Canadian Council on Social Development 441 MacLaren Street 4th/e Floor/Étage Ottawa, ON K2P 2H3

Conseil canadien de développement social Tel: (613) 236-8977 Fax: (613) 236-2750 E-mail: council@ccsd.ca Internet: www.ccsd.ca

Income and Child Well-being:
A new perspective on the poverty debate

by David P. Ross and Paul Roberts

     

PART II: LINKING POVERTY TO CHILD OUTCOMES

THE RESEARCH PRESENTED IN PART I ADDS TO THE GROWING BODY OF EVIDENCE that as family incomes fall, the risks of poor developmental outcomes in children's health, behaviour, learning and socialization rise. These findings raise several questions in relation to the current thinking and policy development around child poverty. First, there is much discussion and debate these days about the correct measurement of child poverty. But to what extent do any of the widely discussed measures of child poverty relate to the risks to child development that are posed by lower family incomes?

Second, what are the trends in the distribution of family incomes in Canada in recent years? How have these trends affected child outcomes? And finally, how should this knowledge we now possess about the interrelationship between family incomes and child outcomes be applied to the development of our public policies? As we found in Part I, family incomes alone do not determine children's opportunities. The provision of public services such as education and health, as well as supports for housing, neighbourhoods and communities also affect children's development. What combination of public policies offers the best opportunities for every child to develop to his or her full potential?

Part II of this report responds to each of these questions.

Measuring poverty

Each year, Statistics Canada releases figures on the number of people living below its low income cut-offs, referred to as LICOs. Social groups and the media interpret these as poverty numbers. Consequently, we see headlines as we have recently stating that 1.5 million children in Canada live in poverty. There is, however, growing criticism of this interpretation. Among other complaints, critics point out that Canada's poor children do not resemble those shown on TV who live in Third World countries. Staunch critics such as the Fraser Institute believe that only a tiny percentage of Canadian children live in poverty, since most have access to what the Fraser Institute considers to be life's basic necessities of food, clothing and shelter, but their definition of need includes only the barest basics.

Where should the poverty line be set? This report shows that children who live in families with incomes below the LICO have poorer health, behaviour and learning outcomes, and they live in considerably worse family and neighbourhood conditions than children in families at higher income levels. This should be of concern in any discussions about the "proper" level of the poverty line. In Canada, poverty lines are used primarily to estimate the number of poor people, but they are rarely used as a goal for redistribution policies. For example, social assistance rates in all provinces fall well below the low income cut-offs. We believe that a poverty line should not only be used as a way to estimate the number of poor people, it should also be considered as a threshold, below which society will not tolerate income inequality.

Discussions about establishing the "correct" poverty line not only divert attention away from the plight of poor children and their families, but also away from a debate about the purpose of a poverty line, and of the need to set a floor on income inequality. Should a poverty line simply reflect the amount of money needed for the physical basics of survival? Or should the line be set at a level that enables people to be socially engaged in their society?

Among the major players in the current Canadian poverty line debate are the following:

• the Fraser Institute, which has suggested that the poverty line be set at the very lowest levels of income that would eliminate hunger and cold.

• Statistics Canada, which has established low income cut-offs (LICOs) that it considers as adequate to ensure that families are not living in "straitened circumstances." (It should be noted that Statistics Canada does not call the LICOs poverty lines, but many groups use them for that purpose.)

• the CCSD, which for many years, has defined poverty as an unacceptable level of income inequality.

There is also a relatively new attempt by government officials in Canada to set a poverty line by identifying an adequate "market basket" of necessities. Using this approach, the poverty line would be set at the amount of money needed to purchase all of the items in the basket. The difficulty with this approach is determining exactly what constitutes life's necessities, for decisions about which items should be in the basket are entirely subjective and normative, since everyone has their own notions about what is "necessary."

