The NCB Progress Report: 2005

• Previous
• Table of Contents
• Next

Chapter 6
Assessing the Direct Impact of the National Child Benefit Initiative

The previous chapter examined societal level indicators such as the incidence and depth of low income. This chapter reports on the direct impact of the income component of the National Child Benefit (NCB) initiative in making progress on its first goal, to help prevent and reduce the depth of child poverty. The chapter presents evidence based on a simulation using the 2003 Survey of Income and Labour Dynamics (SLID). The simulation compares the actual NCB income benefits structure to a hypothetical scenario based on the benefits structure that existed prior to the NCB. This is the fifth in a series of simulations providing information to Canadians on the progress of the NCB. Three previous simulations were included in The National Child Benefit Progress Report: 2001, 2002 and 2004. A fourth simulation, Impact of the National Child Benefit on the Incomes of Families with Children: A Simulation Analysis, was released by Federal, Provincial, and Territorial Ministers Responsible for Social Services in August 2005.²⁶

The Simulation Approach

The simulation presented in this chapter focuses on the income benefits component of the NCB initiative: both the federal NCB Supplement and provincial/territorial reinvestments and investments in income benefits. Although provincial, territorial and First Nations reinvestments and investments in non-income programs and services also contribute to the NCB goal of preventing and reducing the depth of child poverty, isolating the impact of these non-income programs and services is beyond the scope of this analysis.

The report presents a simulation of the direct impact of the NCB income benefits on the following three outcome indicators for the period from January to December 2003:

• the change in number and incidence of children and families with children living in low income;
• the average change in disposable income that families with children saw in 2003 as a direct result of the NCB; and
• the change in the depth of low income, or the low-income gap (the aggregate amount of income that low-income families would need to reach a predetermined low-income line).

The impact of the income benefits of the NCB is determined by comparing the difference in each of these outcome indicators under two different federal/provincial/territorial child benefit structures in 2003: the actual structure with the NCB initiative,and a simulated structure without the NCB initiative. The impact of the NCB income benefits is determined by the difference between these two child benefit structures. This methodology captures an estimated $2 billion of NCB income benefits. Key characteristics of these two child benefit structures are presented in Table 14.

Table 14
Comparison of Two Federal/Provincial/Territorial Child Benefit Structures in 2003

^aThe Working Income Supplement (WIS) was a federal program that preceded the NCB, providing income support to supplement the earning of low-income working families. The WIS was replaced in July 1998 by the NCB Supplement.

This methodology has the advantage of isolating the impact of the income benefits of the NCB initiative on the three outcome indicators described above, while keeping other socio-economic variables such as the level of employment or earnings unchanged. However, the methodology used in this report cannot capture changes in the economic behaviour of low-income families with children, which may have been caused by the NCB. For example, on the one hand, the NCB may have encouraged low-income families to enter the workforce from social assistance. On the other hand, the NCB Supplement reduction rates may have had a negative impact on the number of hours worked by some workers. These dynamic effects are not captured by this methodology.

The application of the above methodology to the data from Statistics Canada's 2003 Survey of Labour and Income Dynamics (SLID) made it possible to assess the impact of the NCB income benefits on families with children who were in receipt of the NCB Supplement. All impacts are reported using Statistics Canada's post-tax Low-Income Cut-Offs (post-tax LICOs). Appendix 3 provides impacts using the post-tax Low-Income Measure and the Market Basket Measure, respectively. The advantages and limitations of the SLID database were described in Chapter 5.

Fewer Low-Income Families with Children in 2003 as a Result of the NCB

The NCB initiative was responsible for preventing an estimated 60,500 families with 159,000 children from living in low income in 2003 (see Table 15). This is a 12.4 percent reduction in the number of families with children living in low income in 2003. Analysis of the 2003 SLID data indicates there were an estimated 426,900 families with 824,200 children living in low income in 2003, representing 11.3 percent²⁷of all Canadian families with children. If the NCB had not been introduced, an estimated 487,400 families with 983,200 children would have lived in low income in 2003, translating into 12.9 percent of all families with children. Therefore, in 2003, the NCB reduced the number of families with children living in low income by 60,500 families, from 487,400 to 426,900 (a 12.4 percent reduction).

