1 / 21

A GENERAL OVERVIEW OF INCOME MEASURES THE PROS & PITFALLS OF POVERTY MEASURES

A GENERAL OVERVIEW OF INCOME MEASURES THE PROS & PITFALLS OF POVERTY MEASURES. Harvey Low 25 in 5 NETWORK FOR POVERTY REDUCTION January 28, 2008. CONTEXT. POVERTY : Indigence, want, scarcity, deficiency the state of being extremely poor the state of being insufficient in amount

galvin
Download Presentation

A GENERAL OVERVIEW OF INCOME MEASURES THE PROS & PITFALLS OF POVERTY MEASURES

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. A GENERAL OVERVIEW OF INCOME MEASURES THE PROS & PITFALLS OF POVERTY MEASURES Harvey Low 25 in 5 NETWORK FOR POVERTY REDUCTION January 28, 2008

  2. CONTEXT POVERTY: Indigence, want, scarcity, deficiency • the state of being extremely poor • the state of being insufficient in amount (Oxford Dictionary) IRONY Poverty by its own definition is the fundamental barrier in effectively measuring it. Page 2

  3. PRESENTATION OVERVIEW 1.Low Income Cut-off (LICO) 2.Low Income Measure (LIM) 3.Market Basket Measure (MBM) 4.Canadian Council on Social Development Low Income Guidelines 5.Fraser Institute Basic Needs Measure 6.Community Affordability Measure (CAM) 7.Gini-Coefficient 8.Placed-based Measures 9.Conclusions & Issues Page 3

  4. LOW INCOME CUT-OFF (LICO) HISTORY & RATIONALE • Introduced in 1968 based on 1961 Census • Research indicated that: • higher income HH spend proportionally less on basic necessitiesas similar lower income families • while higher income HH’s spend more, they also have more to spend on other things other than basic necessities • Thus:a HH that spends a greater proportion of income on basic necessities is worse-off than the average family, as they have less to spend on other “essentials” Page 4

  5. LOW INCOME CUT-OFF (LICO) DEFINITION • LICOs identify those who are substantially worse off than theaverage • income thresholds are determined by analysing expenditure data • threshold = HH spending 20% or more of their income on necessities than the average HH • HH that devote a larger share of gross income to basic necessities than the average, would fall into the category of “straightened circumstance” • as the name implies, it is a low income “cut-off” not a “poverty line” Page 5

  6. LOW INCOME CUT-OFF (LICO) PROS • well-known and a statistically valid measure • readily available and consistently used • adjusts for inflation • accounts for changes in spending patterns, household size, and community size • supports the view that poverty is “relative” • has been proven to corresponds to public perceptions (1) (1) Gallup Canada Survey. Resulting Gallup estimate (adjusted to reflect annual inflation) and the LICO have been reliably close – CCSD Page 6

  7. LOW INCOME CUT-OFF (LICO) PITFALLS • no official status as a poverty measure, and not promoted as such by STC • difficult for the general public to understand • a measures of relative income/expenditures only and not “poverty” • does not account for cost of living • includes all kinds of people – some who may not be “poor” • does not considerlarge city differentiations • does not take into account complexities of sub-populations (single parents, disabled) • does not measure other dimensions (e.g., episodic, long-term, underemployment) • relative measures result in relative results • sensitive to economic cycles • does not account for changes in standard of living • the 20% rule has been argued to be arbitrary Page 7

  8. LOW INCOME MEASURE (LIM) HISTORY & RATIONALE • introduced in 1988 and presented in 1991, as a result of a STC review of methods for defining low income DEFINITION • those living in families that have an after-tax income lower than 50% of the median income for all families in a given year • as the name implies, it is a low income “measure” not a “poverty line” Page 8

  9. LOW INCOME MEASURE (LIM) PROS • simple to calculate and thus understand • accounts for the number of adults and children present in families • can be readily used for comparisons between countries PITFALLS • no official status as a poverty measure, and not promoted as such by STC • similar to LICO in terms of its “relative” nature • does not account for cost of living • no detailed geographic component to LIMs as there are for LICOs Page 9

  10. MARKET BASKET MEASURE (MBM) HISTORY & RATIONALE • initiated in 1997 over Ministerial concerns on current measures, and introduced in 2003 as part of the desire to measure national child benefits • result of HRDC consultations with Federal, Provincial, and Territorial working groups • developed as a supplemental measure used in conjunction with LICOs and LIMs Page 10

