Left Poor by the Market - related material

March 18, 1997

Left Poor by the Market: A look at family poverty and earnings

by Grant Schellenberg and David P. Ross

As governments continue to cut back on social programs, families are being pressured to increase their financial self-reliance through their own earnings from the marketplace. But is the marketplace up to the task of providing adequate security for all families? In Left Poor by the Market: A look at family poverty and earnings, we examine how families – especially those with low incomes – have fared in the job market in recent years. Our report examines the market earnings of low-income families at two points in time – 1984 and 1994. It also reviews the proportion of poor families' incomes that comes from government income support programs.

Do government transfers make a difference?

In Left Poor by the Market, we found that more than half a million Canadian families (557,000) relied on public income supports to keep them above the poverty line in 1994. Without those government transfers, the number of poor Canadian families would have increased by 56 per cent that year. And the average depth of poverty would also have increased dramatically – by 70 per cent, or $5,700 per poor family.

A better measuring tool

In Left Poor by the Market, we also developed a new tool for measuring poverty which enables us to better understand the extent to which families' incomes fall below accepted living standards in Canada. Our market-poverty index incorporates both the incidence and depth of poverty into a single measure. Using this index, we found that there was a six per cent increase in the severity of market poverty in Canada over the last decade, although there were wide variations among families according to their composition and the age of the head of the household. In forthcoming work, we will expand upon this market-poverty index to incorporate not only the incidence and depth of poverty, but its duration as well. This comprehensive index will expand our ability to understand the true extent of poverty in Canada.

Provincial and regional variations

The percentage of families experiencing market poverty in 1994 ranged from a low of 20.3 per cent in Ontario, to a high of 34.5 per cent in Newfoundland. But if we look at the gap between a poor family's market income and the poverty line, a somewhat different picture emerges. The average poor family in Ontario suffered the most severe shortfall in their market income, with earnings that were $14,749 below the poverty line. By comparison, earnings of the average market-poor family in P.E.I. were $10,362 below the poverty line.

By combining the depth and rate of poverty into the new index and comparing the results of 1984 with those of 1994, other interesting findings emerge. Using the figure of 100 for the national base index in 1984, we see that growth in the severity of poverty between 1984 and 1994 was most marked in Ontario. Over that decade, Ontario's poverty index climbed from 77 to 100, signalling a greater deterioration there than in any other province. On the other hand, the severity of poverty in New Brunswick, while still serious, dropped over the decade from an index of 133 to 103 by 1994.

The causes of poverty varied greatly across the five regions. Poor families on the Prairies were more likely to be fully employed yet still poor, pointing to low wages as the main contributor to their market poverty. By contrast, poor families in the Atlantic region were most likely to be poor because they could not find work. The causes of market poverty among families in the three other regions were more evenly spread between unemployment, low wages and exclusion from the labour market. Among poor lone-parent families, those who lived on the Prairies were twice as likely to be employed year-round than those living in Ontario, where the majority of lone parents remained outside of the labour force all year.

Why are families market poor?

In our study, the available statistical resources allowed us to examine the three basic causes of market poverty:

• low wages;
• unemployment;
• periods of time spent outside the labour force (neither employed nor actively seeking work).

Low-wage employment

Our analysis of the factors underlying market poverty raises serious questions about the common assumption that a family cannot be poor if it has at least one adult employed year-round. Quite simply, many jobs do not pay high enough wages to provide even full-time workers with sufficient income to adequately support their families. Approximately 450,000 families were market poor in 1994, even though they had at least one supporting adult who had worked all year. And about 100,000 families were market poor despite having had two supporting adults at work all year.

The expectation that these families could become even more self-reliant through labour market participation seems unrealistic, given the employment load they were already bearing. The primary contributor to their market poverty was not so much the number of hours being worked, but rather the hourly wages being earned.

Minimum wages lose ground

A look at recent trends in minimum-wage rates across the country shows why so many workers at the lower end of the wage scale are in trouble. Between 1976 and 1995, the annual earnings received by full-time, full-year workers employed at minimum wage declined by 25 to 30 per cent in almost every province. The only exceptions were for workers in Ontario and British Columbia, yet even in these provinces the annual earnings from a full-year of employment at minimum wages declined by six and 17 per cent respectively.

In most provinces, a full year of minimum-wage employment for one earner would leave a family of four (a couple with two children) about $16,000 below the poverty line. In other words, for these families, one worker earning the minimum wage all year would bring home only about 40 per cent of the income necessary to raise the family out of poverty.

Unemployment deepens

Market poverty persists even though Canadians want and are actively seeking paid employment. In 1994, more than half a million families in Canada were market poor because at least one supporting adult was in the labour force, but unemployed for all or part of the year. Most of these individuals were unemployed for long periods of time, often more than half the year. The long duration of their job searches testifies to their willingness and commitment to find paid employment. But while the willingness to take paid employment is widespread, the opportunities to do so are not.

The employment picture in Canada has been steadily deteriorating since 1976, making it increasingly difficult for many to obtain paid work year-round. In 1976, the official unemployment rate was 7.2 per cent and since that time it has never fallen below 7.5 per cent. In each of the recessions of the early 1980s and 1990s, Canada suffered double-digit unemployment rates. Today the unemployment rate hovers around 10 per cent.