As indicated in Table 15, the overall reduction of 12.4 percent can be further broken down into a 9.9 percent reduction in the number of lone-parent families living in low income, and a 15.3 percent reduction in the number of two-parent families living in low income.

In 2003, the incidence of low income was higher among lone-parents than two-parents. There were an estimated 226,900 lone-parent families with 395,500 children living in low income, representing 31.5 percent of all lone-parent families. By comparison, only 6.4 percent (or an estimated 195,700) of two-parent families with 423,500 children were living in low income in 2003.

The final row of Table 15 indicates the percentage point decline in the incidence of low income brought about by the NCB in 2003. As indicated above, with the NCB in place, the incidence of low income for families with children in 2003 was 11.3 percent. Without the NCB, this incidence would have been 12.9 percent. Therefore, the NCB was responsible for a 1.6 percentage point decrease in the incidence of low income among families with children.

Table 15
Change in the Incidence of Low Income Among Families by Family Type due to the NCB: January 2003 to December 2003

^aThe "All Families" group includes one-parent, two-parent and other family types (e.g. children in foster homes). Children in other family types do not fall in the category of one- or two-parent families.

^bDecline in incidence of low income is expressed in percentage points.

Source: Based on Statistics Canada Special Tabulations from the SLID 2003.

The NCB has made a more significant contribution to the decline in the incidence of low income for lone-parent families than for two-parent families. Without the NCB, an estimated 252,000 lone-parent families with 455,200 children would have lived in low income, translating into 35.0 percent of all lone-parent families with children. With the NCB, the incidence of low income for lone-parents was 31.5 percent, indicating that the NCB reduced the incidence of low-income by 3.5 percentage points.

Among two-parent families, the incidence of low income declined by 1.2 percentage points in 2003 due to the NCB. If the NCB had not been introduced, an estimated 231,000 two-parent families with 522,600 children would have lived in low income in 2003, translating into 7.6 percent of two-parent families with children.

The NCB Improves Disposable Incomes of Low-Income Families with Children

NCB income benefits have reduced the number of families with children living in low income by improving their disposable income. Statistics Canada’s 2003 Survey of Labour and Income Dynamics (SLID) was used to simulate the average increase in the level of disposable income that families with children saw as a direct result of NCB income benefits. As shown in Table 16, these increases in disposable income were estimated for three groups of families in 2003:

• families with children who were prevented from living in low income as a direct result of the NCB Supplement;
• families with children who remained in low income despite receiving the NCB Supplement; and
• all other families with children who received the NCB Supplement in 2003 (i.e., families who were above the low-income threshold with or without the NCB Supplement).

As indicated in Table 16, for those families with children who were prevented from living in low income in 2003 due to the NCB, disposable incomes were, on average, $2,600 higher than they would have been in the absence of the NCB initiative. This represents an increase of 9.7 percent in their disposable incomes.²⁸

For those families with children who remained in low income, despite receiving the NCB Supplement during 2003, the NCB resulted in disposable incomes being, on average, $1,200 higher than what they would have been in the absence of the NCB initiative. This represents an increase of nearly 7.1 percent in their disposable incomes.²⁹

Finally, those other families with children who received the NCB Supplement (i.e., families with children above the low-income threshold with or without the NCB Supplement), disposable incomes rose, on average, $1,000 due to the NCB. This represents an increase of about 2.6 percent in their disposable incomes.³⁰

Table 16
Change in Disposable Incomes due to the NCB Among Families with Children by Family Type: January 2003 to December 2003

Source: Based on Statistics Canada Special Tabulations from the Survey of Labour and Income Dynamics (SLID) 2003.