  11. MARKET BASKET MEASURE (MBM) DEFINITION • reflects changes in the cost of consumption rather changes in income • specifies a basket of goods and services and the calculation of how much it would cost to purchase that basket • the "basket" on which the MBM is based includes five types of expenditures: • food • clothing and footwear • shelter • transportation (public transit or private vehicle) • other household needs (e.g., school supplies, furniture, newspapers/magazines, recreation etc.) • HH with incomes that are less than the cost of basic goods and services are considered to be low income • costs are adjusted for provincial differences in cost of living, and community and HH size Page 11

  12. MARKET BASKET MEASURE (MBM) PROS • more transparent and easier to understand than LICO • sensitive to geographic cost differences • recognizes different family sizes and compositions PITFALLS • not promoted as “poverty line” by STC • debate over what should be included in the basket (basic needs vs. ability to participate fully) • updates prices only, with only minor adjustments to basket goods (basket does not change over time) Page 12

  13. OTHER RELATED MEASURES CANADIAN COUNCIL ON SOCIAL DEVELOPMENT LOW INCOME GUIDELINES • a relative measure that reflects a social inclusion approach to the definition of poverty • guidelines based on average family income with ½ of the average as the threshold for a family of three • adjustments are made based on family size FRASER INSTITUTE BASIC NEEDS MEASURE • a variation of the MBM approach but based on minimal set of goods and services • ISSUES: debate over the content of the “basket” Page 13

  14. OTHER RELATED MEASURES COMMUNITY AFFORDABILITY MEASURE (CAM) • developed by the technical team of the Federation of Canadian Municipalities Quality-of-Life Reporting System • defined as the ratio of income levels to the local cost of living • measures the change in the ratio of median and modest income levels to the local cost of living for family/individual after-tax income to the market basket • it does not measure communities against an ideal or theoretical standard, but against the aggregate total of all communities in the study • ISSUES: market basket is based on actual survey of items for each community, which is comprehensive but also time-consuming and resource intensive Page 14

  15. OTHER RELATED MEASURES GINI COEFFICIENT • a measure of inequality that identifies those who are substantially worse off than the average • an income dispersion measure • used as international comparator to indicate how the distribution of income has changed within countries and over time PLACE-BASED MEASURES • methods used to determien the concentrations and spatial patterns of income • encompass methods that fall under the specialization of GIS (GEOGRAPHIC INFORMATION SYSTEMS)… Page 15

  16. OTHER RELATED MEASURES Page 16

  17. SAMPLE COMPARISONS Page 17

  18. SAMPLE COMPARISONS • LICO before-tax 2000 (Pop 500,000+) • 1 person > $18,371 • 2 persons > $22,964 • 3 persons > $28,560 • 4 persons > $34,572 • LICO after-tax 2000 (Pop 500,000+) • 1 person > $15,172 • 2 persons > $18,513 • 3 persons > $23,415 • 4 persons > $29,163 • LIM (for this example, we use adults only) • 1 person > $12,468 • 2 persons > $17,455 • 3 persons > $22,422 • 4 persons > $27,430 • CCSD Low Income Guideline 2000 • 1 person > $14,530 • 2 persons > $24,119 • 3 persons > $29,060 • 4 persons > $33,912 • MBM 2000 (Toronto CMA) • Family of 4 > $27,343 Page 18

  19. CONCLUSIONS & ISSUES • approaches to measuring poverty are as varied as are the social values of those interpreting them • lesson learned: one-size does not fit all ISSUES (must happen together): PROBLEM RE-DEFINITION • Core concepts ofpoverty? • What constitutes basic needs? • Adequate income? • Other poverty dimensions (long-term/episodic, sub-population characteristics etc.)? MEASURES REVIEW • What are the most appropriate measures? • How do they compare in terms of incidence rates and absolute numbers? • Are any missing? (qualitative surveys, deprivation index etc.) Page 19

  20. For more information contact: Harvey Low City of TorontoSocial Development, Finance and AdministrationSocial Policy, Analysis and Research Telephone: 416-392-8660 Email: hlow@toronto.ca

  21. Various Sources: • Canadian Council on Social Development, David Ross, Katherine Scott • City of Toronto Social Development Finance & Administration – Alan Meisner, Harvey Low • Federation of Canadian Municipalities Quality-of-Life Reporting System • Philip Giles • Human Resources Development Canada • Andrew Mitchell • Hindia Mohamoud • National Council of Welfare • Chris Sarlo • Richard Shillington • Various Social Planning Councils • Statistics Canada – Garnett Picot, John Myles, Kevin Bishop, Sylvie Michaud, Statistical Society of Canada – Cathy Cotton • World Bank Page 21

More Related