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The NCB Progress Report: 2005
Chapter 5
Monitoring Progress - Societal Level Indicators
Federal, provincial and territorial governments are committed to monitoring and reporting on the National Child Benefit (NCB) initiative in accordance with the NCB Governance and Accountability Framework.20This commitment is essential so that Canadians can be informed on the NCB’s progress toward meeting its goals.
This chapter focuses on societal level, or general outcome, indicators. These indicators are affected by the NCB and are also affected by many factors that are unrelated to the NCB, such as the general level of economic activity, government investments in income transfers, changes in tax policy, or changes in demographics. While the NCB initiative has some influence on the trend of these societal level indicators, no attempt is made to isolate the impact of the NCB alone on these trends. Instead, the indicators reported in this chapter paint a broad picture of the condition of low-income families with children in Canada, and provide a basis for comparison on the progress made over time. Chapter 6 will describe and report on outcome indicators, which identify the direct impact of the NCB on families with children.
Table 12 describes the set of societal and direct outcome indicators that have been developed to track the degree to which each of the NCB’s three goals is being achieved. This report provides information on many of these outcome indicators. Information on other outcome indicators is included in the Evaluation of the National Child Benefit Initiative: Synthesis Report.21 As part of their ongoing commitment to assessing and reporting to Canadians on the progress of the NCB, NCB partners will continue their work on developing reliable outcome indicators.
It should be noted that the measures used in this chapter only indicate trends among Canadian families with children in terms of income. Many other investments in benefits and services introduced under the NCBinitiative contribute to improving the well-being of children and their families. Many provincial and territorial NCB programs, benefits and services, such as supplementary health benefits, child/day care, early childhood and children-at-risk services, do not directly affect income trends but are still an important part of governments’ strategies to support Canadian families.
Table 12
Outcome Indicators for the NCB
| Goals | Societal Level Indicators | Direct Outcome Indicators |
|---|---|---|
| Help prevent and reduce the depth of child poverty. | Incidence of low income Number and percentage of families and children living in low income (as defined by the LICOs, LIM and Market Basket Measure). |
Incidence of low income The change in the number of families and children that fall below the low-income line, because of the NCB, within a year. |
| Duration of low income Number and percentage of families and children who have been in low income during all four previous years. |
Not applicable | |
| Depth of low income (dollar and percentage) Additional amount of income a low-income family would need to reach a pre-determined line (as measured by the LICOs, LIM and Market Basket Measure). |
Depth of low income The change in the aggregate amount of income that low-income families would need to reach a pre-determined line, due to NCB benefits, within a year. |
|
| Promote attachment to the labour market by ensuring that families will always be better off as a result of working. | Labour market participation. |
Labour market participation. The change in the difference in disposable income between social assistance and employment due to the NCB, within a year. |
| Reduce overlap and duplication by harmonizing program objectives and benefits, and simplifying administration. | Level 1 — use of federal income tax system to deliver benefits. Level 2 — participation rates in NCB programs, examples of expanded information-sharing agreements. |
Not applicable |
Sources of Data
The analysis in this chapter and Chapter 6 is based on data from Statistics Canada’s Survey of Labour and Income Dynamics (SLID). The SLID is a longitudinal labour market and income survey begun in 1993 as a replacement to the Survey of Consumer Finances. The SLID has a number of advantages and limitations which affect the analysis presented in this report.
A major and unique advantage of using the SLID in this report is that it allows for an ongoing analysis of the NCB initiative. As a longitudinal income survey, the SLID permits an assessment and comparison of the impacts of the NCB initiative on particular individuals over time. The SLID is designed to track the economic well-being of Canadians within a shifting economic environment. The depth of information available in the SLID permits the impact of the NCB initiative to be assessed in isolation from other changes affecting individuals and families, such as changes in paid work, family makeup, receipt of other government transfer payments and other factors.
At the same time, the SLID database also has a number of limitations. The SLID tends to under-report social assistance benefits because of non-reporting of these benefits by some low-income families. This results in an overestimation of the number of low-income families that are working and therefore could bias upward the total impact of the NCB initiative. The SLID can also overestimate the length of time that families spend on social assistance, because it assumes that a family receives social assistance for an entire year, even if that family received social assistance for only part of the year. Studies have shown that movement in and out of social assistance within a year are significant. As a result, the SLID database overestimates the total amount of the NCB initiative adjustments to social assistance benefits made by provincial and territorial governments, and results in an underestimation of the total impact of the NCB initiative benefits. A simulation performed by Statistics Canada using the Social Policy Simulation Database and Model (SPSD/M) to evaluate the impact of these limitations showed they had a relatively small impact on the type of aggregated indicators used in the NCB progress report. These simulation results were summarized in an appendix to The National Child Benefit Progress Report: 2001.
