The NCB Progress Report: 2006

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Chapter 5
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 2004 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 sixth in a series of simulations providing information to Canadians on the progress of the NCB. Four previous simulations were included in The National Child Benefit Progress Report: 2001, 2002, 2004 and 2005. A fifth 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 2005.²⁰

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 2004:

• the change in number and incidence of children as well as families with children living in low income;
• the average change indisposable income that families with children saw in 2004 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 2004: the actual structure with the NCB initiative, and a simulated structure without the NCB initiative. The impact of NCB income benefits is measured as the difference between these two child benefit structures. This methodology captures an estimated $2.15 billion of NCB income benefits. Key characteristics of these two child benefit structures are presented in Table 9.

Table 9
Comparison of Two Federal/Provincial/Territorial Child Benefit Structures in 2004

Structure 1 Without NCB Initiative	Structure 2 With NCB Initiative
Maintain the Working Income Supplement (WIS) structure a	Introduce the NCB Supplement
No adjustments to provincial/territorial income support programs for increases in the NCB Supplement	Introduce adjustments to provincial/territorial income support programs for increases in the NCB Supplement
No provincial/territorial reinvestment programs and additional investments in income benefits directly related to the NCB initiative	Introduce provincial/territorial reinvestment programs and additional investments in child benefits and earned income supplements

^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 2004 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 (LIM) and the Market Basket Measure (MBM), respectively. The advantages and limitations of the SLID database were described in Chapter 4.

The NCB Reduced the Number of Families with Children Living in Low Income in 2004

The NCB initiative was responsible for preventing an estimated 59,000 families with 125,000 children from living in low income in 2004 (see Table 10). This is a 12.1 percent reduction in the number of families with children living in low income in 2004. Analysis of the 2004 SLID data indicates there were an estimated 429,500 families with 869,300 children living in low income in 2004, representing 11.4 percent²¹ of all Canadian families with children. If the NCB had not been introduced, an estimated 488,500 families with 994,700 children would have lived in low income in 2004, translating into 13.0 percent of all families with children. Therefore, in 2004, the NCB reduced the number of families with children living in low income by 59,000 families, from 488,500 to 429,500 (a 12.1 percent reduction).

As indicated in Table 9, the overall reduction of 12.1 percent can be further broken down into a 9.5 percent reduction in the number of lone-parent families living in low income, and a 14.7 percent reduction in the number of two-parent families living in low income.

In 2004, the incidence of low income was higher among lone-parents than two-parents. There were an estimated 221,900 lone-parent families with 406,000 children living in low income, representing 30.4 percent of all lone-parent families. By comparison, only 6.8 percent (or an estimated 207,300) of two-parent families with 462,900 children were living in low income in 2004. The final row of Table 10 indicates the percentage point decline in the incidence of low income brought about by the NCB in 2004. As indicated above, with the NCB in place, the incidence of low income for families with children in 2004 was 11.4% percent. Without the NCB, this incidence would have been 13.0 percent. Therefore, the NCB was responsible for a 1.6 percentage point decrease in the incidence of low income among families with children.

Table 10
Change in the Incidence of Low Income Among Families by Family Type due to the NCB: January 2004 to December 2004

SLID 2004 Post-Tax LICOs	One-Parent Families	Two-Parent Families	All Families a
Decline in Number of Children Living in Low Income	45,300	80,100	125,400
Decline in Number of Families Living in Low Income	23,200	35,800	59,000
Percentage Change in Number of Families Living in Low Income	-9.5%	-14.7%	-12.1%
Decline in Incidence of Low Income Among Families with Children b	-3.2%	-1.2%	-1.6%

^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 Survey of Labour and Income Dynamics (SLID) 2004.

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 245,000 lone-parent families with 451,400 children would have lived in low income, translating into 33.6 percent of all lone-parent families with children. With the NCB, the incidence of low income for lone-parents was 30.4 percent, indicating that the NCB reduced the incidence of low-income by 3.2 percentage points.

