Human Resources Committee on April 10th, 2008

[The Vice-Chair, Liberal, Michael Savage]

Good morning, ladies and gentlemen.

I am pleased to call this meeting to order. Pursuant to Standing Order 108(2), we are studying the federal contribution to reducing poverty in Canada.

I will inform the members of the committee that we have one item of business to do first. I see all the usual people are here. We welcome Monsieur Ménard from the Bloc back again. It's nice to see you with us again, as you and I work our way towards our coincidental birthdays in May. It's nice to see you back.

We have a proposed budget. The staff tell me that this budget will take us through to the end of June. There's a travel allowance for the witnesses we will be hearing, as well as for some video conferencing, and potentially even some video conferencing outside Canada. This does not prohibit the possibility of other travel that we might undertake--exceptional travel, perhaps, even outside Canada. That would be done in a different form, but this would be for the standard work the committee would have to do on poverty prior to the June break.

Let us have a look at it, and I'll take questions.

Go ahead, Ms. Sgro.

[Judy Sgro, Liberal, York West, ON]

I was going to move it.

[The Vice-Chair, Liberal, Michael Savage]

It is moved by Madam Sgro.

I was just going to give Mr. Martin a chance to have a look at that.

Go ahead, Mr. Martin.

[Tony Martin, NDP, Sault Ste. Marie, ON]

I'd mention that this doesn't include any consideration for travel that we might do both inside and outside Canada. That would come at a future date. Is that correct?

[The Vice-Chair, Liberal, Michael Savage]

It doesn't include or preclude the possibility of doing other travel. I'm told that would have to be considered separately and taken to the liaison committee for approval.

[Tony Martin, NDP, Sault Ste. Marie, ON]

Do you mean both inside and outside of Canada?

[The Vice-Chair, Liberal, Michael Savage]

That's correct. I'm very amenable to both of those in my normal capacity.

[Lynne Yelich, Conservative, Blackstrap, SK]

I think we want to see how this shapes up to see just where and how we would like to visit. We may find that we don't have to travel at all and that it will all be done at the committee.

I think that's great. The budget's good. I second the motion.

[The Vice-Chair, Liberal, Michael Savage]

Ms. Sgro has moved it. It's on the floor. Is there further discussion?

(Motion agreed to)

[The Vice-Chair, Liberal, Michael Savage]

Let's move on to our business today.

We thank the witnesses for coming. This committee is very excited to be embarking upon this study of how Canada can contribute to a poverty reduction strategy. It's something we've been working on for some time. It's exciting today to be hearing witnesses, and you are the first ones.

I'm Mike Savage. I'm filling in for our chair, Dean Allison, who's on parliamentary business and couldn't be with us. That's why you see the strange face in the chair--not a strange face, but an unusual face, and maybe strange too.

We're very excited to have you with us. You're the first people to take part in what we hope will be a very historic study. We have three witnesses, and I believe we've agreed that we're going to start with the department.

We have with us Frank Fedyk, associate assistant deputy minister, strategic policy and research; Shawn Tupper, director general, social policy development; and Doug Murphy, assistant director, economic security policy.

Gentlemen, we'll ask you to take it away. You have 10 minutes, and we look forward to what you have to say.

[Frank Fedyk, Associate Assistant Deputy Minister, Strategic Policy and Research, Department of Human Resources and Social Development]

Thank you.

I'm very pleased to be here to address the committee on the subject of poverty, which is an important issue to the department.

Canada's economic and labour market performance has remained strong in uncertain times. We are experiencing the second-longest period of economic expansion in Canadian history. The unemployment rate is at its lowest level in 33 years, and more Canadians are working than ever before.

However, some Canadians are not benefiting fully from this prosperity and are living in low income. Canada, like most other industrial nations, does not have an official measure of poverty. A suite of low-income measures is used in Canada. We have the market basket measure, the low-income cut-offs, and the low-income measure.

For my comments, we're using the post-tax low-income cut-offs to present some trends of low income over time. HRSDC has developed the market basket measure; however, trend data for this indicator is only available for the period from 2000 to 2004. Overall, about 3.4 million Canadians were living in low income in 2005, based on the post-tax low-income cut-off and using the most recent data. Of these 3.4 million, 790,000 were children, 2.4 million were working-age adults, and 240,000 were seniors.

There are groups of Canadians, such as the aboriginal population, who are much more likely to live in low income at any point in time and for a prolonged period of time. Placed in an international context, Canada's low-income record is comparable to many of our key partners, but not as strong as the Nordic countries. Based on 2000 OECD data, the most recent data available for comparative purposes, Canada ranks 14th out of 25 OECD countries in terms of overall low income.

