by Christopher Clark

The not-so common-sense revolution has begun in earnest in Ontario. Swept into power on promises to cut welfare cheques by an unprecedented 22 per cent and, among other things, make welfare recipients work for their benefits, the Harris Conservatives have seized the Ontario political agenda with both hands, implementing sweeping cuts at lightening speed. Like the Klein government in Alberta, this government has adopted the cut fast and hard approach, targeting numerous fronts, ignoring opposition and leaving opponents scrambling to respond.

Has the new Ontario government stopped to consider the real problems facing the welfare system? Looking beyond the popular misperceptions and sexy election slogans, this province has a work/welfare system in need of genuine reform. Common sense would suggest that the government entertain a host of options which have been extensively studied since 1986, but unfortunately the cuts have already started.

Few would disagree that there are structural disincentives built into the current work/welfare system. We have all heard stories of individuals saying that they collect welfare because it pays better than a low-wage job. We also know that the percentage of Canadians on social assistance in most provinces has grown considerably over the past 15 years (see Table 1). In Ontario, where the increase has been most dramatic, the percentage of the population collecting social assistance benefits has skyrocketed, 143 per cent since 1982.

Table 1: Percentage of Population on Social Assistance, by Province
PROVINCE	1982	1992	% change
Nfld.	9.5	10.3	+8%
PEI	9.1	9.0	-1%
NS	7.5	10.0	+33%
NB	8.8	10.4	+18%
Que	8.5	9.5	+12%
Ont	4.6	11.2	+143%
Man	4.6	7.2	+57%
Sask	4.9	6.0	+22%
Alta	3.9	7.1	+82%
BC	5.0	8.1	+62%
Yukon	10.8	5.7	-47%
Source: Prepared by the Centre for International Statistics at the Canadian Council on Social Development, using Statistics Canada, 1994 Catalogue 91-992, Vol. 8, No. 2

What does this mean? Are Canadians less willing to work than they were a decade ago? While some critics would say yes, there s little evidence to support that. Is welfare abuse widespread and driving the cost of the system out of control? A common perception says it is, but official figures consistently put welfare abuse in the 3 per cent range. Some would also argue that welfare benefits are too generous, and for this reason there is little incentive to work. For certain individuals, welfare undoubtedly pays better than a minimum-wage job, but does the problem lie with the welfare system or with the labour market?

The problems with the current system

The substantial barriers to engaging in low-wage work (as opposed to receiving social assistance) are well-known and well-documented. Incentives and Disincentives to Work,, a National Council of Welfare report published in 1993, compared welfare rates and minimum wages across Canada to determine the relative cost/benefit of minimum-wage work versus social assistance. Table 2 demonstrates (as represented by the negative values) that for persons with disabilities, single parents and one-earner couples, in most provinces social assistance provides a better income than would a full-time minimum-wage job. In Ontario, for example, a one-earner couple with two children would earn almost $9,000 a year less than if they were on social assistance. Only single employable persons and two-earner couples (in most cases) are better off working in minimum-wage jobs than on social assistance. In some instances, minimum-wage work offers as much as $4,000 more a year, as in Newfoundland where the minimum wage is very low, but welfare rates for single employable persons are even lower.

Table 2: Net Welfare Income versus Work at Minimum Wage, 1992
PROVINCE	Single Employable	Disabled (unattached)	Single parent, 1 child	1-earner couple, 2 children	2-earner couple, 2 children
Nfld.	4270	-842	-2135	-2696	5022
PEI	125	-967	-2697	-8080	-312
NS	2448	-1548	-2853	-3717	4269
NB	36.1	-771	-789	-3003	4977
Que	2207	1127	2793	-574	7154
Ont	1788	-2412	-4685	-8810	735
Man	-42	478	-46	-9047	-1353
Sask	3327	-408	-618	-4390	2467
Alta	2059	1039	-1815	-7407	1049
BC	2349	-1199	-2556	-5572	2925
Yukon	2901	1821	-1115	-7723	1766
Source: Prepared by the Centre for International Statistics at the Canadian Council on Social Development, using data from the National Council on Welfare, Incentives and Disincentives to Work, 1993.
Note 1: Net welfare income includes taxes, credits and deductions. Note 2: Minimum wage work is assumed to be full-time.

