November 20, 1998

To:Community and Neighbourhood Services Committee

From:Commissioner of Community and Neighbourhood Services

Subject:Defining Child Poverty in the City of Toronto

Purpose:

This reports describes various approaches to defining and describing levels of poverty.

Funding Sources, Financial Implications and Impact Statement:

This report is provided for information and has no impact on the current approved budget.

Recommendations:

It is recommended that this report be received for information.

Council Reference/Background/History:

At its November 5, 1998 meeting, the Community and Neighbourhood Services Committee referred a communication from the Children and Youth Advocate regarding the latest child poverty data released by Statistics Canada to the Department for a report. Early in 1999, the Department will bring forward a report that not only discusses the extent of child poverty in the city but also identifies strategies designed to eliminate the long term effects of poverty.

In addition, the Department was asked to clarify the various ways in which poverty can be defined and the advantages and disadvantages associated with the various approaches available. This report responds to this second request of Committee.

Comments and/or Discussion and/or Justification:

Conceptually, there are two basic approaches to defining poverty. These are alternatively known as the absolute and relative approaches. The absolute approach (also known as "budgetary requirements" or "needs" approach) defines poverty as an income level below which some or all of necessities of life are beyond one's reach. The relative approach to defining poverty arbitrarily assigns an income level below which all persons are deemed to be in poverty. This income level changes as income or expenditure patterns of the rest of the population income change; this means that under this approach poverty could never be eliminated. In both of these approaches value judgements determine the exact level of income at which the poverty line can be drawn.

The Absolute Measures of Poverty

This approach concentrates on defining the poverty line as an income below which basic economic (and sometimes social) needs of family can not be met reasonably. This is usually accomplished through some arbitrary definition of food, shelter, clothing and other essential costs. In its most basic form, social assistance rates are often defined as upper limits of an "extreme poverty" level. However, some, including Chris Sarlo, a professor of Economics at Nipissing University (North Bay, Ontario) argue that in most provinces the social assistance rates are higher than corresponding poverty lines. For example, Sarlo suggested that in 1994 the maximum social assistance in Toronto for a lone parent with two children was $1,486 higher than the poverty line ($16,632 vs. $15,146). This "excess" of income over Sarlo's poverty line increased to $5,511 if Provincial Tax Credit, Child Tax Benefit and GST Credit were included in the total income calculation. Even in 1995 after the reduction in social assistance rates, the total family income would have exceeded the Sarlo poverty line by $911. The social assistance rate for a lone parent family with two young children has decreased to $13,032.

On the other side of the spectrum are absolute poverty lines set by groups such as Social Planning Councils and service organizations in various cities and provinces. Depending on the definition of basic needs the budgetary requirements may go as high $30,721 for a family of four (Social Planning Council of Metropolitan Toronto, 1994). The reason for this wide gap lies in differing assumptions of what are "necessities of life" on a long term basis. For example, are recreation and other developmental opportunities a luxury or a necessity? Is child care for a single working parent a necessity or a luxury? The answers to these and similar questions determine how high the poverty line is set.

The Relative Measures of Poverty

Defining the poverty line in relation to the Canadian average (or median) income or expenditure is the main feature of the relative approach to defining poverty. For example, if we accept the Canadian Council on Social Development (CSSD) approach of defining the poverty level as one- half of the average income then, conceptually, there will always a significant proportion of the population defined as "living in poverty", regardless what their actual income or standard of living is.

Probably the most commonly used definition of poverty in Canada are the LICOs (Low Income Cut Off) lines developed by Statistics Canada in 1960's. Periodically revised, LICO is an income level at which a household has to spend a significantly higher proportion of its income on food, shelter and clothing than an average Canadian family of comparable size and community of residence. Quite arbitrarily, the "significantly higher proportion" is defined as a 20 percent differential. Since in 1992 the average household spent 34.7 percent of its gross income on these necessities, then any family for whom the same basket of goods would represent more than 54.7 percent of their gross income would be considered to be living in "straitened circumstances". For a lone parent with two children living in a large urban area (i.e. population over 500,000), the LICO for 1997 for a family of three has been established at an annual gross income of $27,063.

It should be noted that LICOs are not the official measure of poverty used by the Government of Canada. However, Statistics Canada itself uses LICOs to divide and report on various segments of the population. There is a large amount of reputable academic research which uses LICOs as the dividing line between low income families and the rest of the population.

Comparison of Selected Poverty Lines

Choosing a Poverty Line

As we have seen from looking at the various poverty lines, the debate between absolute and relative measures of poverty is largely an artificial one. The actual poverty line is defined by the belief in what is a reasonable and credible amount of income for a family to live on, rather than by the methodology of defining poverty line. For example, the "Acceptable Living Level" project of the Social Planning Council of Winnipeg has found that a family of three would require a net income of $26,945.60 in 1997 "using an absolute approach to poverty based upon a reasonable but not extravagant expectation of living costs". The LICO for the same family in 1997 is $27,063 gross. Even more telling is that fact that over the 20 years that Gallup Polls have been tracking Canadians' perception of income required to "get along in their community", the results have consistently closely coincided with the LICO lines.

The continuing use of LICOs can be justified by ease of tracking change over time. In that context one should pay more attention to the fact that in the City of Toronto the number of children in families below LICO grew by 66 percent since 1991. A future report will look in much more detail at the actual origins and distribution of poverty among Toronto's children. In that analysis we will employ much finer income ranges as well as the LICOs.

However, there is a fast growing body of research, including Canadian research, that shows a strong negative relationships between family income on one hand and child health and developmental outcomes on the other. These relationships hold true even when plotted on continuous income scales. In other words, it is not necessary to employ any definition of poverty to prove that the lower the family income, the greater the likelihood of a child not being able to enjoy a happy, content childhood and grow up into a well adjusted, fully productive adult.

Conclusions:

This report was prepared at the request of the Community and Neighbourhood Services and is provided for information.

Contact Name:

Petr Varmuza

Tel: 392-8128

General Manager of Children's Services

Commissioner of Community & Neighbourhood Services