Labour market analysts acknowledge that the official unemployment rate underestimates the true rate of unemployment because it excludes discouraged workers who have given up searching for jobs. Survey data collected by Statistics Canada allow us to calculate the true rate. When discouraged workers are added in, the true unemployment rate in 1995 rose from 9.5 to 9.9 per cent. If we then consider those who worked part-time but wanted full-time work – the underemployed – the true combined rate of unemployment in 1995 jumped to 15.2 per cent. By comparison, the official unemployment rate in 1976 was 7.2 per cent, while the true combined rate for those unemployed and underemployed was 8.7 per cent.

Although business returns and stock prices are rising – a sign to some analysts that the recession of the early 1990s is over – many companies continue to shed thousands of workers. Massive lay-offs in the face of rising profits have become the anomaly of our times. Clearly, if families are to derive a greater share of their economic security from the marketplace, it is imperative that we address the unemployment problem in Canada. As it now stands, there are simply not enough jobs to go around.

Access to the labour market

To eliminate market poverty, people must first be able to enter and participate in the paid labour force. However, as we document in Left Poor by the Market, access to the labour market remains a particular challenge for some segments of the population.

Family care is an issue

Mothers of young children are one example of a group that faces particular difficulties in seeking paid work. In more than half a million market-poor families, at least one of the supporting adults – usually a woman – was caring for other family members throughout all or part of 1994. For many of these women, staying at home to raise their children was less costly than taking paid employment. As documented in The Progress of Canada's Children 1996, "...high-quality infant or toddler care can cost $1,200 a month in some parts of Canada." This makes it difficult to find a job that will pay enough to cover child-care costs and other expenses, while still having some money left over at the end of the month.

With the declining number of extended families and growing geographic distances between family members, child care that is provided by relatives – and which is not necessarily free – is not an option for most households. In 1994, only one-quarter of all children under the age of 12 who were in child care received that care from a relative. The rest of the children were cared for by a non-relative, either in a family home day-care, a child-care centre, or under some other care arrangement. Moreover, subsidized child-care spaces for low-income families, although available in all provinces, tend to be limited in number and targeted to families with very low incomes. A woman with one child and a husband earning low wages would probably qualify for a partial subsidy only, if at all.

Workplaces handicap people with disabilities

Gaining access to the labour market is a major problem for people with disabilities. In 1991, only 56 per cent of persons with disabilities were in the labour force, compared to 81 per cent of persons aged 15 to 64 without disabilities. Despite their relatively low participation rates, many persons with disabilities who were not in the paid labour force demonstrated a capacity for and willingness to work. For instance, 20 per cent were engaged in volunteer activities during the year and the majority of those said they were acquiring skills that would be useful in finding paid employment. Almost one-fifth of those who were not in the labour force said they intended to look for work within the following six months.

Yet access to the labour force remains a problem for many persons with disabilities because of their family responsibilities, a lack of accessible transportation, the need for job redesign or modified work hours, fears of being isolated on the job, and other factors. As documented by CCSD colleague Gail Fawcett, many persons with disabilities are excluded from the labour force, not because of the disability itself, but because the labour market environment prohibits them from participating.

Older workers left behind

Exclusion from the paid labour force has also become a pressing issue for older workers. Our analysis shows that in 1994, husbands in over 100,000 market-poor families reported that they were "retired or voluntarily idle." The vast majority of these men were between the ages of 55 and 64 years. Given that their families were market poor, it seems unlikely that most of these men left the labour force voluntarily. In a 1991 survey, about one-quarter of retirees reported that they had left the labour force involuntarily, often because of a job loss or health problems. Other retirees left "voluntarily," but they may have been given little choice but to accept an early retirement package.

Finding other employment can pose unique problems for older workers since they often have lower literacy skills, fewer years of formal education, and more obsolete job skills than their younger counterparts. These factors, coupled with age discrimination on the part of some employers, likely force many people to retire before the age of 65, even though they face market poverty.

Assessment

Clearly, there are severe shortcomings in a public policy strategy that relies on earnings from the marketplace to provide families with greater self-reliance in the face of government cutbacks. However, this does not mean that such a strategy is necessarily doomed to failure. It is only doomed if we cannot achieve full employment and make considerable modifications to our labour market institutions, practices and social supports such as child care. In the absence of these changes, public income support programs will continue to play a crucial role in decreasing the extent and depth of poverty among working-age families.

Until now, the costs and benefits of this significant shift in public policy have not been properly examined. It seems that deficit reduction pressures and ideological faith have led to a single policy response: Cut government spending and debt, achieve lower interest rates, and hope that well-paying jobs will eventually trickle down to the working poor, thereby replacing income form lost government jobs and social benefits. Our findings suggest that the marketplace, as it currently functions, is unlikely to be able to generate enough well-paying jobs for those who are poor. Unless changes to our labour market institutions are made – many of which require government spending – it seems unlikely that families that are now market poor will have any real hope of becoming more self-reliant in the future.

Endnotes

1. For further discussion of the adequacy of minimum wages, see National Council of Welfare, Incentives and Disincentives to Work (Ottawa: National Council of Welfare, 1993).

2. Canadian Council on Social Development, The Progress of Canada's Children 1996 (Ottawa: CCSD, 1996) p. 31.

3. Ibid, p. 31.

4. For more on this subject, see a report by our CCSD colleague, Gail Fawcett, entitled Living with Disability in Canada: An Economic Portrait (Ottawa: Human Resources Development Canada, 1996).

5. Ibid, p. 114.

This project was made possible with funding from Human Resources Development Canada.

Grant Schellenberg is a research associate with the Centre for International Statistics at the CCSD, specializing in employment, retirement and aging issues.

David P. Ross, executive director of the CCSD, is an economist specializing in labour market and poverty research.

Left Poor by the Market - Related Material

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