HRSDC has calculated more recent data, based on 2004 and gathered from individual countries; Canada has a rate comparable to those of Ireland, New Zealand, the United Kingdom, and Australia, and we are lower than the U.S.

Canada's low-income rate for seniors is consistently one of the lowest in the OECD. Finally, research shows that by international standards, Canadian society is characterized by a good deal of intergenerational mobility: low income in childhood does not preordain low income in adulthood.

I'm going to very briefly outline some broad low-income trends and challenges based on analysis and research that has been conducted by HRSDC officials, keeping in mind that this has implications for all levels of government. I'll then briefly mention some federal measures that are addressing poverty.

In terms of key trends in low income, for working-age adults and for their children, low-income rates have tended to follow the economic cycle, although typically there's a bit of a lag. Consistent with the current economic cycle, since 1996 the low-income rate for working-age adults fell from a peak of 15.7% to 11.4% in 2005. For children, the low-income rate fell from a peak of 18.6% in 1996 to 11.7% in 2005.

However, when you compare low-income rates to 1989, a comparable period in terms of economic progress, today's low-income rates are roughly the same. The low-income rate for working-age adults was 9.4% in 1989, while the low-income rate for children was 11.7%, so while there's been significant recent progress over a longer period of time, there are challenges in reducing low-income rates for the working-age population and their children.

The declining low-income rate over the past 25 years for Canada's senior population has been a significant success story. The low-income rate was 6.1% in 2005 for seniors, down markedly from 21.3% in 1980. This decline is the result of the maturation of the CPP, the enhancement of the OAS and GIS, and the increase in private savings.

Looking ahead, while significant progress has been made in addressing poverty in Canada, a number of ongoing and interrelated challenges remain. They are national in scope.

One is the working poor. Many Canadians have a strong attachment to the workforce but are still unable to earn an income that is adequate for meeting the needs of their families. HRSDC analysis has shown that in 2005, 1.6 million Canadians were living in a working poor family, and over 40% of children living in low income were in a working poor family.

These working poor Canadians have a strong attachment to the labour market. On average, they work as many hours as other workers. In addition to having low incomes, the working poor are much less likely than other workers to have access to work-related benefits such as disability insurance, family dental plans, and private insurance plans.

Some groups are vulnerable to persistent poverty. It's worth noting that persons with disabilities, lone parents, recent immigrants, aboriginal Canadians living off reserve, and unattached individuals aged 45 years to 64 years are at a substantially greater risk of persistent low income; that is, they have a cumulative income over a six-year period that is below the cumulative low-income threshold for that same six-year period.

Research on these groups at risk of persistent low income shows that they are more likely to be outside the labour force, to have lower education, to be the sole adult in a family unit, to live in a high unemployment area, and to never have been married.

Now I will discuss the federal government's role. As poverty is complex and multi-dimensional, so too are the responses in place to support low-income Canadians. These range from a progressive income tax system to direct income support and highly targeted programs and services.

The federal government invests significantly in measures to address poverty and the economic security of Canadians. The Speech from the Throne indicated that the government will continue to invest in families and will help those seeking to break free of cycles of homelessness and poverty.

Let me briefly tell you about some of the federal government's investments.

The federal government provides direct income benefits and tax relief to families. For example, the federal government provides over $13 billion annually in benefits for families with children, the vast majority of this going to low- and moderate-income families.

This includes the $3.7 billion for the national child benefit supplement, the federal government's contribution to the FPT NCB initiative. As a result of the NCB, an estimated 59,000 families with 125,000 children were prevented from living in low income in 2004.

Through old age security, including the guaranteed income supplement for low-income seniors, the federal government provides $30 billion annually to Canada's seniors.

The employment insurance program provides temporary income support to those who are unemployed. Total EI income benefits paid were $12.68 billion in 2005-06. To support low-income working Canadians--that is, the working poor--the government introduced the working income tax benefit, WITB, in 2007. For 2008, the WITB provides maximum benefits of $510 per year for individuals and $1,019 for couples or lone parents, at a cost of $550 million per year.

Over $9 billion is invested annually in a range of programs for Canadians with disabilities, including the CPP disability benefit, a number of tax measures such as the child disability benefit, and the labour market agreements for persons with disabilities.

As this committee knows, having recently completed your employability study, improving the labour market outcomes of vulnerable Canadians is key to their economic success. The federal government has a number of labour market and skills initiatives, many of which are aimed at supporting groups who are underrepresented in the labour market. For example, Budget 2007 implemented a new labour market architecture, including $500 million in annual investments over six years to enhance access to training through labour market agreements with the provinces and territories.