The main reason why some categories of people are better off on social assistance than in low-wage jobs is that welfare benefits recognize the cost of raising children and the need for personal supports (for persons with disabilities, for example), while the labour market does not. Add to this benefits in kind, such as prescription drugs, subsidized housing and child care as well as work-related expense deductions like clothing and transportation, and it becomes clear why single-earner families with children and persons with disabilities are further ahead collecting welfare than working in low-wage jobs. In short, the labour market doesn t differentiate wages based on needs. The social security system does.

Since, in most instances, families are able to earn better incomes with social assistance than with minimum-wage work, most recognize that disincentives to taking on low-paying work exist. To address this incentive/disincentive issue, some suggest reducing social assistance rates so that working would become relatively more attractive. This has been the approach of the governments in Alberta and Ontario. The strategy has gotten widespread popular support, largely because of the perception that welfare rates are overly generous. As demonstrated in Table 3, however, this is not the case.

When compared to the Statistics Canada Low-income Cut-offs (LICOs), commonly referred to as poverty lines, it becomes clear that current social assistance rates leave little room for reduction.¹ On average, all categories of welfare recipients fall below the poverty line and in many areas far below. Table 3 shows that for medium-sized cities in Canada, this is the case in every province. In larger cities like Toronto or Vancouver, the discrepancy between welfare and the poverty line is even greater. Before the cuts to welfare in Ontario, it was the only province to come close to meeting the poverty lines, at least for those with disabilities and for single parents. This changed when cuts in benefits were implemented in October.

If the alternative for most people on social assistance is a minimum-wage job, the labour market offers little hope for avoiding the poverty trap (see Table 4). Single- earner families are particularly disadvantaged. Single parents with one child, for example, fall as much as $7,500 below the poverty line even after working full-time hours. Single-earner couples also have great difficulty supporting a family. A family of four does not even come close to the poverty line. If given the opportunity to engage both spouses in full-time work (through adequate child care, say), these couples could improve their income by some $10,000 a year. Even though single persons and dual- earner couples are in the best position of all categories, steady work at the minimum wage would still leave them below the cut-off as well. Anything less than full-time hours would further reduce their earnings.

Table 4: Minimum Wage versus Poverty Lines (1992)
PROVINCE	Single employed	Disabled (unattached)	Single parent, 1 child	1-earner couple, 2 children	2-earner couple, 2 children
Nfld.	-4003	-4003	-7474	-16246	-6366
PEI	-4003	-4003	-7474	-16246	-6366
NS	-3483	-3483	-6954	-15726	-5326
NB	-3483	-3483	-6954	-15726	-5326
Que	-2261	-2261	-5732	-14504	-2882
Ont	-1282	-1282	-4753	-13525	-924
Man	-3483	-3483	-6954	-15726	-5326
Sask	-3422	-3422	-6893	-15665	-5204
Alta	-3743	-3743	-7214	-15986	-5846
BC	-2530	-2530	-6001	-14773	-3420
Yukon	na
Source: Prepared by the Centre for International Statistics, using data from the National Council of Welfare, Incentives and Disincentives to Work, 1993 and CCSD, Canadian Fact Book on Poverty - 1994.
Note 1: Poverty lines for cities of 100,000 to 499,999 people. Note 2: Assuming full-time employment at minimum wage.

Clearly, the cost of raising children is a major reason why so many families fall below the poverty line, in spite of their labour market participation. But, as shown in Table 4, it is obviously not the only reason, since even single employable persons, after a full year of full-time employment, still fall below the poverty line. The minimum wage, at one time deemed as providing a living wage, has consistently fallen in real terms over the past couple of decades, leaving those in minimum-wage jobs with far less purchasing power over time.