Those proposing the market basket approach are also ignoring the ultimate question: What is the purpose of life's necessities? Should items only be considered as essential if they are needed to stave off cold and starvation? Or should items that are needed to promote social inclusion, or to prevent someone from living in "straitened circumstances," or to provide for healthy child development also be included? Only when we know the objective to be served by setting a floor on income inequality can we then define what is necessary in order to achieve that objective.

Poverty lines and children's development

This report considers the definition of poverty from the perspective of children. It attempts to define an unacceptable level of inequality among families - that is, one which fails to ensure roughly equal life chances for all children. By establishing an income level at which children experience "poverty of opportunity," the discussion can then turn to how best to change these circumstances so that children will have optimal chances of developing to their potential and becoming successful adults.

As our report demonstrates, the level of income that families need in order to maximize their children's chances of full development goes well beyond the amount needed for the basic provision of food, clothing and shelter.

As Part I shows, while the changes in child outcomes are not uniform as family incomes drop, for 80 per cent of the different variables examined, the risks to child outcomes and the likelihood of poor living conditions are noticeably higher for children in families with incomes below $30,000. This is also true for 50 per cent of the variables for children in families with incomes below $40,000. Children in families with incomes between $40,000 and $80,000 show less significant differences in outcome risks, but those in families with incomes of $80,000 or more are at noticeably less risk of poor outcomes than children in any other family income group.

With this information in mind, an appropriate child poverty line appears to lie within the $30,000 to $40,000 range for a family of four, because the risks of poor developmental outcomes and living conditions decline steeply as families approach these income levels. This level for a poverty line is above any of the others commonly suggested today. It is well above the line advocated by the Fraser Institute and somewhat higher than that indicated by Statistics Canada's LICO. It is also higher than the income amount the public has indicated it would set, and it is well below the median income level. If healthier child development is considered to be an important objective of our society, it seems that at the very least, the LICO level is defensible as a minimum measure of poverty. As Chart 28 shows, the LICO is also close to the level that Canadians support, according to Gallup poll results.

Recent trends in family income distribution

A review of trends over the past 24 years shows that income inequality has worsened among families with children (see chart 29). In 1973, the poorest quintile of families (that is, the poorest 20 per cent of families) earned only 5.3 per cent of all market income (that is, earnings from employment and private investments). By 1996, they received only 2.3 per cent of market income. The next poorest quintile of families also lost some of their share of market income - experiencing a drop from 13.5 to 11.1 per cent. Meanwhile, the top quintile of families saw their share of market income rise over the same period from 38.4 per cent to 43.2 per cent. After factoring in the redistributive effects of government taxes and transfers - such as welfare payments, unemployment insurance benefits and child benefits - the distribution of family income is somewhat improved, but it has become even more unequal over time. The two lowest or poorest quintiles continue to receive a vastly smaller share of total family income than does the top quintile.

The distribution of family incomes worsened in 1996 - the first year in which massive cuts in the federal government's health and social transfer payments and severe tightening of employment insurance eligibility and benefits came into effect. Reductions in the federal transfers, in turn, led to significant tightening and reduction of welfare payments in many provinces. This worsening picture in 1996 may be a sign of even more inequality in future years.

The statistical evidence suggests that the capacity of many families to achieve incomes in the $30,000 to $40,000 range on their own is severely limited, and it is getting worse due to falling earnings and social benefits. The falling incomes are also being squeezed on the cost side, because there is a growing trend towards higher user fees for publicly subsidized services such as museums, recreational facilities and some forms of health care. Social housing construction has halted in most of the country, leaving a growing proportion of low-income families paying rents that amount to half, or more, of their monthly income. Even the universal - and once, virtually free - public education system is now the victim of user fees for an increasingly wide range of school supplies, activities, sporting equipment and special events.

On the earnings side, although the job market has been rebounding for some people, those with low levels of education and skills are still lagging behind in their employment and wages. Social benefits have also fallen relative to increases in the cost of living. Certain groups, most notably young and single parents, people with disabilities, and members of some ethnic groups face particular difficulties earning enough money to raise their incomes above the LICO.