The opportunities fund for persons with disabilities together with the labour market agreements for persons with disabilities aim to help persons with disabilities obtain and keep employment.

The aboriginal human resource development strategy and the aboriginal skills employment partnership aim to increase aboriginal participation in the Canadian labour market and help close the gap between aboriginal and Canadian employment levels.

In light of the current and low unemployment and labour market shortages, vulnerable groups may have many more opportunities to increase their labour market participation, including aboriginal youth in the west.

Finally, one of the department's key targeted initiatives is the homelessness partnership strategy, which was launched in April 2007, and funding of $269.6 million over two years to prevent and reduce homelessness. I also raise, for your information, the recent budget announcement concerning the Mental Health Commission. Recognizing the interconnectedness of homelessness and mental health disorders, Budget 2008 announced funding of $110 million to the Mental Health Commission to support demonstration projects that are focused on mental health and homelessness.

To sum up, it is clear that poverty is a complex, multi-faceted issue. As such, poverty takes the action of many players to successfully address: the federal government, provincial and territorial governments, stakeholders, and the private sector.

We'd like to thank the committee for its attention and let the committee know that HRD officials are at its disposal.

Thank you, Mr. Chair.

[The Vice-Chair, Liberal, Michael Savage]

Thank you very much, Mr. Fedyk.

We'll move to Statistics Canada. We have Garnett Picot and Sylvie Michaud.

We'll turn it over to you, for ten minutes.

[Sylvie Michaud, Director, Income Statistics Division, Statistics Canada]

My presentation will be in English, but please feel free to ask your questions in either French or English.

I'd like to thank the members of the committee for having us here. I'm with Garnett Picot. He's the director general of the analysis group, and he's the one who can give you more details on some of the findings in the detailed studies, if you're interested.

As has been mentioned by Mr. Fedyk, Canada doesn't have an official measure of poverty, and there's no international standard on the definition or measurement of poverty either. Statistics Canada has always maintained that it is not the role of a statistical office to define and measure poverty; we could lose a bit of the neutrality that is part of the agency.

While there's no consensus on the measure of poverty in Canada, in the early 1960s, Statistics Canada realized there was a need to have something that would show what's happening at the bottom of the income distribution. So since the early 1960s, we've been producing statistics on what we call the low-income cut-offs, the LICOs.

In the supplementary slides at the end of my package, I talk about the LICOs and the LIM, and I give background about what's done in other countries for poverty measurement. But for the sake of simplicity, the LICO is basically spending, on average, 20% more than the average family on food, shelter, and clothing. That's the basic methodology behind the LICO.

We use two kinds of incomes to calculate how much income you need. We calculate a total income before taxes and a total income after tax. We suggest you use the total income after tax because it takes into account the two mechanisms that are used for government for redistributing income, and those are taxes and transfers.

We produce these rates on an annual basis. We also produce the low-income measure. The low-income measure is half the adjusted median income. This measure is usually used for international comparisons. It's a relative measure. It has different statistical properties. So it's not a measure that we feature prominently; it's more something that we use to compare Canada with other countries in the world.

Since the late 1990s, HRDC has produced an alternative measure to our current LICO methodology. It was trying to address two limitations of our current LICO methodology. One is having more detailed geography, and the second is having more of an absolute measure of low income.

While that measure is relatively new, I'll present trends with the LICO and with the MBM, to put the two measures in context.

[The Vice-Chair, Liberal, Michael Savage]

Are you having trouble with the translation, Mr. Lessard?

[Yves Lessard, Bloc, Chambly—Borduas, QC]

Thank you. The interpreter was too far away from the microphone, and I could barely hear him, but the problem has been dealt with.

[The Vice-Chair, Liberal, Michael Savage]

Thank you.

[Sylvie Michaud]

If you turn to the slide on page 3 of the handout, you will see a blue line that indicates the trends since 1980.

Sorry, I'll go back to English. I switched to French.

If we go back to the low-income trends since the early 1980s--in blue you have the LICO after tax rate--as Mr. Fedyk has mentioned, you see that there were two peaks following the two recessions in the early 1980s and in the 1990s, when low-income rates rose significantly. The message is that basically in the late 2000s, the low-income rate is roughly back to where it was in 1980. There are more people above the low-income rate because there is an increased population, but the rate was roughly the same in 2004 as it was in 1980. There was a slight decrease in 2005. We'll see next year if that trend is continuing.

