Low-Income Cut-Offs

Background

During the 1960s, the U.S. War on Poverty introduced new social policies and programs and the first official U.S. poverty line. In Canada a similar campaign led to the redesign and expansion of Canada's social safety net and the introduction of the first official LICO. Like the U.S. poverty line, Canada's new LICO was conceived as a critical measurement tool in the battle against poverty. Not surprisingly the methodology adopted for determining the LICO was strongly influenced by the recent development of the U.S. official poverty line and its identification of thresholds at which income becomes inadequate to afford basic needs.

Beginning with S.B. Rowntree, the most common way to establish such income sufficiency thresholds was to construct minimum budgets that provided for basic needs. In addition to being intuitively appealing, the budget approach had the advantage of allowing income adequacy to be adjusted according to family size, age composition, place of residence (farm or urban), and regional prices. While Mollie Orshansky based the official U.S. poverty line on a budget approach, Jenny Podoluk sought a different method for constructing Canada's LICO thresholds.

An important reason for Podoluk's decision to develop an alternative to the budget approach was mounting evidence that “the standards set as needs usually rise as over-all real incomes rise.” Podoluk was also aware of the idea that subsistence budgets were strongly influenced by current consumption norms and the current level of societal concern with poverty, and with the review of the many conceptual and statistical barriers to estimating minimum budgets. Podoluk was also concerned by Orshansky's discovery that small and reasonable changes in budget allowances could increase the measured number of identified poor by up to 50 percent.

While Podoluk rejected the budget approach, she accepted the view that income adequacy to afford basic needs was an important characteristic of any income sufficiency threshold. As she put it, “the poor are those who do not have sufficient income resources to satisfy these needs.” Since poverty lines tended to rise with general living standards, Podoluk proposed that any threshold for income adequacy should reflect the affordability of relatively determined basic needs. The new methodology for establishing the LICO was therefore [Page 652]intended to establish a relative standard of basic needs consumption, determine income adequacy to afford these relatively determined basic needs, allow income adequacy to be adjusted according to needs that varied with family size, and do this while avoiding the problems identified with the U.S. budget approach. In addition, by focusing on low-income status instead of poverty, the new LICO was also intended to avoid the unsatisfying and irresolvable debate over whether poverty standards should be absolute or relative. Low income is less controversially a state of relative deprivation, and Statistics Canada has consistently argued against interpretation of the LICO thresholds as poverty lines.

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