Economy Lab

In U.S., Canada, new measures of the poverty line

The Globe and Mail

In Canada, the most commonly used line to divide the poor from the not-poor reflected the consumption patterns of Canadians in the early 1990s. (JOHN LEHMANN/JOHN LEHMANN/GLOBE AND MAIL)

U.S. President Barack Obama appointed Rebecca Blank -- a capable, no-nonsense, PhD in economics, and a former Dean at the University of Michigan -- to his new administration, and told her to answer a simple question: How should the United States measure poverty?

Blank did an end-run around the sad politics that has characterized discussions of poverty measurement in the U.S. by having the Census Bureau develop an entirely new indicator that reflects the realities of participating in contemporary American society.

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The official U.S. poverty line remains the headline measure in spite of the fact that it was established in 1964, and was based upon what was considered a minimal but acceptable standard of living in the late 1950s.

But the Census Bureau publication of the “supplemental measure of poverty” earlier this month paints a different picture of the poor. This new poverty line is defined as the level of spending on food, shelter, clothing, and utilities that two-thirds of American families are able to exceed. Most importantly, it reflects average spending patterns during the five most recent years: the U.S. poverty line has finally moved.

Diane Finley, the Federal government’s Minister responsible for social policy is not exactly Canada's Becky Blank, but she quietly accomplished a similar feat more than a year ago.

In Canada, the most commonly used line to divide the poor from the not-poor reflects the consumption patterns of Canadians in the early 1990s, a time before most of us had sent our first e-mail. The “ Low Income Cut-Off” continues to be the headline measure released by Statistics Canada.

And while an alternative indicator, the Market Basket Measure, was developed in the early 1990s to measure the cost of a minimal standard of living -- consisting of a nutritious diet, basic transportation needs, and adequate housing -- there was no real plan as to how it would be updated.

This measure has now been revised to reflect the realities of participating in the Canada of 2010. Some of this was forced upon the federal and provincial public servants deriving the numbers. A used Chevy Cavalier was considered the basis for calculating transportation costs in areas that don’t have public transport, but General Motors doesn’t even produce it anymore. Now the Ford Focus is used.

But more importantly what it means to live a normal life has also changed, and the government has introduced a rule for including new goods and services into the costs of a modest and basic standard of living. When as many as 70 per cent of Canadian families in at least seven of the provinces with two-thirds of the population buy something, then that good or service is considered a necessary part of our lives. Certainly more complicated than the American rule, but typically Canadian and reflecting long-standing precedents in other areas of public policy.

On this basis the new necessities of life include: computer and Internet services, cellphones, and garden supplies. Alas, the experts proposed to break their own rule at the very outset. Gardening may be good for you, most Canadians may do it, but ultimately the government feels you can do without it if you have to. The same goes for cellphones.

Even so, by recognizing that the poverty line must change as society changes Ms. Finley has introduced a much-needed reform. The challenge facing her and her American counterpart is to make these new concepts the headline measures their statistical agencies focus upon, letting the Low Income Cut-Off and the Official U.S. measure drift into the past.



Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa. The unabridged version of this post is available at www.milescorak.com.



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