Over the past decade and a half, the minimum wage has gone from being a relatively adequate source of income to one that fails to ensure better than poverty level income in any Canadian jurisdiction (see Table 5). The province of Ontario has stayed within 15 per cent of its 1976 level, but in other provinces, the minimum wage has dropped by as much as twice that amount. In fact, no other province has had less than a 25 per cent drop since that time. The CCSD s Canadian Fact Book on Poverty 1994 found that the number of working poor households in Canada rose by a striking 30 per cent over the course of the 1980s alone.² The fact that the minimum wage has stagnated and fallen dramatically over time in real terms has no doubt contributed to this development.

Table 5: Minimum Wage by Province (in 1992 dollars)
Province	1976	1992	% change
Newfoundland	14,024	9,880	-30%
Prince Edward Island	13,463	9,880	-27%
Nova Scotia	14,024	10,400	-26%
New Brunswick	13,980	10,400	-26%
Quebec	15,903	11,622	-27%
Ontario	14,495	12,601	-14%
Manitoba	15,415	10,400	-33%
Saskatchewan	15,706	10,461	-33%
Alberta	15,210	10,140	-33%
British Columbia	16,828	11,353	-33%
Yukon	NA
Source: Prepared by the Centre for International Statistics at the Canadian Council on Social Development, using National Council of Welfare, Incentives and Disincentives to Work, 1993.
Note: Based on 40 hours a week of work

Besides the falling real value of the minimum wage, a second factor depressing the earnings of low-wage workers is the growth of part-time work. The Economic Council of Canada has reported that over the 1980s, one quarter of the jobs created were part-time.³ Although substantial, this number pales in comparison to the fact that the service sector, where the bulk of minimum-wage jobs are found, accounts for 9 out of 10 part-time jobs in the economy.⁴ Add to that the growth of short-term contract work,⁵ and it is clear that minimum-wage work is becoming less and less of a source of security.

Ignoring the evidence

Political decisions to cut welfare benefits to address the imbalance between minimum- wage work and social assistance benefits ignore the evidence showing that both welfare and low-wage work are inadequate to meet the financial needs of most individuals and families. Added to its own inadequacy, the erosion of the minimum wage over time, plus the fact that work does not recognize the cost of raising children, personal supports or work-related expenses, has made social assistance the most reliable means of income security for many poor Canadians. Rather than address the issue of disincentives to taking on low-wage work by making low-wage jobs relatively more attractive, the approach in Ontario, and previously in Alberta, has been to make social assistance relatively unattractive. This has been done in three ways. The first two, cutting benefits and reducing and/or eliminating supports like child care, have already been announced in Ontario. The third, making welfare recipients work for their benefits, is on the near policy horizon.

The promise to make welfare recipients work for the social assistance benefits was a wildly popular issue during the recent Ontario election. Polls showed support for workfare, as it is commonly referred to, as high as 87 per cent.⁶ Support crossed all income levels and demographic segments of the population, including some recipients themselves who wanted the opportunity to work and hoped that workfare would give them a better shot at finding a job. Yet, despite its popularity in principle, workfare in practice has been shown to be fraught with problems, including difficulties in placing recipients in jobs, limited cost effectiveness and labour displacement. If excess employment existed, moving individuals from social assistance to the labour market would not be a difficult task. However, in an economy of high unemployment and less stable jobs, the idea of workfare is not so easily implemented. The Province of Alberta had some success in moving individuals from the welfare rolls to the workplace, but not without a jump in oil prices, which gave rise to substantial job growth. In Quebec and New Brunswick, on the other hand, attempts to do the same have failed because jobs could not be found for welfare recipients. Similar problems have been experienced in some U.S. states, where program success or failure has been attributed to the availability of jobs rather than to the effectiveness of the program itself.⁷

