadccacaWGVbGaamOzaiaadccaca WGHbGaamizaiaadwgacaWGXbGaamyDaiaadggacaWG0bGaamyzaiaa dccacaWGJbGaamiBaiaad+gacaWG0bGaamiAaiaadMgacaWGUbGaam 4zaaGaayjkaiaawMcaaiabgEna0oaalaaabaGaamiEamaaBaaaleaa caWGVbGaamOBaaqabaaakeaacaWG4bWaaSbaaSqaaiaadAgacaWGJb aabeaaaaaakeaacaqGGaGaaeiiaiaabccacaqGGaGaaeiiaiaabcca caqGGaGaaeiiaiaabccacaqGGaGaaeiiaiaabccacaqGGaGaaeiiai aabccacaqGGaGaaeiiaiaabccacaqGGaGaaeiiaiaabccacaqGGaGa aeiiaiaabccacaqGGaGaaeiiaiaabccacaqGGaGaaeiiaiaabccaca qGGaGaaeiiaiaabccacaqGGaGaaeiiaiaabccacaqGGaGaaeiiaiaa bccacaqGGaGaaeiiaiaabccacaqGGaGaey4kaSIaaeiiaiaadogaca WGLbGaamiBaiaadYgacaqGGaGaamiCaiaadIgacaWGVbGaamOBaiaa dwgacaWGGaGaam4CaiaadwgacaWGYbGaamODaiaadMgacaWGJbGaam yzaiaadccacaWGJbGaam4BaiaadohacaWG0baaaaa@B946@

(2)

 

In the terminology of the MBM, ( x o n x f c ) MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaWaaeWaaeaada WccaqaaiaadIhadaWgaaWcbaGaam4Baiaad6gaaeqaaaGcbaGaamiE amaaBaaaleaacaWGMbGaam4yaaqabaaaaaGccaGLOaGaayzkaaaaaa@3DB1@ is commonly called the “other multiplier”, and values for x o n MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEamaaBa aaleaacaWGVbGaamOBaaqabaaaaa@3906@ and x f c MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEamaaBa aaleaacaWGMbGaam4yaaqabaaaaa@38F2@ come from the Survey of Household Spending (SHS). The SHS is a national survey that gathers expenditure data of Canadians and is explained in more detail in the next section.

The above MBM equation (2) has been modified from the traditional Orshansky formula (1) in the following ways:

  1. In addition to directly pricing the food component, the accuracy of pricing for basic needs is improved by directly pricing the clothing, shelter and transportation components.
  2. The multiplier is only applied to the food and clothing components’ costs, in order to remove the geographical variation that would arise if the shelter and transportation components’ costs were also included in the formula.Note  Consequently, the x f MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEamaaBa aaleaacaWGMbaabeaaaaa@380A@ in the traditional model is replaced by x f c MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEamaaBa aaleaacaWGMbGaam4yaaqabaaaaa@38F2@ , and x o MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEamaaBa aaleaacaWGVbaabeaaaaa@3813@ is replaced by x o n MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiEamaaBa aaleaacaWGVbGaamOBaaqabaaaaa@3906@ . The food costs in formula (1) are at the national level, while in formula (2) are at the sub-national level.
  3. Within the numerator of the multiplier ( x o n ) MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaWaaeWaaeaaca WG4bWaaSbaaSqaaiaad+gacaWGUbaabeaaaOGaayjkaiaawMcaaaaa @3A99@ , the expenditures on food, shelter, transportation, and clothing are removed and it only includes expenditure categories deemed to be necessary for meeting a basic modest lifestyle, thus reducing the size of the multiplier.Note  This allows the numerator to better reflect the necessary expenditures not explicitly defined elsewhere.
  4. The multiplier components ( x o n  and  x f c ) MathType@MTEF@5@5@+= feaagKart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaWaaeWaaeaaca WG4bWaaSbaaSqaaiaad+gacaWGUbaabeaakiaabccacaqGHbGaaeOB aiaabsgacaqGGaGaamiEamaaBaaaleaacaWGMbGaam4yaaqabaaaki aawIcacaGLPaaaaaa@41A1@ are defined for families of four in the second decile of income at the Canada level. This permits the estimate of the multiplier to reflect more closely the expenditures of persons at risk of poverty, not those with large incomes nor those in deep poverty.
  5. The multiplier does not account for cellular phone services as an “other necessity”.Note  Therefore, a value is added in for this item.