Finally, in-depth analysis of the SLID has revealed that the number of NCB Supplement recipients is underrepresented in the SLID by approximately 30 percent, compared to Canada Child Tax Benefit (CCTB) administrative data provided to Human Resources and Social Development Canada (HRSDC) by Canada Revenue Agency (CRA). The magnitude and direction of the effect of this under-representation on the impact of the NCB are difficult to predict. The income distribution of missing cases among the low-income population is unknown. Depending on the income distribution of the missing cases, as well as the amount of underreported social assistance, the levels of the low-income measures being used to assess the NCB Supplement may change.
Measuring Low Income
Canada does not have an official poverty line. Several different measures of low income are used in Canada, and in recent years there has been considerable debate about the best way to measure it. Some believe low income means lacking enough income to buy the basic necessities of life, such as food, shelter and clothing. Others believe that it means not having enough income to participate fully in one’s community. Still others believe that low income lies somewhere in between.
The two most widely used indicators of low income in Canada are Statistics Canada’s Low-Income Cut-Offs (LICOs) and the Low-Income Measure (LIM). Both establish a dollar figure below which a family is considered to be living in low income. LICOs and LIM can be reported based on total income (i.e., income including government transfers such as the Canada Child Tax Benefit, before the deduction of income taxes) known as pre-tax, or after-tax income (i.e., total income after the deduction of income taxes) known as post-tax. There is, as well, the Market Basket Measure (MBM).
Both pre- and post-tax LICOs are set according to the proportion of annual income spent on basic needs, including food, shelter and clothing. The LICO line is the income level at which the average family with that income spends 20 percentage points more of its income on these items relative to the average family. In this case, the family falls beneath the LICO line. The size of the family and community is taken into account, but geographic differences in the cost of living are not.
The LIM was developed as an alternative to the LICOs. It considers a family to be living in low income if its income, adjusted for family size, is less than half the median income (the income level at which the incomes of half of all families are higher and half are lower). The post-tax-and-transfer LIM is similar to measures used in international comparisons, but it does not reflect geographic differences in living costs across Canada.
As with The National Child Benefit Progress Report: 2004, the focus of this report is post-tax LICOs. Post-tax income is generally considered to be a better measure of low-income in Canada22 for two reasons. First, post-tax income more fully accounts for the re-distributive impact of Canada’s tax system. Pre-tax income includes the effect of government transfers but not taxes. But post-tax income refers to the income available to a family after both government transfers and taxes. Secondly, since the purchase of necessities is made with after-tax dollars, this approach more fairly and consistently measures the economic well-being of individuals and families. Consequently, indicators based on post-tax LICOs are better indicators of the impact of government initiatives like the NCB on the overall economic well-being of Canadian families with children.
While the focus has shifted to post-tax LICOs, this chapter continues to include information on the pre-tax LICOs and the post-tax LIM. These various measures are used to follow trends relating to the low-income population, such as the depth and incidence of low income, by family type and source of income. The numbers of families living in low income differ from measure to measure, but the trends illustrated are generally similar 23
The Market Basket Measure
The Market Basket Measure (MBM) is an additional tool that provides a different way of understanding low income.
The MBM was developed by Human Resources Development Canada in consultation with the Federal/Provincial/Territorial Working Group on Social Development Research and Information. This work was initiated in 1997 when Federal, Provincial and Territorial Ministers Responsible for Social Services asked officials to explore whether a new tool could be developed to complement existing measures of low income trends for families with children.
The MBM is used to complement the LICOs and the LIM to assess low income trends among families with children. The LICOs and the LIM are relative measures: the former is based on average consumption patterns and the latter is set at half of median income, adjusted for household size and composition.
The MBM identifies disposable income levels that are required to purchase a detailed, selected basket of goods and services in various communities across Canada.
The MBM is based on the actual cost of food, clothing, shelter, transportation and other necessary goods and services, such as household supplies and telephone services included in the basket. It is considered to be socially unacceptable for any household to be without these goods and services. Households are considered to be living in low income if they are unable to purchase this basket of goods and services after accounting for income and payroll taxes and other non-discretionary out-of-pocket spending. This out-of-pocket spending includes such items as child care necessary to earn income, medically prescribed health expenses and aids for persons with disabilities.
Compared with the LICOs and the LIM, the MBM more precisely reflects differing living costs by geographic location because the thresholds are estimated by region, as well as urban size.
