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An update on the development of Canada’s Market Basket Measure October 2001

STATISTICS STATISTIQUE CANADA CANADA. An update on the development of Canada’s Market Basket Measure October 2001. Background. Canada has no official measure of poverty

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An update on the development of Canada’s Market Basket Measure October 2001

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  1. STATISTICS STATISTIQUE CANADA CANADA An update on thedevelopment of Canada’s Market Basket MeasureOctober 2001

  2. Background • Canada has no official measure of poverty • The Canadian Federal, Provincial and Territorial Ministers of Social Services asked a working group to develop an alternative to commonly used measures • Such a measure should be: • credible in its approach to poverty measurement • easy to understand • sensitive to geographic cost differences • reflect changes in costs rather than changes in income

  3. General Approach • The basket is composed of goods and services to allow a family to • eat a nutritious diet • buy clothing for work and social occasions • house themselves in their community • satisfy basic transportation needs for work, school, shopping and participation in community activities • pay for other necessary expenses • Prices are based on a reference family of 2 adults and 2 children, and adjusted for other family sizes • The cost of the basket is compared to an MBM disposable income, i.e. income after tax minus “non-discretionary” expenditures

  4. Food component Construction of the food component • Items and quantities were taken from Health Canada’s Nutritious Food Basket for a reference family of 2 adults and 2 children • Monthly pricing of food is already carried out for calculation of the Consumer Price Index • Preliminary estimates have been developed for 40 cities

  5. Clothing component Construction of the food component • Items and quantities from the Acceptable Living Level list of clothing and footwear prepared by the Winnipeg Social Planning Council • Monthly pricing of clothing and footwear is already carried out for calculation of the Consumer Price Index • Preliminary estimates have been developed for 16 cities

  6. Shelter component • Rent: average of median 2 bedroom unit and median 3 bedroom unit • utilities • other amenities Sources of data • Census of Population gives rent, as well as heat, electricity and water costs for very detailed geographic areas. Only units not in need of major repairs will be used • Inclusion of fridge, stove, washer, dryer varies across the country • LFS rent supplement provides provincial rates • The cost of purchasing the appliance comes from 2nd income decile spending, amoritized over the lifetime of the appliance

  7. Transportation component • This covers basic transportation needs for work, school, shopping, and participation in community activities • There are two independent procedures for pricing transportation component: • Urban areas served by public transit - annual price of two adult monthly passes • All other areas - the amortized cost of a used vehicle, plus the annual cost of operating the vehicle

  8. Other Expenses • A multiplier approach is used for other expenses • Actual expenditures by the 2nd income decile families • Express expenditues on other expenses as a fraction of expenditures on food, clothing and transportation • Cost of other expenses is that fraction times the basket cost of food, clothing and transportation

  9. MBM Disposable Income • Income that families actually have to purchase MBM commodities • Subtract from total income • federal, provincial and territorial income taxes • employee portion of payroll taxes • union and professional dues • child care costs to allow both parents (or a lone parent) to work • child support payments made by non-custodial parents • out-of-pocket costs of medically prescribed drugs, dental and vision care • Total cost of MBM basket is compared with MBM disposable income to determine MBM low income status

  10. Equivalence Scale • Components of the MBM are based on a reference family of 2 adults and 2 children • Baskets for other family sizes could be specified and priced, but it is easier to use an equivalence scale • MBM uses the same scale as Statistics Canada uses for the 0.5 median measure of low income • 1.0 for the first person • 0.4 for the second person, regardless of age • 0.4 for additonal adults (16+) • 0.3 for additional children

  11. Updating the contents of the basket • Society’s idea of a reasonable standard of living evolves over time • Contents of the MBM should be reviewed on a five year cycle • MBM components and rates would be monitored • unusual behaviour could trigger an earlier review

  12. Status of the MBM • Attempts have been made at estimating MBM components • Comparison with actual spending patterns • Food, shelter and transportation components look promising • Clothing basket specification needs more work • Some outstanding issues • geographic coverage • subsidized rent • CPI sample is designed to measure change, not level • Ongoing contact to refine specifications • No firm date for publication of results

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