I've talked about the MBM as being a relatively new measure. At the Canada level, if we look at the transfer of the MBM from 2000 to 2004, the Canada level gives roughly the same picture of a low-income rate slightly declining in the beginning of the 2000s.

If we move on to page 4, this apparent stability in the low-income rates masks some trends that are different among age groups. Again, this has been mentioned by Mr. Fedyk from HRSDC. The most noticeable trend is the significant decrease in the low-income rate, based on income after tax for seniors, from 1980 to 2005. That's the green line. You can see that there's been a significant decrease in the low-income rate.

There has been a slight increase for working-aged people, 18 to 64. It is about the same level for low-income rates for children under 18.

The source of the data we produce for our low-income rates is actually a longitudinal survey. That means you follow people through time. This allows us to see from year to year how many people move in and out of low income. People are followed for six years.

So if we look at our last six years of data, our last panel, which is from 1999 to 2004, basically 80% of Canadians were not below the low-income level in any of these six years. Twelve percent were under the low-income level for one or two years; 4.3% were there three to four years; and 3.7% were there five or six years, which may be more the group that you would call persistent low income.

There has been some research that has shown--and it was mentioned again before--that there are some persistent low-income groups, which are highly concentrated among five at-risk groups: unattached individuals aged 45 to 64, persons with a work-limiting disability, recent immigrants, lone parents, and aboriginal Canadians living off reserve.

With the current source of data, the survey of labour and income dynamics, because of sample size, I'd say there are some groups I'd prefer not to give statistics on. Our census of the population May 1 will release the income data from the census. You'll have a lot more detailed information. So if the committee is interested, there are more updated numbers, and following the May 1 release of the data, we'd be happy to provide you updated information.

I'm going to give you some trends on two groups in particular: lone parents and recent immigrants. The trend you have on the top line is that for lone-parent families. The overall message is that while low-income rates of lone-parent families have decreased from the early 1980s to what we see in 2005, they remain significantly higher than the low-income rates for families with two parents and children.

The next slide shows that for low-income families there's been an improvement, though it's still much higher. But there is a group, which we call the recent immigrants, particularly immigrants who have arrived in the last five years, for whom conditions have not actually improved.

For this we used a slightly different methodology. I have here not the low-income rates of recent immigrants, but more the relative position of low-income rates of recent immigrants compared to Canadian-borns. If you look at the chart on the left, it tells you that in 1980 the low-income rate of immigrants who had arrived in Canada in the last five years was roughly 1.4 times higher than the low-income rates of the Canadian-born population.

That ratio--the relative deterioration of the relative positions of recent immigrants--meant that by 1995, immigrants who arrived in Canada in the five years prior to the 1996 census had a low-income rate that was 2.7 times higher than the low-income rate of the Canadian-born population.

The last year for which we have census data is 2000. There was a slight improvement from 1995 to 2000, but using administrative data--a slightly different methodology—part of the decrease seems to have been due to the qualifications of some of the immigrants who came in, particularly one group where there were more in some of the high-tech and engineering groups. The situation improved a bit for some between 1995 and 2000, but because of the slowdown in high tech in early 2001, it has increased again. So the relative position of low-income rates of recent immigrants in 2002 has increased again to be close to 1995 rates. In the last two years it seems to have improved, but it hasn't quite recuperated yet.

I've talked about the market basket measures and the LICO. If you were looking at trends for children, seniors, and working-age adults, most of the trends are similar if you use the LICO or the MBM. However, if we look at provincial ranking and how provinces fare, the two measures give different levels and trends. If we look at 2004, which is presented on slide 4, you can see that on the blue line you have what is typically produced with low income after tax. On the red you have the market basket measure. You can see that Quebec, for example, which has one of the highest low-income rates under the LICO, has the lowest rate using the market basket measure of low income.

Why is there such a difference between the measure you choose for low-income rates between the LICO and the MBM? They are two very different methodologies. They don't use the same income measure for how much income you need. One uses income after taxes; one uses an MBM disposable income. There are also fundamental differences. The MBM is more a measure of cost of living.

If you look on slide 10, the methodology that was used with the LICO shows that you require the same amount of money for all cities that have 500,000 people or more. It would be the same for eight large cities in Canada, including Montreal, Toronto, Calgary, and Vancouver. Under the MBM, because it's more of a cost of living measure that is based more on geography, you actually reflect that the median rent in Montreal is about $5,000 less than the median rent in Toronto or Vancouver. So if you are looking at geographic background, that is why the MBM gives a very different picture than the LICO at the provincial level.