Chart 29: Income quintile approach, families with children under 18 years

Market income quintile	1973	1981	1984	1986	1989	1990	1991	1992	1993	1994	1995	1996
Bottom	5.3%	5.0%	3.4%	3.8%	4.1%	3.5%	3.0%	2.9%	2.3%	2.4%	2.6%	2.3%
2nd	13.5%	13.4%	12.3%	12.5%	12.5%	12.1%	11.5%	11.7%	11.0%	11.3%	11.2%	11.1%
Middle	18.6%	18.7%	18.6%	18.6%	18.1%	18.5%	18.2%	18.5%	18.0%	18.3%	18.1%	18.2%
4th	24.2%	24.5%	24.8%	24.8%	24.3%	25.1%	25.1%	25.2%	25.6%	25.4%	25.3%	25.3%
Top	38.4%	38.3%	40.9%	40.3%	41.0%	40.8%	42.3%	41.8%	43.0%	42.7%	42.7%	43.2%

 

Shares of total income after transfers and income tax

Total income after tax quintile	1973	1981	1984	1986	1989	1990	1991	1992	1993	1994	1995	1996
Bottom	7.7%	7.8%	7.1%	7.5%	7.7%	7.5%	7.3%	7.2%	7.5%	7.3%	7.3%	6.9%
2nd	14.5%	14.5%	14.1%	14.1%	14.2%	14.1%	13.9%	14.1%	13.6%	13.8%	13.7%	13.5%
Middle	18.7%	18.8%	18.7%	18.6%	18.3%	18.6%	18.5%	18.8%	18.4%	18.6%	18.5%	18.5%
4th	23.8%	23.6%	23.7%	23.6%	23.3%	23.8%	23.7%	23.9%	23.9%	23.8%	23.8%	24.0%
Top	35.5%	35.3%	36.4%	36.1%	36.5%	35.9%	36.6%	36.0%	36.6%	36.5%	36.7%	37.0%

Source: Calculations by the Canadian Council on Social Development using microdata from Statistics Canada's Survey of Consumer Finances, various years.

 

Relating public policy development to family incomes

Having identified income levels that would enable families to provide reasonable opportunities for their children to develop, and having reviewed the disturbing trend towards more polarized income distribution in recent years, we are left to consider how public policy can best support the optimal development of children. While government transfers can help redistribute income to Canada's poorest children, and thereby improve child outcomes and living conditions, transfers alone are not sufficient.

Exactly what is required in order to improve a child's life chances will vary with each child and with each family's particular situation. However, our results show that low income is a common factor that influences outcomes, whatever the pathway. Obviously, poor access to recreational and cultural services, to adequate shelter, nutritious food, decent clothing and school supplies can be redressed partially through income transfers. But many of the factors in the home and neighbourhood environments that cause poor developmental outcomes - such as family dysfunction, poor parental health, low parental education, hanging out with troubled friends, alcohol abuse, and dangerous neighbourhoods - are the result of bad pre-existing conditions that will require support and assistance beyond income transfers. Children who are abused or neglected in their homes require, first and foremost, the well-funded services of a good child welfare system. Young children of working-poor mothers need quality subsidised child care services.

It should also be stressed that when it is money that counts, and where there is a requirement for increased family incomes, transfers are not the only anti-poverty strategy that can be adopted. Ideally, in addressing cases of low income, increased transfers should be accompanied by attempts to increase the economic self-reliance of families. This can be accomplished by providing educational and training opportunities, housing assistance, child care, workplace assistance to people with disabilities, job flexibility, and more flexible and family-friendly workplaces. The persistence of high levels of unemployment in some regions may require community supported job creation initiatives. By positively and pro-actively supporting families to generate more earnings, these measures will reduce the need for pure income transfers.

     

The Canadian Council on Social Development (CCSD) is an independent, national, non-profit organization focussing on issues of social and economic security.

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