For 2003, using the MBM, the incidence of low income among Canadian families with children was 15.1 percent. This translates into 549,140 families with 1,137,685 children. Using the MBM, the incidence of low income among families with children has declined. In 2000, the first year MBM data was available, the incidence of low income among families with children was 16.7 percent. In 2001 and 2002, the incidence was 15.5 percent.
The depth of low income measures how far family income falls below a given low-income threshold. With the MBM, the depth of low income for families with children was 27.2 percent in 2003, up slightly from 26.7 percent in 2002.
Key Trends
The societal level indicators discussed in this chapter measure the incidence, duration, and depth of low income among families with children in Canada over time. They also illustrate trends in labour force attachment and social assistance caseloads.
Generally, this report finds that while there has been a slight increase in the incidence of low income among these families since 2001, the trend since the mid-1990s has been dramatically downward. There has also been a significant decline in the length of time families spend living with low incomes, and a small decrease in the degree to which low-income families (on average) fall below the LICO. Further, there has been a significant increase in the proportion of low-income families with at least one parent in the labour force, and fewer families with children are claiming social assistance.
Using the societal level indicators (using post-tax LICOs) for low-income families with children, this report identifies the following key trends:
- In 2003, the incidence of low income among families with children increased slightly to 11.7 percent from 11.4 percent in 2002, affecting about 5,600 families with 11,000 children. This is well below the peak of 17.6 percent in 1996. The number of families with children living below the post-tax LICO has fallen from 687,100 in 1996 to 442,600 in 2003, or a decline of 244,500 families.
- The number of children living in low-income families has declined from a peak of 1,304,000 in 1996 to 850,500 in 2003, or a decrease of 453,500 children.
- The number of children living in low income four years in a row declined from 6.3 percent between 1996 and 1999 to 4.1 percent between 2000 and 2003.
- The depth of low income (which is the additional amount of income needed by low-income families to reach the low-income line) declined slightly between 1996 and 2003. Expressed in 2003 dollars, the average depth of low income was $7,195 in 2003 compared to $7,512 in 1996.
- The proportion of low-income families in which at least one parent was employed for pay during the year increased from 55.7 percent in 1996 to 68.6 percent in 2003.
- There was a reduction in social assistance use by families with children, and corresponding evidence of increasing attachment to the labour force. Between 1996 and 2003, the total social assistance caseload for families with children declined by 53.5 percent, from 631,900 to 293,900 families. In 2004, this downward trend continued with the total social assistance caseload for families with children declining to 285,150.
Incidence of Low Income among Families with Children:
A slight increase in recent years, but a significant decline over time
The incidence of low income refers to the number of families with children who fall below a pre-determined low-income line expressed as a percentage of all families with children. The trend in the incidence of low income among Canadian families with children since 1984 is shown in Figure 6, using post and pre-tax LICOs, and post-tax LIMs.
Figure 6
Percentage of Families with Children Below LICOs and LIM Threshholds, 1984 - 2003
The proportion of families with children living in low income has closely followed the business and employment cycles over these years. The latter half of the 1980s was a period of economic growth and declining unemployment in Canada (see Figure 7). As Figure 6 shows, this translated into a decline in the percentage of families with children living in low income. On the other hand, the early 1990s were a period of economic slowdown and high unemployment in Canada. This translated into an increase in the percentage of families with children living in low income.
Figure 7
Unemployment Rate and Percentage of Families below Post-Tax LICOs, Canada, 1984-2003
Using the post-tax LICOs measure, Figure 6 shows the incidence of low income among families with children dropped from 17.6 percent in 1996 to 11.0 percent in 2001. Since 2001, the incidence of low income has increased slightly, rising to 11.4 percent in 2002 and to 11.7 percent in 2003.
In 2003, there were 442,600 families with 850,500 children living below the post-tax LICOs compared to 437,000 families with 839,500 children in 2002.
Compared to the peak in 1996, the incidence of low income among families with children in 2003 has decreased by about 34 percent. This reduction translates into a net movement of more than 244,500 families with about 453,500 children above the post-tax LICOs between 1996 and 2003.
The reduction in the proportion of single-parent families living in low income since 1996 has been particularly significant. As Figure 8 shows, the proportion of one-parent families living below the post-tax LICOs declined from 46.0 percent in 1996 to 31.8 percent in 2003. The proportion of two-parent families living below the post-tax LICO also showed a decline, from 10.9 percent to 6.8 percent over the same period.
Figure 8
Percentage of Families with Children with Low Income, Single-Parent and Two Parent Families, LICOs and LIM, 1984-2003
Duration of Low Income
Low Income is Temporary for Most
Low income is usually not a permanent situation for most families with children. Among those families who do experience it, most move in and out of low income over time.
