A working definition of Statistics Canada Low Income Cut-offs (LICOs)
(commonly known as poverty lines)
An excerpt from The Canadian Fact Book on Poverty 1994, by David Ross, E. Richard Shillington and Clarence Lochhead, of the Canadian Council on Social Development
Although there is no official measure of poverty in Canada, the Statistics Canada measure is probably the best known. Virtually all of the statistics used by other national measures of poverty in Canada come from Statistics Canada's annual survey of incomes. Statisitcs Canada itself does not claim to measure poverty; rather, it defines a set of income cutoffs below which people may be said to live in straitened circumstances. The difference between straitened circumstances and poverty is moot, however, and most social policy analysts, politicians and editorial writers treat the cutoffs as poverty lines. That is how they are treated here.
The modern recognition of the extent of poverty in Canada dates from the publication in 1968 of the Economic Council of Canada's Fifth Annual Review, which gave currency to an approach to measuring poverty that had been developed at Statistics Canada by Jenny Podoluck. A Statistics Canada survey of family expenditure in 1959 determined that the average Canadian family spent about one-half its income on food, clothing and shelter. Statistics Canada concluded that a family that spent significantly more (i.e., 20 percentage points more) than half its income on essentials was living in straitened circumstances. As a result, it adopted 70 per cent of income as the cutoff point: families that spent more than 70 per cent of their income on essentials would have little or no income left to spend on transportation, health, personal care, education, household operation, recreation or insurance. Applying this measure to 1961 income data, the Economic Council of Canada reported in its 1968 Review that 27 per cent of the overall nonfarm population and 25 per cent of families were living in poverty.
In a 1971 report, Statistics Canada applied the 70 per cent income standard to its surveys of 1965 and 1967 incomes. The report concluded that in 1965, 25 per cent of all Canadians and 21 per cent of families were poor. In 1967, the respective figures were 24 per cent and 18 per cent.
Since 1971, Statistics Canada has conducted its income survey annually. Ideally, the family expenditures survey used for updating the cutoffs should also be annual, but in fact it is done every second or fourth year depending on the extent of its coverage. In calculating its low-income standard, Statistics Canada begins by estimating the percentage of gross income spent by the average Canadian family on food, clothing and shelter. It then somewhat arbitrarily marks this percentage up by 20 percentage points. This final percentage corresponds on average to a given household income level, and this level becomes the low income cut-off for that year.
The most recent estimate of the proportion of income spent on essentials is carried forward until a new expenditure survey reveals a different proportion. The 70 per cent standard based on the 1959 survey gave way in 1973 to a 62 per cent standard based on a 1969 survey. This figure in turn yielded, in 1980, to a 58.5 per cent standard based on the 1978 expenditure survey, to a 56.2 per cent standard based on the 1986 survey, and finally to the current 54.7 per cent based on the 1992 expenditure survey. In the years in which Statistics Canada does not undertake an expenditure survey, it updates its low income cut-offs in accordance with changes in the consumer price index.
Statistics Canada has always varied its cutoff levels with the number of family members. Since 1973 it has also distinguished between urban and rural communities (a distinction that it has applied retroactively to its data for 1969 through 1972). The larger the community, the higher the low income cut-offs for any family size. The accommodation of these two factors - family size and community size -results in 35 separate low income cut-offs.
A few of the Statistics Canada survey's practices should be clarified. In 1992, for example, Statistics Canada used a sample of 39,000 households to obtain its data. The results of the survey are intended to cover Canada's entire household population with the exception of residents of the Yukon and Northwest Territories, Aboriginal Canadians living on reserves and inmates of institutions. The survey's measure of income is comprehensive. It includes wages and salaries (before deductions), net income from self-employment, investment income, government transfer payments (such as Unemployment Insurance, social Assistance, old age pensions, refundable tax credits), training allowances and the like, private pensions, scholarships and alimony payments. The only exclusions from income are gambling gains, lump-sum inheritances, capital gains, loans and income in kind, such as free meals and food produced on the farm for domestic use. The survey includes the income of all household members over the age of 15.
The definition of family used by Statistics Canada in assessing poverty is the so-called economic family. It includes all occupants of a dwelling unit who are related by blood, marriage or adoption. It also includes couples living together in common-law relationships. An unattached individual is a person who either lives alone or shares a dwelling unit, but is unrelated to the other occupants by blood, marriage, adoption or common-law relationship. In this book, both families and unattached individuals are referred to as households, even though this usage does not strictly coincide with the definition of a household that Statistics Canada uses in other surveys.
The fact that Statistics Canada frequently updates its poverty lines based on changes in the proportion of average income devoted to essentials, which has fallen as the Canadian standard of living has increased, implies a commitment to the view that poverty has a relative definition rather than an absolute one.
One concluding note on the Statistics Canada approach to low income is required. In 1988, the statistical agency began a review of its method for defining low income. As part of its public consultation, it circulated a discussion paper. The results of this review, which included meetings with a wide range of interested parties, were presented in an appendix to the 1990 version of the annual survey results. The main changes tentatively proposed (and not as yet  introduced into the body of its annual report) were: (1) to adopt a purely relative approach to poverty based simply on one-half of median gross income; (2) to continue to adjust for family size but also for whether the household members are children or adults; and (3) to discontinue adjusting for community size. These alternative lines are called low-income measures.
In 1990, the agency also began to publish low-income measures based on median after-tax incomes, in a related report on after-tax incomes. However, in its most recent annual report covering 1992 gross income data and released in 1993, the low income cut-off approach (not the new low-income measures approach) still appears to be Statistics Canada's preferred basis for defining Canada's official poverty line. This could change in the future.
Canadian Fact Book on Poverty 1994 - Related Material
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