Evolution over time of the Survey of Household Spending

To fully describe the remaining steps in calculating of the other necessities component, it is important to understand the evolution of the SHS, which is used to estimate the value of the other multiplier. Changes over time to the SHS have precipitated changes in the method for estimating the other necessities multiplier.

The SHS is a national survey that gathers information on the spending habits of Canadians. It looks at how much households pay for food, clothing, shelter, transportation, health care and other items.Note 

From 2000 to 2009, the SHS was an interviewer-based survey where respondents were asked to provide estimates of their annual purchases of items. The expenditure data were then mapped to expenditure categories for different products and services. The SHS used a custom product classification system for its expenditure categories.

For the MBM, up to the 2009 reference year, the other multiplier was estimated using a three-year moving average based on the reference year and the two sequential prior years. The moving average was used to smooth the multiplier value over time, by reducing the variation which mostly came from sampling variability in the SHS survey.

Starting in 2010, the SHS underwent a redesignNote  which made changes to the questionnaire and introduced a two-week diary. Products and services were now collected with respect to reference periods designed to make it easier for respondents to recall their expenditures more accurately (e.g., last week, month or year). The expenditure categories in the redesigned SHS were also updated to a new custom product classification.Note  These changes to the concepts, recall periods and mode of collection yielded changes to data collection, processing and estimation methods, which in turn created a break in the expenditure data series.


Table 1
Annual ratios and multipliers used in the other necessities component, 2008-base MBM methodology
Table summary
This table displays the results of Annual ratios and multipliers used in the other necessities component. The information is grouped by Year (appearing as row headers), Annual Ratio and Multiplier (appearing as column headers).
Year Annual Ratio Multiplier
2010 to 2020 Note ...: not applicable 0.754
2009 0.783 0.742
2008 0.695 0.741
2007 0.748 0.758
2006 0.780 0.763
2005 0.745 Note ...: not applicable
2004 0.764 Note ...: not applicable

At the time, it was recognised that these changes introduced by the redesigned SHS could have an unknown effect on the other multiplier values, and the new values would need to be assessed before being implemented. Furthermore, it was decided that this evaluation would occur during the next comprehensive review. Accordingly, starting in the 2010 reference year, the other multiplier was set to be a weighted average of the 2008 (with a weight of 1/3) and 2009 (with a weight of 2/3) values. The resulting value (0.754) was then held constant and used for the 2010 to 2020 reference year thresholds of the 2008-base MBM. Table 1 shows the history of the annual ratios and multipliers, under the 2008-base MBM methodology.

Calculating the other necessities component in the 2018-base

As indicated in the previous section, the other necessities multiplier in the 2008-base MBM was held unchanged from its reference-year 2010 value through to 2020, the last year the 2008-base MBM thresholds were available.

During the “second comprehensive review”Note  an analysis was conducted to determine whether a conceptually consistent multiplier could be estimated using post-2009 SHS data. The resulting estimates from the SHS had high variability from year-to-year and low precision (i.e., the estimates had a large standard error) as shown in Chart 1. However, while the estimates for the other necessities multiplier varied post-2009, their average was relatively close to the 2010 multiplier value. Therefore, a statistically informed choice was made to estimate the 2018-base MBM’s other necessities component using the original 2010 multiplier value (0.754).Note 

Chart 1

Data table for Chart 1 
Data table for chart 1
Table summary
This table displays the results of Data table for chart 1 Annual Ratio and Multiplier, calculated using ratio units of measure (appearing as column headers).
Annual Ratio Multiplier
ratio
2000 0.6 Note ...: not applicable
2001 0.7 Note ...: not applicable
2002 0.7 0.7
2003 0.6 0.7
2004 0.8 0.7
2005 0.7 0.7
2006 0.8 0.8
2007 0.7 0.8
2008 0.7 0.7
2009 0.8 0.7
2010 0.7 0.7
2011 0.9 0.8
2012 0.5 0.7
2013 0.6 0.7
2014 0.8 0.6
2015 0.7 0.7
2016 1.0 0.8

In addition, the 2018-base MBM methodology made two adjustments to the other necessities component, compared to the 2008-base MBM methodology. First, it held the 2018 reference year’s other necessities component’s cost constant and updated it with the annual provincial all-items Consumer Price Index (CPI) to make yearly adjustments.Note  Second, cellular phone services expendituresNote  were added to the other necessities component’s costs.Note  Specifically, pooled data from the SHS for the 2015 to 2017 period was used to create a benchmark estimate of annual spending on cellular services for families in the second income decile. Table 2 shows the amounts added for cell phone costs. A validation exercise was done, using advertised prices, which showed that these annual amounts could purchase modest talk and text plans, and in some provinces it also provided an amount sufficient for some data for families with two-to-three users.