Among two-parent families, the incidence of low income declined by 1.2 percentage points in 2004 due to the NCB. If the NCB had not been introduced, an estimated 243,000 two-parent families with 543,000 children would have lived in low income in 2004, translating into 8.0 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 2004 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 11, these increases in disposable income were estimated for three groups of families in 2004:

• 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 2004 (i.e., families who were above the low-income threshold with or without the NCB Supplement).

As indicated in Table 11, for those families with children who were prevented from living in low income in 2004 due to the NCB, disposable incomes were, on average, $2,400 higher than they would have been in the absence of the NCB initiative. This represents an increase of 9.3 percent in their disposable incomes.²²

For those families with children who remained in low income, despite receiving the NCB Supplement during 2004, the NCB resulted in disposable incomes being, on average, $1,600 higher than what they would have been in the absence of the NCB initiative. This represents an increase of nearly 9.1 percent in their disposable incomes.²³

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 2.7 percent in their disposable incomes.²⁴

Table 11
Change in Disposable Incomes due to the NCB Among Families with Children by Family Type: January 2004 to December 2004

SLID 2004 Post-Tax LICOs	One-Parent Families	Two-Parent Families	All Families
Were Prevented from Living in Low Income in 2004
Increase in Disposable Income	$2,200	$2,500	$2,400
Percentage Increase in Income	10.5%	8.7%	9.3%
Remained in Low Income in 2004
Increase in Disposable Income	$1,300	$2,000	$1,600
Percentage Increase in Income	8.4%	9.7%	9.1%
Other Families Who Received NCB Supplement in 2004
Increase in Disposable Income	$1,100	$1,000	$1,000
Percentage Increase in Income	3.0%	2.5%	2.7%

Source: Based on Statistics Canada Special Tabulations from the Survey of Labour and Income Dynamics (SLID) 2004.

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 2004. As indicated in Table 12, NCB income benefits closed the low-income gap by a total of $740 million, or 18.5 percent in 2004.

• The simulation found that NCB income benefits decreased the low-income gap by $310 million for lone-parents living in low income, a reduction of 17.7 percent.
• For two-parent families, the low-income gap was closed by $430 million, a reduction of 19.0 percent.

Table 12
Change in Depth of Low Income due to the NCB Among Families Remaining in Low Income: January 2004 to December 2004

SLID 2004 Post-Tax LICOs	One-Parent Families	Two-Parent Families	All Families
Decline in Low Income Gap (In Millions of Dollars)	$310	$430	$740
Percentage Change in Low Income Gap	-17.7%	-19.0%	-18.5%

Source: Based on Statistics Canada Special Tabulations from the Survey of Labour and Income Dynamics (SLID) 2004.

The NCB Helps 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 2004.

Results of the direct impact analysis of the NCB indicate that of the 51,300 working families with children who were prevented from living in a low-income situation in 2004 due to the NCB, disposable incomes were, on average, $2,400 higher than they would have been in the absence of the NCB initiative. This represents an increase of 9.3 percent in their disposable incomes.²⁵

The NCB has also made a significant contribution to improving the level of disposable income for the estimated 261,400 working families who remained living in low income during 2004. As a direct result of the NCB, disposable incomes of these families were on average $2,100 higher than they would have been in the absence of the NCB initiative. This represents an increase of more than 12.0 percent in disposable incomes in 2004²⁶ As such, families who remained below the low-income threshold in 2004 were, on average, $2,100 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 $597 million in 2004, representing a decline of 21.3 percent.

Finally, there were 526,800 additional working families who received the NCB Supplement but were not living in low income in 2004 (with or without the NCB). As a result of the NCB, these families saw their incomes increase on average by $1,150 or 3.0 percent.²⁷

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 59,000 families with 125,000 children from living in low income in 2004, a 12.1 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 9.3 percent, or $2,400. Further, the NCB narrowed the low-income gap for all families with children. The combined amount of income that would be required for all low-income families to reach the LICOs was reduced by 18.5 percent or $740 million in 2004 as a result of the NCB.

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