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Policy backgrounder

What poverty reduction advocates should know about the updated poverty measure

Published on 26/02/2020

On February 24, Statistics Canada released the latest results from the Canadian Income Survey – the main dataset we use to track poverty. But this year’s edition also uses an updated version of Canada’s federally adopted poverty line — the market basket measure or MBM — to more accurately reflect the costs of living in Canada today.

So how does the new 2018-base MBM help us better understand poverty in Canada?

Here are some things you should know.

What’s different about the 2018-base MBM?

At its core, the MBM looks at whether or not a family has enough money to pay for a basket of goods that represents a “basic standard of living” in Canada today. If a household’s disposable income is below the cost of the basket, they are in poverty. But the contents of this basket were last updated in 2008, and a lot has changed since then. For example, the basket now includes the cost of cell phone services but wrist watches have been removed.

Why is poverty higher under the new measure?

Poverty is higher under the new measure because the new basket costs more than the old basket. A small component of this is that more things are now required to reach a “basic standard of living.” But it’s mostly because there have been methodological improvements to more accurately measure the cost of things that were already in the basket – notably the cost of housing. The old measure was using rental cost data from the 2006 census which was updated each year in line with inflation. But we know that the cost of housing has risen much more than that. The new measure uses the actual rents households were paying in 2016 as a base (although these amounts are still updated in line with inflation).

Is poverty going up?

No. Poverty is higher under the new MBM (2018-base MBM) because we are using a more accurate measure. You can think of the old MBM (2008-base MBM) as an underestimate. The data that was released on February 24, 2020 shows that poverty is actually still falling. Under the new measure poverty has fallen from 14.5% in 2015 to 11.0% in 2018.

What does this mean for the poverty reduction target?

The poverty reduction target was carefully worded in the legislation to account for the fact that the measure would be improved. Technically, the target is to “halve the poverty rate in 2015 by 2030.” Under the old measure the poverty rate was 12% in 2015, so the target was for it to be less than 6% in 2030. But under the new measure the poverty rate was 14.5% in 2015, and so the target for 2030 is half of that – 7.25%.

What is the new poverty threshold?

It’s complicated. The MBM is designed to account for the different costs of living in different parts of Canada so the value of the basket varies depending on where you live (e.g., the housing costs for a family living in Vancouver will be very different to those for a family living in Fredericton; likewise, travel costs will be different for a family living in Ottawa and a family living in Jasper). Overall, there are 53 different geographies for the MBM. This does not include the territories.

The threshold also varies depending on the size of a household – a family of three needs a bigger basket of goods than a single adult. Statistics Canada published the value of the MBM basket for a family of four in each different geography in Table: 11-10-0066-01. To calculate the threshold for a single adult, multiply that value by 0.5; for a two-person household, multiply it by 0.77; and for a three-person household, multiply it by 0.87.

How should I use the MBM?

Be careful! The MBM is a very complicated measure. (We have barely scratched the surface here.) Statistics Canada strongly advises against providers using the measure to determine if someone is eligible for a particular service. To do that accurately, not only would you need to do some very complicated math, you’d have to ask someone some very personal questions (about a household’s income, taxes paid, child care and health care costs, mortgage costs, and place of residence).

The MBM isn’t designed for that; it’s designed to show the overall level of poverty across a population rather than determine if a particular household is in poverty. We should use the data Statistics Canada publishes for what it’s designed to do – track how poverty is changing in different regions and for different groups. It’s best used to inform poverty reduction efforts.

What does the new data tell us about poverty?

Regardless of what measure you use, the data shows that single working-age adults have one of the highest poverty rates. This group alone represents more than a third of everyone in poverty in Canada. And not only that, the poverty they experience is generally much deeper. This isn’t a new story. While the poverty rates for children, parents, and seniors have fallen, the poverty rate for working-age singles has remained stubbornly high since the 1970s when we started collecting this data. If the federal government is going to reach its poverty reduction target, it needs to change this story.

Summary

Statistics Canada is now using an updated version of the federally adopted poverty measure, the market basket measure (MBM). Here's what you need to know about the new 2018-base MBM.

Topic(s)

Evidence-based policy, Poverty