Measuring the market basket

Community Action, June 16, 2003

Statistics Canada has produced its first Market Basket Measure of low income. Even though Statscan does not like to call it a poverty measure because there are political implications in the word poverty, nevertheless, most people who examine it will probably give it that name.

MBM is based on a standard set of goods and services that provide a minimum level of dignity and decency for individuals and families. It tells us how much it costs to meet that standard in different parts of Canada--rural and urban areas, provinces and regions. It indicates the number of people who earn enough to meet this norm, and those who fail to meet the standard.

Measuring poverty is a controversial activity. Statistics Canada has for many years used Low Income Cut-Offs (LICO) which calculates the number of individuals and families whose basic expenditures for food, clothing and shelter are more than 54% of their disposable income. Critics point out that it is not adequate for measuring the levels of poverty in different areas of Canada since costs of living vary across the country. It tends to overstate poverty rates in the poorer parts of Canada and understate it in the more affluent areas. The critics also argue that the 54% line is arbitrary.

Before 1990, LICO reports demonstrated that the income distribution, influenced by social programs, was relatively stable--the poor were not getting poorer and their share of national earnings was maintained. Since 1990, income support programs and taxes have been reduced, and LICO demonstrates that the gap between the affluent and the poor has grown. These measures of income distribution make many policy makers uncomfortable because it challenges current social approaches.

Others have advocated a Low Income Measure (LIM) which calculates poverty as being half the median income of individuals and families. LIM was used for many years to measure poverty in the Scandinavian countries and it is the most egalitarian-oriented of the income measures.

As critics point out, poverty never disappears with this measurement. As incomes change, economic conditions improve, and social security programs rise, and the median also rises. LIM also suffers from the possibility of overstating incomes in affluent areas and understating them in poverty stricken parts of Canada. Many advocates of the Low Income Measure use it to put forward ideas for greater equality of incomes.

The Market Basket Measure, as it is currently presented, avoids some of these problems because it does not call attention to income distribution issues in any significant way.

However, the MBM can be useful in evaluating the effects of income security programs, especially the long term programs for children, seniors, the disabled, and others. It can tell us how far income maintenance programs fall short of real need. Used competently, it can justify a differentiated, more sensitive approach to such payments in all parts of the country. Unlike other income measures, the MBM dramatically exposes the problems of living decently in some of our most affluent areas.

The argument over these measures will affect the future development of income security programs and services. Leaving aside the extremist few in the Ayn Rand school of social philosophy who advocate eliminating all public income support programs, the argument is mainly between those Canadians who seek to provide for the poor with a minimum of taxes and public expenditure; and those who want to see a major change toward a more equal distribution of society's earnings.

We believe that Statistics Canada can contribute positively to this debate, but it should not limit itself to replacing Low Income Cut-Offs with the Market Basket Measure, as many observers believe it will do. This would put Statscan on one side of the debate when it should be performing a valuable service by publishing reports on all three systems of low income measurement.

All three approaches relate to the character and quality of life in Canada. All of them should be examined so that we can arrive at a humane income support system across the country.

--L.K.