From 1984 to 2003, on average, 13.7 percent of families with children lived in low income (post-tax LICO) in any given year. As shown in Figure 9, between 1996 and 1999, about a quarter of all children aged 13 and under lived in a family which experienced low income for at least one of those four years (1,403,600 children in total). However, of those 1,403,600 children, less than one-half lived in low income for more than two of these four years (638,700 children in total, or 12.1 percent of all children age 13 and under). Only about a quarter of these children lived in a low-income situation for all four years (332,700 children in total, or 6.3 percent of all children age 13 and under).
Figure 9
Children 13 and Under Living in Low Income, 1996-1999, 1997-2000, 1998-2001, 1992-2002, 2000-2003
There is evidence this situation is improving. Comparing the 1996-1999 period to the next four-year period, 1997-2000, the proportion of children experiencing low income in at least one of the four years declined from 26.5 percent to 24.3 percent. This proportion declined further in the 1998-2001 period to 22.6 percent, and then to 19.6 percent in the 1999-2002 period, then to 19.1 percent in the 2000-2003 period. Even more pronounced is the decline among those children experiencing low income in all four of the years, which fell from 6.3 percent in the 1996-1999 period to 3.8 percent in the 1999-2002 period, although this amount rose slightly to 4.1 percent in the 2000-2003 period.
Depth of Low Income:
The Depth of Low Income is Lessening Gradually
The depth of low income measures how far family income falls below a given low-income line. It measures the additional amount of income a low-income family would need to reach a pre-determined low-income line, such as Statistics Canada’s LICOs or the LIM.
An example is given below in Table 13. It shows that the 2003 low-income line (post-tax LICO) of a two-parent, two-child family living in a city of more than 500,000 people is $31,277. If such a family had post-tax income of $23,458 in that year, its depth of low income would be $7,819 (i.e., $31,277 - $23,458). Expressed as a percentage, the depth of low income of this family is equal to 25 percent of the low-income line (i.e., [$7,819 /$31,277] x 100).
Table 13
Depth of Low Income for a Two-Parent, Two-Child Family Living in a City of More Than 500,000 People in 2003
| Post-Tax LICOs | |
|---|---|
| 2003 Low-Income Cut Off (Post-Tax) | $31,277 |
| Example Family's Income (Post-Tax) | $23,458 |
| Difference Between Low-Income Cut Off And Example Family’s Income (Depth of Low Income of that Family) |
$7,819 |
| Percentage Points Below Low-Income Cut Off | 25% |
Source: Statistics Canada, Survey of Labour and Income Dynamics (SLID) 2003
As illustrated in Figure 10, the depth of low income for families with children has generally improved since 1984. Between 1996 and 2003, the depth of low income for families with children improved from 32.2 percent to 28.0 percent.
Figure 10
Post-Tax LICOs: Depth of Low Income - Shortfall of Low-Income Families with Children as a Proportion of the LICO, 1984-2003
In 1996, low-income families with children had an average after-tax income of $17,697. These low-income families would have needed, on average, $7,512 to reach the low-income line (post-tax LICOs). Comparatively, low-income families had an average after-tax income of $18,501 in 2003 and needed, on average, $7,195 to reach the low-income line (post-tax LICOs).24
Complex factors make it difficult to interpret changes in the depth of low income. As described above, movements in and out of low income are significant and have an impact on the depth of low-income indicator. For example, if families that are closer to the low-income line increase their incomes enough to no longer be considered living in low-income, the average depth of low income for those who remain below the low-income line may actually increase. This result would give the impression that the situation has worsened for all, when it has really improved for many. Despite these limitations, the depth of low income is an important indicator of how low-income families are faring.
Labour Market Attachment Among Low-Income Families:
More Low-Income Parents are Employed
Promoting attachment to the labour force among low-income families with children is the second goal of the NCB initiative. Figure 11 indicates that from 1984 to the economic downturn in the early 1990s, the percentage of low-income families in which the parents had paid employment was quite stable. The percentage declined during the early 1990s, but continued to increase during the economic recovery of the late 1990s.
As illustrated in Figure 11, the proportion of low-income families with children in which at least one parent was employed for pay during the year increased from 55.7 percent in 1996 to 68.6 percent in 2003. The proportion of one-parent families employed for pay rose from 37.5 percent in 1996 to 59.1 percent in 2003.