Table 2
AverageTable 2 Note 1 annual cellphone expenses, by province, 2015-2017 SHS pooled data, 2018 constant dollars
Table summary
This table displays the results of Average annual cellphone expenses Dollars (appearing as column headers).
Dollars
Newfoundland and Labrador 774
Prince Edward Island 1,003
Nova Scotia 1,115
New Brunswick 905
Quebec 833
Ontario 1,100
Manitoba 992
Saskatchewan 1,158
Alberta 1,311
British Colombia 1,121

Therefore, the value for the other component would be calculated for a family of four for any MBM region in reference year 2018 as follows:

  1. Refer to Table 11-10-0066-01Note  and choose an MBM region. Select the current dollar values for the food and clothing components in reference year 2018, multiply the sum of these by 0.754.
  2. Adding to this amount the appropriate provincial cell phone expense value from Table 2, which produces the value of other necessities component for the base year (i.e., 2018).Note 
  3. For other reference years, inflate or deflate this value using the annual provincial all-items CPI.

Deconstructing the other multiplier

To better understand the mechanics of the other necessities multiplier, this section provides a concrete example of how the multiplier was computed using 2009 SHS data and describes the impacts associated with making hypothetical changes to the multiplier’s numerator.

The averages used in the multiplier include responses by second income decile families and include zero expenditures for a given category. Therefore, the numbers represent typical expenditure patterns of families in the second income decile. For some expenditure categories (e.g., sports events, performing arts, home security equipment, etc.) these items also tend to be purchased less often by second-decile families, so they make only a small difference to the multiplier and, consequently, the overall MBM threshold.Note 

Numerator: Average household expenditures on each of the 47 selected expenditure categories.

Denominator: Average expenditures on food purchased for consumption at home, average expenditures on selected clothing items/services and ½ the average expenditures on food purchased at restaurants and ½ the average expenditures on board paid to private households

Target population: Four person families in the second decile of income.

The decision to use the second decile was originally made because, since 1980, the before-tax Low Income Cut-offs rate for the MBM reference family (i.e., four persons) had never exceeded 15% (the 15th percentile being the mid-point of the second income decile).Note 

Table 3 provides an example, using 2009 SHS expenditures, of the typical amounts spent on the different expenditure categories that make up the numerator and denominator of the other necessities multiplier. The expenditure amounts ranged from $1 for home security equipment to $1,171 for personal care items. Therefore, although some items may seem more subjective or nonessential, their impacts on the multiplier and, consequently, the other necessities component costs are marginal. For example, removing expenditures associated with arts and entertainment (e.g., movie theatres, live sports events, live performing arts, and admission to museums and other activities), the numerator would decrease by $306, which would change the 2009 annual ratio from 0.783 to 0.748. Doing a similar exercise to the 2008 ratio,Note  holding all else constant, the other necessities multiplier currently in use would change from 0.754Note  to 0.720,Note  which would result in the 2018-base MBM’s other necessities component’s annual costs decreasing, on average, about $470 (4.0%) for reference year 2020 for a family of four. Although seemingly small, these additional amounts are intended to allow for social inclusion.