The relative cost and effectiveness of various workfare models is also a major concern. Evidence from the United States reveals that in instances where low-cost models (those with limited scope and few supports) were introduced, little measurable success resulted. They did not produce sizable savings or reduce poverty or remove large numbers from welfare. Furthermore, larger programs with more comprehensive support systems demonstrated a greater likelihood of moving social assistance recipients into the work force, but at costs that clearly outstripped the financial benefit of doing so.⁸

Not only have workfare programs not been credited with successfully moving welfare recipients into jobs, loopholes in the system lead to undesirable side effects. In cases where welfare recipients do find work, some employers admit they would have hired new workers without the government subsidy. Some employers even replace current employees with cheaper workfare workers, thus resulting in a zero net employment gain. In jobs that require little training or specific skills, the savings offered by replacing workers with workfare participants would be enhanced because of the smaller investment required in hiring a new worker. The Quebec experience has aptly illustrated the replacement phenomenon, showing that it cuts deeply into the potential savings of the program and results simply in the subsidization of labour costs for private firms.⁹

Blitzkrieg and sloganism

In the coming months and years, the work/welfare/workfare debate will continue to engage social policy commentators, provincial politicians and the public. Driven by interests as varied as the people who will debate these issues, the call for real reform will lead provinces along a very different social policy path. Prior to such radical changes, what is needed is some thoughtful assessment of the options that governments have. This is not likely to happen, though, especially given the success of the blitzkrieg political strategy adopted in Alberta and the popularity of the slogan- filled, simplified election platform of the Tories in Ontario this past June. The door now appears wide open for a series of act now, think later policy changes that will seek wholesale social reform without much thought to short- or long-term impact.

The current obsession with reducing welfare abuse is an example of the sloganism and simplification driving today s political agenda. Expected to yield a measly $15 million this year (0.002 per cent of total welfare spending) in Ontario,¹⁰ this preoccupation with welfare cheats does little more than distract the public from the real issues. As part of this one-sided emphasis on reforming the welfare system, the current popular response is to make people work for their benefits.

Unfortunately, workfare fails to get at the root of the problem: low wages and increasingly unstable work have driven many Canadians from the labour market to the welfare system. Despite its shortcomings, relative to the labour market, welfare offers a degree of security. And for those with particular needs, it clearly provides both a better income and more adequate supports. For some, this is reason enough to slash benefits and supports like child care. The problem with this strategy is that it does nothing to help either low-income workers or those on social assistance.

If policy-makers were as committed to addressing the changes in the labour market and the erosion of wages as they were to rooting-out the evils of welfare, genuine reform might be possible. The current policy debate and focus on social assistance should be accompanied by an equally engaging discussion of what is happening in the labour market. Respect for the interdependence of the labour market and the welfare system is a prerequisite to understanding the types of reforms necessary. In spite of this, it appears as though the entire work half of the work/welfare equation no doubt the most challenging and politically risky aspect of the problem will continue to be ignored.

NOTES

1. See D.P. Ross, R. Shillington and C. Lochhead, Canadian Fact Book on Poverty 1994(Canadian Council on Social Development) for a review of various poverty lines.

2. Ibid., p.76.

3. G. Betcherman et al., Employment in the Service Economy (Economic Council of Canada, Ottawa, 1991), p.72.

4. Ibid., p.72

5. G. Schellenberg and C. Clark, Temporary Employment in Canada (Canadian Council on Social Development, 1995), forthcoming.

6. Insight Canada, post-election poll in Ontario, June 1995.

7. R. Mullaly, Why workfare doesn t work, Perception (Canadian Council on Social Development, 18:3/4, Spring 1995), pp.9-12.

8. Ibid., p.13.

9. Laurie Monsebratten, Quebec experiment a failure, Ottawa Citizen, July 17, 1995, p.A2.

10. Shuffling the cards, Ottawa Citizen, July 26

Christopher Clark is a policy analyst at the CCSD.

Canadian Council on Social Development, 190 O'Connor Street, Suite 100, Ottawa, Ontario, K2P 2R3