There are also other differences, such as how we handle transportation. That shows fewer differences between rural and urban with the MBM than with the LICO. Basically, the MBM assumes that in cities you will use public transportation. That's usually not available in rural areas, so because of that, low-income rates in rural...you need to have a car, so expenses are more. That's why the thresholds are higher, and that explains some of the differences.

[The Vice-Chair, Liberal, Michael Savage]

Excuse me, we're over the 10 minutes. I'm not inclined to cut you off because this is important stuff for our study. It looks like we are about halfway through.

[Sylvie Michaud]

It is actually our last slide. The rest is all supplementary background.

[Garnett Picot, Director General, Socio-Economic and Business Analysis Branch, Statistics Canada]

I'll address this last slide very quickly. We knew we would run out of time, so I've listed a few topics that we can discuss with the committee if they wish.

On why low-income rates are declining among lone parents, we did a study on that, so I'd be happy to talk about it. We've already heard a little about where Canada stands relative to other nations on low-income rates, so we can talk more about that.

We can also discuss intergenerational transmission of earnings among poor families, if you wish, and what's been happening to low income among immigrants and why that is taking place.

We'd be happy to talk about those later, if you wish.

[The Vice-Chair, Liberal, Michael Savage]

The members will have questions. If there is something that you particularly want to focus on now, I am inclined to let you do that. We do want to get this information out.

[Garnett Picot]

Do you want me to give you a two-sentence summary of each of these?

[The Vice-Chair, Liberal, Michael Savage]

Yes, please feel free. We'd like to hear it.

[Garnett Picot]

I'll make this quick.

Why are low-income rates declining among lone parents? We asked that question, and after so many years we noticed that employment earnings were rising and employment rates were rising among lone parents. Why was that? Basically we found two things. One, the change was concentrated among older lone parents, those over 40, in Canada. Secondly, it had a lot to do with demographic change.

Lone parents are very different kinds of people now as compared to 20 years ago. They're much better educated and have more work experience since they're older. Those two factors had a lot to do with the improvement in earnings and the improvement in employment. More highly educated people tend to seek jobs, tend to be more employed, and of course earn more money. A lot of the decline in low income among lone parents had to do with changing demography. That's the main message there.

Internationally, Canada's relative low-income rate stands in the middle of the pack. We're talking about relative low-income rates here, so it's relative to the median income of that country. When you measure it in that way, which is a standard way of doing it internationally, we have a lower low-income rate overall than do the United States and typically the U.K. quite frequently, but much higher that what we find in most western European countries, and certainly the Nordic countries. We're sort of in the middle of the pack.

As far as what's been happening to the decline among the elderly in low-income rate goes, as was mentioned earlier, that is truly a success story in Canada. Back in the 1970s we had one of the highest low-income rates among the elderly, and we now have one of the lowest internationally. That's an important dimension of that.

The third issue, which I've mentioned, is intergenerational transmission of earnings among poorer families. In the supplementary slides there is slide 13, if you wish to go to it. It asks what will happen to the sons of a father who is in the bottom one-quarter of the earnings distribution--that is part of the one-quarter of the population earning the least--when they become adults. Are they going to find themselves at the bottom of the earnings distribution as well?

What this study found was that about one-third of them will. Of all the sons of the fathers who are in the bottom of the earnings distribution, or the sons who are in poorer families, about one-third of them remain in poorer families when they grow up and start earning money themselves in their early thirties, but the rest move up.

There were two comments here. First, there is more mobility, more movement up the earnings distribution than we expected to see. Second, there is more mobility up the earnings distribution in Canada than we see in the United States or in the U.K. If you're born in a poorer family in Canada, you have a better chance of moving up than would someone in a similar situation in the U.S., for instance. We are sort of in the same ballpark in terms of intergenerational mobility as are the Nordic countries. They have a lot of mobility as well.

There are many mechanisms whereby people move up. One of them is education. A big difference between us and the Americans, for instance, is in terms of education and access to education. If a child grows up in a poorer family in Canada--that is, a family in the bottom one-quarter of the income distribution--the probability of them going to university or college is much higher in Canada than it is in the U.S. That may be part of the reason we see this intergenerational transmission. They're more likely to acquire education, which allows them to move up the income distribution.

At the higher levels, if you come from a richer family, you're more likely to go to university in the United States than you are in Canada. It's the opposite at the top. Since we're concerned with the bottom of the income distribution, that may be part of the story.

I'll leave it there.

[The Vice-Chair, Liberal, Michael Savage]

Thank you very much.