Table 3
Expenditure categories in the numerator and denominator of the MBM other component multiplier and their average expendituresTable 3 Note 1 by householdTable 3 Note 2, Canada, 2009
Table summary
This table displays the results of Expenditure categories in the numerator and denominator of the MBM other component multiplier and their average expenditures by household Dollars (appearing as column headers).
Dollars
Numerator
Expenditure category description
Purchase of telephones and equipment 33
Telephone services 467
Household cleaning supplies 258
Paper, plastic and foil household supplies 309
Other household supplies 71
Furniture 564
Rugs, mats and underpadding 17
Window coverings and household textiles 100
Room air conditioners, portable humidifiers and dehumidifiers 8
Microwave and convection ovens 12
Small electric food preparation appliances 23
Sewing machines, vacuum cleaners and other rug cleaning equipment 11
Other electric equipment and appliances 20
Attachments and parts for major appliances 6
Lamps and lampshades 57
Non-electric kitchen and cooking equipment 52
Cutlery, flatware and silverware 29
Non-electric cleaning equipment 30
Other household equipment, parts and accessories 74
Maintenance and repairs of furniture and equipment 13
Services related to furnishings and equipment 36
Other medicines and pharmaceutical products 141
Personal care 1,171
Sports and athletic equipment 148
Toys and children's vehicles 140
Electronic games and parts 169
Home entertainment equipment and services 488
Movie theatres 138
Live sports events 19
Live performing arts 29
Admission to museums and other activities 119
Rental of cablevision and satellite services 462
Bicycles, parts and accessories 40
Bicycle maintenance and repairs 4
Membership fees for sports and recreation facilities 149
Children's camps 71
Reading materials and other printed matter 117
Supplies 54
Textbooks 122
Service charges from banks 92
Contributions to charity 275
Postal and other communication services 28
Luggage 55
Home security equipment 1
Photographic goods and services 156
Internet services 340
Computer equipment and supplies 197
Numerator TotalTable 3 Note 3 6,916
Denominator
Expenditure category description
Food purchased from stores 6,161
Women's and Girls' wear - Clothing 714
Women's and Girls' wear - Footwear 204
Women's and Girls' wear - Accessories 64
Men's and Boys' wear - Clothing 597
Men's and Boys' wear - Footwear 175
Men's and Boys' wear - Accessories 35
Children's wear - Clothing and cloth diapers 155
Children's wear - Footwear 21
Laundry and dry-cleaning service 22
Laundromats and self-service dry cleaning 122
Other clothing services 17
Board paid to private householdsTable 3 Note 4 51
Food purchased from restaurantsTable 3 Note 4 1,046
Denominator TotalTable 3 Note 3 8,834
Annual Ratio 0.783

Conclusion

This technical paper describes how the cost for “other necessities” is estimated in the 2018-base MBM. It provides a brief overview of the theory and application of techniques for estimating costs of “other necessities” in poverty lines and deconstructs the 2018-base MBM other necessities component to provide insights on how it is constructed. The paper is intended for use by persons interested in the details of how the other necessities component is estimated. Persons interested in contacting Statistics Canada on the topic of the MBM are encouraged to do so by sending an email to:

statcan.market.basket.measure-mesure.du.panier.de.consommation.statcan@statcan.gc.ca.