Helping Low-Income Working Families

In addition to preventing and reducing the depth of child poverty, the NCB was designed to encourage families to leave social assistance for work by improving their incomes and maintaining child benefits when they join the labour force. The previous analysis identified the impact of the NCB on all families that received NCB income benefits. This section examines the impact of the NCB on families who were working during 2003.

Results of the direct impact analysis of the NCB indicate that of the 52,900 working families with children who were prevented from living in a low-income situation in 2003 due to the NCB, disposable incomes were, on average, $2,600 higher than they would have been in the absence of the NCB initiative. This represents an increase of 9.7 percent in their disposable incomes. ³¹

The NCB has also made a significant contribution to improving the level of disposable income for the estimated 219,900 working families who remained living in low income during 2003. As a direct result of the NCB, disposable incomes of these families were on average $1,800 higher than they would have been in the absence of the NCB initiative. This represents an increase of more than 10.5 percent in disposable incomes in 2003.³² As such, families who remained below the low-income threshold in 2003 were, on average, $1,800 closer to the income level above which they would no longer be considered low-income families. The “low-income gap” was reduced for these families by $460 million in 2003, representing a decline of 19.8 percent.

Finally, there were 496,300 additional working families who received the NCB Supplement but were not living in low income in 2003 (with or without the NCB). As a result of the NCB, these families saw their incomes increase on average by $1,100 or 2.8 percent.³³

The NCB Reduced the Low-Income Gap for All Families

The NCB reduced the depth of low income, or low-income gap, for families with children who received the NCB Supplement in 2003. As indicated in Table 17, NCB income benefits closed the low-income gap by a total of $610 million, or 16.1 percent in 2003.

• The simulation found that NCB income benefits decreased the low-income gap by $250 million for lone-parents living in low income, a reduction of 14.9 percent.
• For two-parent families, the low-income gap was closed by $350 million, a reduction of 17.3 percent.

Table 17
Change in Depth of Low Income due to the NCB Among Families Remaining in Low Income: January 2003 to December 2003

Source: Based on Statistics Canada Special Tabulations from the Survey of Labour and Income Dynamics (SLID) 2003.

Summary

This chapter assesses the direct impact of the NCB initiative's income benefits component. A simulation approach is used to compare the actual NCB income benefits structure to a hypothetical scenario based on the benefits structure that existed prior to the NCB.

According to this simulation, the NCB initiative was responsible for preventing an estimated 60,500 families with 159,000 children from living in low income in 2003, a 12.4 percent reduction in the incidence of low income among families with children.The NCB increased the disposable incomes of these families by an average of 9.7 percent, or $2,600. Further, the NCB narrowed the low-income gap for families with children. The combined amount of income that would be required for all low-income families to reach the LICOs was reduced by 16.1 percent or $610 million in 2003 as a result of the NCB.

²⁶This simulation was based on the 2001 data.

²⁷ The 11.3 percent refers to the percentage of families with children living in low income and receiving the NCB Supplement. By contrast, in Chapter 5, when considering all families with children, regardless of whether they receive the NCB Supplement, 11.7 percent were living in low income in 2003.

²⁸ For those families with children who were prevented from living in low income due to the NCB in 2002, average annual after-tax income was $29,400. Without the NCB in place, average, annual after-tax income would have been $26,800.

²⁹ For those families with children who remained in low income during 2003, average, annual after-tax income was $18,700. Without the NCB in place, average, annual after-tax income would have been $17,500.

³⁰ For families who were above the low-income threshold, with or without the NCB, average, annual after-tax income was $39,100. Without the NCB in place, average, annual after-tax income would have been $38,100.

³¹ For those working families who were prevented from living in low income in 2003 due to the NCB, average, annual after-tax income was $29,800. Without the NCB in place, average, annual after-tax income would have been $27,200.

³² For those working families who remained in low income in 2003, average, annual after-tax income was $18,800. Without the NCB in place, average, annual after-tax income would have been $17,000.

³³ For those working families who were above the low income threshold with or without the NCB in 2003, average annual after-tax income was $39,700. Without the NCB in place, average, annual after-tax income would have been $38,600.