Figure 11
Post-Tax LICOs: Percentage of Low-Income Families Employed for Pay During the Year, By Family Type, 1984-2003
Additional information on labour force attachment can be gained by examining the sources of income of low-income families with children. For example, Figure 12 shows the average level of government transfers received and average earnings of low-income families with children between 1984 and 2003 (expressed in 2003 dollars).
Figure 12
Source of Family Income, Low-Income Families with Children, Post-tax LICOs (expressed in 2003 dollars)
While there has been variation from year to year, since the early 1990s, there has been a moderate upward trend in the level of earnings of low-income families with children and in the proportion of after-tax income that comes from employment earnings. In 1992, low-income families earned, on average, $4,701. This amount represented approximately 30.7 percent of the after-tax income of low-income families. In 2003, low-income families earned, on average, $6,167, which was 33.3 percent of their total after-tax income. During this same period, the trend in government transfers was slightly upward, and transfers continued to play an important role as a source of family income for low-income families.
Fewer Canadian Children are Living on Social Assistance
While it is not a direct indication of increased labour force attachment, there was a significant decline in the number of families receiving social assistance during the late 1990s.
Figure 13 shows that between 1996 and 2003, the number of one-parent families relying on social assistance decreased by 51.8 percent (from 454,500 to 219,000 households). By 2004, the decline reached 52.8 percent (down to 214,700 households). Between 1996 and 2003, the number of two-parent families with children relying on social assistance decreased by 57.8 percent (from 177,400 to 74,900 households). By 2004, the decline reached 60.3 percent (down to 70,450 households). As a result, between 1996 and 2003, the overall number of children living in families relying on social assistance decreased by 50.4 percent (from 1,096,900 to 544,200 children). By 2004, the decline reached 54.5 percent (down to 498,800 children).
Figure 13
Social Assistance Families and Children in March of Each Year, 1987-2004 (in thousands)
It is interesting to compare the reduction in social assistance caseloads for families with children with the situation of childless families. Figure 14 shows that between 1996 and 2003, the two-parent family social assistance caseload numbers decreased by 57.8 percent while those of couples without children decreased by only 21.7 percent. By 2004, the decline had reached 60.3 percent and 25.7 percent respectively. Furthermore, between 1996 and 2003, the caseload for one-parent families declined by 51.8 percent compared to a decline of 18.8 percent for singles without children. By 2004, the decline had reached 52.8 percent and 18.8 percent respectively.
Economic growth in the late 1990s was one of the main reasons for the overall reduction in social assistance caseloads. In addition, welfare reform measures, including the restructuring of social assistance systems in several provinces as part of the NCB initiative, were a contributing factor in the decline in the caseload of families with children. Finally, evidence from the federal/provincial/territorial evaluation of the NCB initiative suggests that the NCB was associated with social assistance caseload reductions.25
Figure 14
Social Assistance Data as of March of Each Period, 1996, 2002, 2003, and 2004
Summary
This chapter has shown that the incidence of low income among families with children has declined significantly since the mid-1990s. From a peak of 17.6 percent in 1996, the incidence of low income among families with children fell to 11.0 percent in 2001. Since 2001, the incidence has increased slightly, rising to 11.4 percent in 2002 and to 11.7 percent in 2003. Compared to 1996, the incidence had declined by 34.0 percent in 2003. In addition, the depth of low income and the duration of low income among most families with children continue to decline.
In terms of attachment to the labour market, the proportion of earnings from employment and the percentage of low-income families employed for pay showed slight increases between 2002 and 2003 and both were higher than in 1996. Finally, the social assistance caseload for families with children continues to decline.
These indicators are important in monitoring the overall economic well-being of low-income families with children. However, the extent to which the NCB has contributed to these changes cannot be directly determined from the societal level indicators reported on in this chapter. They do not tell us the extent to which the NCB is responsible for changes in these trends. Chapter 6 will describe the direct contribution of the NCB to preventing and reducing the incidence and depth of low income of families with children.
20 The NCB Governance and Accountability Framework is available on the NCB website, at: www.nationalchildbenefit.ca.
21 The Evaluation of the National Child Benefit Initiative: Synthesis Report is available on the NCB website, at: www.nationalchildbenefit.ca.
22 Statistics Canada, Income in Canada 2000 (Ottawa: 2002) Catalogue 75-202-XIE, p. 89.
23 Statistical trends, based on pre-and post-tax LICOs and post-tax LIMs, can also be found in Appendix 4, which is available on the NCB website, at www.nationalchildbenefit.ca.
24For comparison purposes, the figures in this paragraph are expressed in 2003 dollars.
25 See Evaluation of the National Child Benefit Initiative Synthesis Report (2005), page 20, available on the NCB Website, at: www.nationalchildbenefit.ca.