Appendix


Table A.1
Expenditure categories in the numerator and denominator of an experimental MBM other component multiplier and their average expendituresTable A.1
Expenditure categories in the numerator and denominator of an experimental MBM other component multiplier and their average expenditures1 by household2, Canada, 2014 to 2016  Note 
1
by householdTable A.1
Expenditure categories in the numerator and denominator of an experimental MBM other component multiplier and their average expenditures1 by household2, Canada, 2014 to 2016  Note 
2
, Canada, 2014 to 2016
Table summary
This table displays the results of Expenditure categories in the numerator and denominator of an experimental MBM other component multiplier and their average expenditures by household 2014, 2015 and 2016, calculated using dollars units of measure (appearing as column headers).
2014 2015 2016
dollars
Numerator
Expenditure category description
Telephones and equipment 66 87 200
Landline telephone services 379 391 306
Household cleaning supplies and equipment 149 191 259
Paper, plastic and foil supplies 262 285 396
Other household supplies 200 46 161
Furniture 854 375 591
Rugs, mats and underpadding 22 8 25
Curtains and interior blinds 0 1 0
Linens 5 40 4
All other household furnishings 6 44 0
Room air conditioners, portable humidifiers and dehumidifiers 58 18 9
Microwave ovens 10 11 12
Other electric equipment and appliances (including parts and attachments) 339 59 1,283
Lamps and lampshades 1 0 0
Non-electric kitchen and cooking equipment 29 139 113
Other household equipment, parts and accessories 58 147 797
Maintenance and repairs of household furnishings and equipment 0 0 0
Services related to household furnishings and equipment 66 130 88
Non-prescribed medicines and pharmaceutical products 137 465 590
Personal care 1,231 1,010 1,857
Sports, athletic and recreation equipment 268 8 0
Children's toys 352 54 1,178
Video game systems and accessories (excluding for computers) 125 25 0
Home entertainment equipment and services 443 167 151
Movie theatres 201 38 75
Live sporting events 236 0 2
Live performing arts events 1,058 0 0
Admission fees to museums, zoos and other sites 22 84 126
Television and satellite radio services (including installation, service and pay TV charges) 586 566 487
Bicycles, parts and accessories 67 27 80
Bicycle maintenance and repairs 0 0 0
Dues and fees for sports and recreation facilities 208 297 346
Children's camps 140 207 103
Reading materials and other printed matter 73 99 203
School supplies 60 62 4
Textbooks 53 39 121
Service charges for banks and other financial institutions 224 268 154
Charitable contributions 245 287 475
Postal, courier and other communication services 57 2 105
Photographic goods and services 94 92 114
Internet access services 629 597 699
Computer equipment and supplies 427 225 372
Numerator TotalTable A.1
Expenditure categories in the numerator and denominator of an experimental MBM other component multiplier and their average expenditures1 by household2, Canada, 2014 to 2016  Note 
3
9,439 6,593 11,488
Denominator
Expenditure category description
Food purchased from stores 7,800 6,013 6,542
Clothing (women and girls) 1,234 938 1,657
Footwear (women and girls) 381 313 439
Accessories (women and girls) 131 95 196
Clothing (men and boys) 769 650 1,074
Footwear (men and boys) 333 324 349
Accessories (men and boys) 55 16 82
Clothing and cloth diapers 289 226 173
Footwear (children) 76 20 82
Laundry and dry-cleaning services 41 23 12
Laundromats and self-service dry cleaning 66 14 66
Clothing rental, tailoring, alteration services and other clothing services 0 34 0
Child care offered in private householdsTable A.1
Expenditure categories in the numerator and denominator of an experimental MBM other component multiplier and their average expenditures1 by household2, Canada, 2014 to 2016  Note 
4
32 447 114
Food purchased from restaurantsTable A.1
Expenditure categories in the numerator and denominator of an experimental MBM other component multiplier and their average expenditures1 by household2, Canada, 2014 to 2016  Note 
4
1,872 2,136 1,656
Denominator TotalTable A.1
Expenditure categories in the numerator and denominator of an experimental MBM other component multiplier and their average expenditures1 by household2, Canada, 2014 to 2016  Note 
3
12,127 9,959 11,556
Annual Ratio 0.778 0.662 0.994
Other necessities multiplier Note ...: not applicable Note ...: not applicable 0.811

References

Djidel, Samir, Burton Gustajtis, Andrew Heisz, Keith Lam, Isabelle Marchand and Sarah McDermott (2020), “Report on the second comprehensive review of the Market Basket Measure”. Catalogue no. 75F0002M2020002.

Djidel, Samir, Burton Gustajtis, Andrew Heisz, Keith Lam and Sarah McDermott (2019a), “Towards an update of the Market Basket”. Catalogue no. 75F0002M2019013.

Djidel, Samir, Burton Gustajtis, Andrew Heisz, Keith Lam and Sarah McDermott (2019b), “Defining disposable income in the Market Basket Measure”. Catalogue no. 75F0002M2019014.

Employment and Social Development Canada (2018), “Opportunity for All – Canada’s First Poverty Reduction Strategy”. Catalogue no. SSD-212-08-18E.

Hatfield, Michael (2002), “Constructing the Revised Market Basket Measure”. Applied Research Branch Strategic Policy Human Resources Development Canada.

Hatfield, Michael, Wendy Pyper and Burton Gustajtis (2010), “First Comprehensive Review of the Market Basket Measure of Low Income”. Applied Research Branch paper, Human Resources and Skills Development Canada.

Heisz, Andrew (2019), “An update on the Market Basket Measure comprehensive review”. Catalogue no. 75F0002M2019009.

Statistics Canada (2019), “Methodological changes to the Market Basket Measure in 2019”. Catalogue no. 75F0002M2019005.

UNECE (2017), “Guide on Poverty Measurement”.


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